MEMPHASYS LIMITED. - Annual Report 2007

Annual Report 2007

Redefi ning BioSeparations

Strategy

Growth through acquisition
and increased sales ;
Achieve profi tability on a monthly basis by end of 08 Financial Year.

==> picture [156 x 224] intentionally omitted <==

Distribution

NuSep’s distribution system gives it a competitive edge. Utilising the web, NuSep has established a global distribution system that allows for direct sales and delivery to its BioSeparation customers. Without the need to employ distributors, our system not only lowers costs but puts us in direct contact with our customers. This distribution is centrally controlled from Frenchs Forest and supported by local sales, customer service and logistic functions.

==> picture [166 x 147] intentionally omitted <==

==> picture [63 x 63] intentionally omitted <==

Technology

All NuSep products are based on patented technology. Our novel technology is more than a point of difference; it delivers superior results to our customers.

==> picture [188 x 98] intentionally omitted <==

Customers

NuSep is singularly focused on providing products and services to the BioSeparations market. By focusing on this discrete market segment NuSep has been able to build up a wealth of knowledge about its customers. This allows NuSep to develop products which exceed our BioSeparation customer expectations.

Our Goal

To be the leading Supplier in the BioSeparations market

==> picture [504 x 10] intentionally omitted <==

Page 02 Chairman’s Report

Page 03

Chairman’s Report

Technology

Chairman’s Report Nicholas Caré

Welcome to NuSep’s inaugural Annual Report.

==> picture [72 x 82] intentionally omitted <==

This has been a formative year for the Company as we laid the foundations for sustained growth and profi tability. In just 10 months we have not only established a new and vibrant Company, but also listed on the ASX. Furthermore, we developed and launched the NuBlu gels; established a global distribution network; and started the fi rst clinical trials of the Sperm Sorter. All in all a list of remarkable achievements for such a young company.

The 2007/08 year will see NuSep further establish itself as a serious player in the BioSeparations market. The year will be dominated by a series of proactive promotional campaigns to further increase our gel sales. In addition, the Company will launch the Gradifl ow® based MF10 instrument into the Proteomics market and, subject to a successful conclusion of the current clinical trials, we will undertake the fi nal pre-market clinical trials of the Sperm Sorter in anticipation of its launch in 2009. If successful this product will profoundly infl uence the way in vitro fertilisation is implemented.

Finally, NuSep will assess a number of potential acquisitions to vigorously expand sales and rapidly achieve profi tability. We appreciate that whilst organic growth will increase our sales revenue, astute acquisitions will transform the company into a major player in the BioSeparations market.

While the management team are fi rmly focused on achieving our targets, the paramount short term goal for the board and the organisation is to achieve profi tability by the end of this fi nancial year on a monthly basis.

Our corporate goal is to be the leading supplier in the BioSeparations market. And

the key to this has been the establishment of our own global distribution network. This distribution system enables NuSep to deliver products manufactured in Sydney directly to the end BioSeparation customers in the US, Europe and Australasian markets.

While the Gel products may be the primary sales focus in the short term, NuSep is actively seeking additional products which it can develop, manufacture or acquire to expand our overall product offering. Specifi cally, NuSep is looking to acquire companies and/or products in the monoclonal, bio reagents and separation technology areas.

NuSep also has an active mid-term future. We have acquired a 16% stake in Minomic International a proteomics company. Minomic is developing a number of urine-based diagnostic tests using monoclonal antibodies including one for prostate cancer. NuSep has the fi rst rights to negotiate a manufacturing and marketing agreement for these tests. If successful, the fi rst of these diagnostic tests should be ready to market in 2009.

Secondly, the Sperm Sorter development offers exciting market prospects. It is important to note that the Sperm Sorter offers a number of clinical advantages over

As part of the spin out from Life Therapeutics, all Life Therapeutics shareholders in December 2006 were given one NuSep share for each 20 Life Therapeutics shares they held. This issue of shares did not affect their Life Therapeutics shareholdings.

All NuSep products are based on patented technology. Our novel technology is more than a point of difference; it delivers superior results to our customers.

Distribution

==> picture [47 x 46] intentionally omitted <==

Customers

NuSep is a vibrant and exciting Company which combines the strength of existing products with the prospect of unique high margin products to create shareholder value over the coming years.

the existing techniques used for sperm preparation. These advantages have already created substantial interest from potential customers.

I would also like to thank the management team and all employees of NuSep for their resolute focus on creating a very special company. I am proud to be a part of NuSep and I look forward to meeting you at the Annual General Meeting in November.

The Sperm Sorter represents a signifi cant opportunity for NuSep and will be an important part of the Company’s growth after 2009. It is quite possible that the Sperm Sorter will more than double NuSep’s sales within its fi rst few years on the market.

==> picture [156 x 50] intentionally omitted <==

Nicholas Caré Chairman

NuSep is a vibrant and exciting Company which combines the strength of existing products with the prospect of unique high margin products to create shareholder value over the coming years.

Finally, I would like to thank the members of NuSep’s Board for their hard work during the year and for their commitment to ensure and enhance shareholder value.

Page 04 Managing Director’s Report

Managing Director’s Report John Manusu

==> picture [72 x 82] intentionally omitted <==

It is with great pleasure that I provide this fi rst report to shareholders as Managing Director of your Company. This has been a critical year in which we have built the engine for profi table growth.

The demerger from Life Therapeutics in December 2006 freed us to concentrate on developing NuSep’s core competencies of separation products supplied via our global distribution network to BioSeparation customers. This has involved:

Lifting the gel manufacturing pass rate to a profi table level;
Building our global distribution network
from scratch;
Establishment of a US and Australian
sales force;
Develop and launch the NuBlu gels and;
Commencement of the Sperm Sorter clinical trials.

This represents a signifi cant output for a Company that’s less than 12 months old.

We are understandably proud of our achievements over the last fi nancial year. The fi nancial loss for the period was $4.9 million. This is not a fi gure the board and senior management are happy with, but was expected given the one-off costs associated with our demerger / ASX listing, and the establishment of our global distribution network. The company will address this result by signifi cantly increasing sales revenue in the coming year. To this end, NuSep is committed to achieving breakeven on a monthly basis by the end of this fi nancial year and aims to produce a maiden profi t the following year.

This is no small goal given our fl edgling product portfolio and the signifi cant development costs for our two new separation devices. However, this is a goal that encompasses our growth aspirations, confi dence in our products and determination to achieve market success.

From NuSep’s inception we knew that the Company would have to bring together its unique separation skills and product distribution network to achieve our goal of becoming the leading supplier to the global BioSeparations market. Our global distribution network has been developed and is now a formidable part of our competitive edge. Essentially, the system allows us to directly sell and supply to our BioSeparation customers. The process controls all logistics centrally but employs local fulfi lment and sales nodes in the US and Europe to provide local service. This way, customers receive personal service from a local face and enjoy rapid delivery of their order. Nusep benefi ts by avoiding distributors and maintaining direct ownership of its customers. As a result, we have reduced our distribution costs and delivery times and now receive customer feedback directly. All this enhances our service and product improvement process - the means to cementing our reputation as the specialist in the BioSeparations area. Consequently, we see our distribution process as an important asset for our present business and a linchpin for our future expansion.

NuSep’s Gel products are the key to our short-term profi tability. The NuBlu gel range was launched during the year and sales are starting to build momentum. In conjunction with increased sales power, we have commenced an aggressive marketing program to rapidly increase sales. The fi rst Australian based promotion started in September and the US and European versions will occur in late October. Additional promotional activities are being planned to maintain our sales drive and achieve our goal of monthly profi tability by the end of this fi nancial year.

To expand our sales, we are actively developing new products and evaluating acquisitions. We are pursuing both approaches simultaneously although we

Page 05

Technology

Managing Director’s Report

==> picture [50 x 26] intentionally omitted <==

----- Start of picture text -----

Biological
Products
----- End of picture text -----

All NuSep products are based on patented technology. Our novel technology is more than a point of difference; it delivers superior results to our customers.

Distribution

All products are NuSep’s distribution system gives based on patented it a competitive edge. Utilising technology the web, NuSep has established a global distribution system that allows for direct sales and delivery Global distribution to its BioSeparation customers. with central control Without the need to employ and local delivery distributors, our system not Our products share only lowers costs but puts us in direct contact with Separations a common customer base our customers. This distribution is centrally controlled from Frenchs Forest and supported by local sales, customer service and logistic Gels functions.

Customers

To this end, NuSep is committed to achieving breakeven on a monthly basis by the end of this fi nancial year and aims to produce a maiden profi t the following year

believe the acquisition route offers the best short term value. In particular we will target companies and products in the monoclonal antibody arena. This area complements our separation technology and the products can be sold directly to our BioSeparation customers. All of the targets we are considering will be cashfl ow positive from the date of acquisition.

over the last year. The year’s achievements

are a direct result of their continuing hard work and commitment.

NuSep is a totally transformed company from that which demerged from Life Therapeutics only 10 month ago. This pace of change will only accelerate over the next 12 months. Once again, thank you for your continued support of NuSep. I look forward to providing further reports on our progress throughout the year.

Internally we are developing Gradifl ow instruments and Biological Products based on our unique separation skills. NuSep’s fi rst Gradifl ow device, the MF10, will be launched early in 2008. This will be followed by the Sperm Sorter in 2009. The fi rst Biological Product was produced in July. and additional products will be developed John Manusu over the next year. The Biological Products address niche markets with high margins.

Managing Director

Finally, I would like to thank all of our staff for the exceptional effort they have put in

Page 06

Page 07 Divisional Reports

Divisional Reports

Distribution Channels Direct sales are supported by our newly implemented distribution network which ensures a direct relationship and a high level of customer service. Our direct distribution network is augmented by a few distributors to expand our customer reach.

Gels Promoting Sales Distribution Channels Strategy We have enlarged our sales team to four Direct sales are supported by our newly Increasing Gels sales is the primary sales reps. Three are located in the US strategy for the Division over the next and the fourth works from the Sydney ensures a direct relationship and a high year. The gels are a commodity product offi ce. We expect to appoint a European level of customer service. Our direct where profi tability is directly linked to sales team by the end of this fi nancial distribution network is augmented by a sales volume. Improved manufacturing year. Promotional activities to effi ciency will further reduce the aggressively ramp up gel sales are well reach. breakeven point and to this end the underway. New marketing materials have Company has introduced ‘Six Sigma’ and been produced and attendance at ‘Lean Manufacturing’ techniques. strategic trade shows and conferences is occurring. The fi rst Australian based Product Offering promotion started in September and will In the last year, NuSep launched its be followed in the US and Europe in late NuBlu range designed to open up the October. Additional promotional activities untapped ‘home made’ gels market are planned in order to maintain our sales worth $45 million in the US alone. The growth and achieve our goal of monthly existing iGels range competes in the $55 profi tability by the end of this fi nancial million US pre-cast market as a year. competitively priced premium product.

Company a competitive edge over existing products.

Acquisitions

Biologicals

Strategy

The Biologics Division offers the best potential for expansion. In this regard NuSep is seeking acquisition opportunities that will increase our product portfolio, revenue and profi tability. Target companies are being assessed for their strategic fi t with our present business and ability to accelerate growth. As highlighted, NuSep will target the mAb arena given the value of the market and the wide ranging opportunities to both supply antibodies and manufacture products that utilise monoclonal antibody technology.

The fi rst biological product was launched in July. This is a high margin business and the Company will aggressively expand it via acquisition over the current year. Specifi cally, NuSep is looking to acquire a product portfolio in the monoclonal antibodies (mAbs) fi eld via product licensing and/or company acquisitions.

Product Offering

the Company will aggressively expand The Division will offer a range of biologiit via acquisition over the current year. cal reagents for research use. Our fi rst Specifi cally, NuSep is looking to acquire product, human IgG, is manufactured by a product portfolio in the monoclonal anGradifl ow. It was launched in July 2007 tibodies (mAbs) fi eld via product licensing and will soon be partnered by additional and/or company acquisitions. laboratory reagents such as albumin. We also have the fi rst right to negotiate the Why Monoclonals manufacture of the Minomic International mAbs represent signifi cant market prostate cancer mAb-based diagnostic potential and are relevant to our kit. BioSeparation customers. Further, NuSep’s separation technology offers the

==> picture [502 x 430] intentionally omitted <==

----- Start of picture text -----

Divisional Reports
Gels, Biologicals, Separations
Launch Sperm Sorter in Australia
Complete regulatory process for prostate
cancer diagnostic kitLaunch prostate cancer diagnostic kit in
Complete clinical trials for the prototype
Australia
Sperm Sorter device in IUI applications
Launch MF10
Complete clinical trials of theproduction model Sperm Sorter for IVF
and IUI applications
Commence clinical trials for prostate
cancer diagnostic kitCommence regulatory approval process
for Sperm Sorter
2009
2008
----- End of picture text -----

Separations

source. The instrument will be launched for sale in early 2008.

MF10

Strategy

The MF10 allows the BioSeparation for sale in early 2008. customer to quickly fractionate complex biological samples. The instrument Sperm Sorter offers a unique ability to separate The Sperm Sorter offers exciting biological samples according to both prospects for NuSep as highlighted on size and charge. By comparison, most page 8 of this report. The research was pre-fractionation technologies can only completed in early 2007 and initial clinical separate on the basis of a molecule’s trials are expected to be completed this charge. The product will be marketed as year. If successful, we will seek an adjunct to established protein regulatory approval and anticipate analysis techniques and a viable launching the instrument in 2009. alternative to existing instruments that are more expensive and less fl exible. The MF10 uses membranes and buffer kits creating a second and on-going income

The Separations Division will supply unique laboratory scale separation devices that will generate revenue through instrument sales and on-going sales of consumables.

Product Offering

NuSep has two Gradifl ow based instruments under development. The MF10 will be sold as a pre-fractionation tool for the proteomics market and the Sperm Sorter will be applied to sperm separation as required by fertility treatments such as IVF and IUI.

Page 08 The Sperm Sorter

The Sperm Sorter Gradifl ow Technology in Sperm Separation

sor John Aitken, a specialist in the fi eld of reproductive biology from the University of Newcastle. Professor Aitken was able to demonstrated the Gradifl ow’s ability to isolate and separate high-quality sperm with low levels of DNA damage. As a result of these fi ndings, and with the support of a $2.2m Australian Government Commercial Ready Grant, NuSep decided to commercialise the instrument.

All fertility treatments such as IVF and IUI require a sperm preparation procedure that concentrates and separates sperm. NuSep’s Sperm Sorter utilises Gradifl ow technology to separate sperm and promises new clinical advantages over the conventional methods used.

In Australia, the IVF industry is a big business worth around $170 million with a growth rate of about 10% a year. It is a business that brings much joy to parents unable to conceive naturally. On the downside, only 30% of treatment cycles achieve success for the youngest women being treated with the rate reducing to 7% for women in their forties. Furthermore, recent research indicates that infants conceived by IVF have a higher risk of birth defects. One of the factors thought to be responsible for this is the presence of DNA damage in the fertilising sperm. At present there is no proven technology that is able to differentiate healthy sperm from sperm with high levels of DNA damage.

During 2007, the Sperm Sorter reached its fi rst regulatory milestone. Clinical trials to prove safety and effi cacy of the Sperm Sorter commenced at the Westmead Fertility Centre to assess the impact of the Sperm Sorter on sperm characteristics as well as fertilisation rates. This initial trial is expected to be completed by December 2007 and will be followed by a second trial with IUI patients. The second trial will also evaluate the ability of the system to reduce DNA damaged sperm.

A fi nal production version of the device will be completed by the end of 2007. This incorporates a disposable cartridge and will undergo clinical trials for both IVF and

The potential of Gradifl ow technology in sperm separation was identifi ed by Profes-

==> picture [98 x 95] intentionally omitted <==

fi g 1.

fi g 2.

fi g 2. When ICSI is used for fertilisation, a single sperm is injected directly into the woman’s oocyte (egg).

fi g 1. The membranes in the Sperm Sorter’s separation cartridge act as a sieve to separate and isolate sperm cells from the other constituents of semen.

IUI in early 2008. Subject to successful conclusion of these trials, NuSep will then seek regulatory approval from the TGA. This should occur in time to allow our fi rst sales in 2009.

While the ability to reduce DNA damage is ground breaking, signifi cant market interest has been generated by clinicians due to the shorter separation time and single use cartridge design. These two factors are expected to promote market adoption of the Sperm Sorter even before its impact on sperm quality is verifi ed.

In summary, the Sperm Sorter represents a signifi cant opportunity for NuSep. It is a product that has tremendous market potential on a global level but also one that could signifi cantly infl uence the health and well being of children born from assisted reproductive technologies. NuSep is proud that the Sperm Sorter can combine such meaningful social benefi ts with an exciting commercial opportunity.

Three million IVF babies born worldwide

In 2006, the International Committee for Monitoring Assisted Reproductive Technologies (ICMART) announced that more than 3 million babies have been born using IVF and other assisted reproductive technologies since the world’s fi rst IVF baby was born in 1978.

They also estimated that the total number of assisted reproductive technology cycles undertaken in the world at one million a year, and the number of babies produced around 200,000 a year.

Page 09 Financial Report

Annual Financial Report for the period ended 30 June 2007

Table of Contents Directors’ Report Corporate Governance Statement Income Statement Balance Sheet Cash Flow Statement Statement of Changes in Equity Notes to the Consolidated Financial Statements Directors’ Declaration Auditor’s Independence Declaration Independent Audit Report to the Members Shareholder Information NuSep Ltd and its Controlled Entities ABN 33 120 047 556	10 21 27 28 29 30 31 57 58 59 61

Page 010 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

The Directors submit their report for the consolidated entity consisting of NuSep Ltd and its controlled entities for the period ended 30 June 2007.

Directors

Unless indicated otherwise, the following persons were Directors of NuSep Ltd during the whole of the financial period and until the date of this report:

==> picture [72 x 81] intentionally omitted <==

==> picture [72 x 82] intentionally omitted <==

==> picture [72 x 81] intentionally omitted <==

==> picture [72 x 82] intentionally omitted <==

Names, Qualifications, Experiences, Special Responsibilities and Shareholding	Interest in Shares and Options*
Nicholas Caré Dip. Eng. Non-executive Chairman Non executive Chairman since September 2006. Age 47. Mr Caré has 25 years experience in management, international trade and liaison between private, public and government enterprises. Mr Caré is the CEO/Secretary General of the Italian Chamber of Commerce in Sydney, which is the largest Chamber of Commerce in the world. He is a Committee Member of the SBS Community Advisory Committee (CAC), Board Member of the Assocamerestereo (worldwide Association of Italian Chambers of Commerce) where he represents, along with other representatives of the Italian Government, the CEO’s of the 72 Chambers worldwide. He is Past President of the European Chambers in Australia. He was conferred the title of Cavaliere (a knighthood) in the Order of Merit of the Italian Republic in May 2007. Mr Caré is an Engineer.	44,738 ordinary shares 311,185 share options
John Manusu B.Com, F.Fin. Managing Director, Chief Executive Officer Managing Director since September 2006. Age 48. Mr Manusu has over 20 years experience running biotechnology companies. He has been involved with startups, turnarounds and mature organizations in the biotechnology space. Mr Manusu has undertaken a number of significant acquisitions and divestures, as well as raising over $100 million in public funding and $10 million of peer reviewed government R&D grants. Mr Manusu has a degree in Commerce and is an Fellow of the Financial Services Institute of Australasia. Mr Manusu has worked in the biotechnology industry in Australia and the U.S. and is best described as a biotechnology entrepreneur.	1,447,111 ordinary shares 1,019,668 share options
Dr. Hari Nair BSc (Hons), PhD (Med & Clin Sci), MAIboil, MOIF (Cambridge) Non-executive Director Chairman of Audit Committee Member of Remuneration Committee Non-executive Director since September 2006. Age 50. Dr. Nair has run biotechnology companies both in Australia and the United States. In the last decade, he has been involved in the strategy and implementation of global expansion policies in biotechnology and has been involved in significant capital raisings. Currently non-executive director of Southern US International Bioalliance and the Georgia Biomedical Association. Dr Nair is the CEO of Life Therapeutics Limited. (ASX: LFE).	28,140 ordinary shares 205,000 share options
Dr. Choon H. Lee MBBS (Hons), FRACP, FRCPA Non-executive Director Member of Audit Committee Member of Remuneration Committee Non-executive Director since September 2006. Age 61. Recipient of the Singapore President scholarship, Adelaide University Gold medal, Albert Baikie Award (HSA). Chaired Medical Advisory Committee of Nepean Private Hospital, Chaired Medical Staff Council of Wentworth Health Area, Member of Scientific Advisory Board of Peptech, active in cardiovascular and haematology practice for more than 30 years. Published over 30 papers.	879,800 ordinary shares 393,750 share options

Page 011 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

==> picture [537 x 153] intentionally omitted <==

----- Start of picture text -----

Iain Howard Sorrell HND, LiBiol
Non-executive Director Iain Howard Sorrell HND, LiBiol
Non-executive Director
Chairman of Remuneration Committee
Chairman of Remuneration Committee
Member of Audit Committee
Member of Audit Committee
Non-executive Director since September 2006. Age 50. Mr Sorrell is based in the USA and has over Non-executive Director since September 2006. Age 50. Mr Sorrell is based in the USA and has over 35,648 ordinary 35,648 ordinary
20 years experience in the Life Sciences arena. He has held senior sales and marketing positions in 20 years experience in the Life Sciences arena. He has held senior sales and marketing positions in shares shares
both corporate & start-up businesses both in Europe and the USA. In addition to his extensive both corporate & start-up businesses both in Europe and the USA. In addition to his extensive
knowledge of the separations industry he has also set-up and operated a successful import and knowledge of the separations industry he has also set-up and operated a successful import and 208,625 share 208,625 share
distribution organization in the USA. He is a graduate of the University of Plymouth in Applied distribution organization in the USA. He is a graduate of the University of Plymouth in Applied options options
Biology. In addition to on-going consultative roles he is also actively involved on the board of trustees Biology. In addition to on-going consultative roles he is also actively involved on the board of trustees
for non-profit organizations. He is best recognized for his ability to develop new markets and co-for non-profit organizations. He is best recognized for his ability to develop new markets and co-
ordinate international distribution. ordinate international distribution.
----- End of picture text -----

The directors holding is at the date of this report and includes listed options.
- The directors holding is at the date of this report and includes listed options.

Company Secretary

The Company Secretary is Mr Prakash Patel, CPA. Mr Patel has held the position of Company Secretary since the appointment of the NuSep Board in September 2006. Mr Patel was appointed the Chief Financial Officer of NuSep Ltd in September 2006. Mr Patel has a degree in Commerce, has been a CPA (Certified Practising Accountant) for over 8 years and is an affiliated member of CSA (Chartered Secretaries Australia).

Meetings of Directors

The following table sets out the numbers of meetings of the company’s Board of Directors and meetings of each Board committee held during the year ended 30 June 2007 and the number of meetings attended by each Director.

Director	Full meetings of	Full meetings of	Meetings of committees	Meetings of committees	Meetings of committees	Meetings of committees
	Directors		Audit		Remuneration
	A	B	A	B	A	B
Nicholas Caré	6	6	-	-	-	-
John Manusu	6	6	-	-	-	-
Dr Hari Nair	6	6	-	-	-	-
Dr Choon Lee	6	6	-	-	-	-
Iain Howard Sorrell	6	6	-	-	-	-

A = Number of meetings attended

B = Number of meetings held during the time the Director held office or was a member of the committee during the year. As this was the first year of trading, there were no Audit or Remuneration Committee meetings held.

CORPORATE INFORMATION

Corporate Structure

NuSep Ltd is a company limited by shares, incorporated and domiciled in Australia with its registered office at 22 Rodborough Rd, Frenchs Forest, NSW 2086. It has prepared a consolidated financial report incorporating the entities it controlled during the financial year. Refer to note 26 for the list of entities it controlled during the financial year.

All press releases, financial reports and other information are available on our website at www.nusep.com

Principal Activities

During the year the principal continuing activities of the consolidated entity consisted of the development, manufacture and sale of separations equipment and consumables for the Life Science market.

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

Employees

The consolidated entity employed 29 employees as at 30 June 2007 .

Dividends

No dividends were paid during the year and no dividend is recommended.

Page 012 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

REVIEW OF OPERATIONS

This has been the first year of operations for NuSep post its demerger from Life Therapeutics Limited in 2006. For the period the company has reported a loss of $4.9m, with revenues of $0.9m.

Incorporated in this loss are a number of one-off expenses during the year relating to the demerger process and costs related to the delayed listing on the ASX. Overall the operational results for the period have been inline with company expectation for its first year of operations.

The company has completed the rollout of its global distribution channel, with NuSep distribution locations now established in Europe, USA and Australia. The Gels manufacturing is continuously being improved and a US sales force has been employed to actively market our products into our key global markets. The company has also commenced the first clinical trials of the Sperm sorter project under the $2.2m Australian Federal Government Commercial Ready grant.

NuSep has taken a 16.5% equity stake in Minomic International Pty Ltd and has also entered into an agreement with Minomic to negotiate a licence agreement to manufacture and market their diagnostic kits. The lead product covered by this agreement is a urine test for prostate cancer.

Operating results for the year

A summary of consolidated revenues and results by significant business segment is set out below:

Gels Biologicals Separations Corporate & Shared Services Total	Segment revenues For the period ended 30 June 2007 $’000 418 240 133 60 851	Segment results For the period ended 30 June 2007 $’000 (1,676) 148 (854) (2,565)
		(4,947)

Gels

NuSep manufactures a range of gels under the iGels brand to address the existing US$55 million market. In June the Company launched the NuBlu range of gels to open up the untapped ‘homemade’ gels market which is estimated to be worth a further US$45 million. The Company completed the recruitment of its sales force in July with three new reps in the US and one in Australia. Plans for an aggressive promotional campaign are underway.

Biologicals

The Biological products area offers NuSep the greatest potential return as it enables the Company to open up new BioSeparation markets by leveraging off its separation expertise, and particularly the Gradiflow technology. Our first Gradiflow manufactured product is human IgG, which was launched in July 2007. Additional plasma products will be released later this year.

NuSep is now expanding into the manufacture and purification of monoclonal antibodies. Monoclonals are a logical product extension from biological products as they fit within our production capabilities, distribution system and customer base. Furthermore, this is a significant market as approximately one quarter of all biotechnology products in development are based on monoclonal antibodies. NuSep is actively exploring licensing/acquisition opportunities in this area.

Page 013 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

Separations

NuSep has two laboratory-based, separation devices in its development pipeline. Both are based on Gradiflow technology.

The ‘Sperm Sorter’ is a device that separates sperm from seminal fluid, an essential pre-requisite to In Vitro Fertilization (IVF), Inter-Uterine Insemination (IUI) and Intra Cytoplasmic Sperm Injection (ICSI) procedures in the Assisted Reproductive Technologies (ART) market. The Sperm Sorter is supported by a $2.2 million grant under the Australian Government’s Commercial Ready program for research and commercialisation activities. The Sperm Sorter project is expected to be completed by December 2008. Initial clinical trials for the Sperm Sorter have commenced at Westmead Hospital in Sydney. The purpose of the trial is to determine the safety and efficacy of the Sperm Sorter as a sperm preparation technique for IVF treatment
The MF10 separation instrument is a variation of the Sperm Sorter that will be used to separate proteins, enzymes and other biological materials. In particular the MF10 will be sold to the growing proteomics market. Proteomics is the study of protein structures and functions and is frequently used to identify proteins that can predict disease states or be applied to new drugs. The MF10 is expected to be launched for sale in early 2008.

Corporate & Shared Services

Corporate & Shared services include the expenses relating to Corporate Overhead Costs and interest income. A number of oneoff expenses occurred this year, particularly related to the demerger and then the process of listing on the ASX. Also included are share-based payments and the Frenchs Forest building rental.

Likely Developments and Expected Results of Operations

Further information on likely developments in the operations of the consolidated entity and the expected results of operations have not been included in this report because the Directors believe it would be likely to result in unreasonable prejudice to the consolidated entity.

Significant Change in State of Affairs

Significant changes in the state of affairs of the consolidated entity during the financial year were as follows:

On 23rd March 2006 Life Therapeutics advised shareholders of the decision to spin out the Gels and laboratory Gradiflow business into a separate business as these businesses didn’t fit its overall business goal.

The demerger process involves the transferring to each Life Therapeutics shareholder, of 1 NuSep Ltd share for each 20 shares held by the shareholder in the capital of Life Therapeutics Ltd. As a consequence, Life Therapeutics transferred to its shareholders at record date 7 December 2006 4,934,592 of ordinary fully paid shares in the capital of NuSep based on the pro rata, no payment was required from Shareholders for this distribution. The return of capital was approved by shareholders at the Life Therapeutics AGM held on 30 November 2006.

As part of this process the company transferred all of the Australian assets that were previously held by Life Therapeutics, including the Gels and Sperm Sorter Technology, to the newly established public company, NuSep Ltd.

In February 2007 the Company completed the Rights issue under the IPO prospectus dated 14 December 2006 and raised over $2.7m. NuSep listed on the ASX on 14 May 2007.

Earnings Per Share	2007
	Cents
Basic (loss) per share	(62.3)
Diluted (loss) per share	(62.3)

Page 014 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

The following events occurred subsequent to 30 June 2007:

a) The Company released on 8th August 2007 a Short Form Prospectus for the Share Purchase Offer for up to 90.3million shares at an issue price of 25 cents per Share to shareholders to raise up to $22.6millon. This included the Unmarketable Parcel Sale Facility to reduce the number of small shareholders.
b) The Company on 12th September 2007 announced that it has raised over $2.77m under the Share Purchase Offer (SPO) that closed on 10th September 2007. The SPO shares will be issued post the EGM on 25th September 2007. Once these shares have been issued the Company will have a total issued capital of approximately 21.7m ordinary shares.

Except for the items discussed above no other matters or circumstances have arisen since 30 June 2007 that have significantly affected, or may significantly affect:

(a) The consolidated entity’s operations in future financial years, or (b) The results of those operations in future financial years, or ;

SHARE OPTIONS

Unissued Shares

As at the date of the report there were 4,881,045 unissued ordinary shares under option. This consisted of 1,431,045 listed options (refer to note 20(d)) and 3,450,000 unlisted options (refer to note 20(e)).

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

ENVIRONMENTAL REGULATION AND PERFORMANCE

The consolidated entity has assessed whether there are any particular or significant environmental regulations which apply. It has determined that the risk of non-compliance is low and has not identified any compliance breaches during the year.

INDEMNIFYING DIRECTORS AND OFFICERS

During the financial year, NuSep paid a premium of $21,877 to insure the Directors and Officers of the Company and its controlled entities.

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of entities in the consolidated entity, and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

PROCEEDING ON BEHALF OF THE COMPANY

No person has applied to the Court under section 237 of the Corporations Act 2001 for leave to bring proceedings on behalf of the Company, or to intervene in any proceedings to which the Company is a party, for the purpose of taking responsibility on behalf of the Company for all or part of those proceedings.

No proceedings have been brought or intervened in on behalf of the Company with leave of the Court under section 237 of the Corporations Act 2001 .

ROUNDING OF AMOUNTS

The amounts contained in the financial report have been rounded to the nearest $1,000 (where rounding is applicable) under the option available to the company under ASIC Class Order 98/100. The company is an entity to which the Class Order applies.

Page 015 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

REMUNERATION REPORT

Principles used to determine the nature and amount of remuneration The objective of the Company’s executive reward framework is to ensure reward for performance is competitive and appropriate for the results delivered. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and confirms with market best practice for delivery of reward. The Board Remuneration Committee evaluates the executive directors and the CEO reviews the senior executive team. In general the Board and specifically the Remuneration Committee ensures that executive reward satisfies the following key criteria for good reward governance practices:

♦ Competitiveness and reasonableness
♦ Acceptability to shareholders
♦ Performance linkage/alignment of executive compensation
♦ Transparency
♦ Capital management

The Company has structured an executive remuneration framework that is market competitive and complimentary to the reward strategy of the organisation. Specifically the remuneration policy has been structured to provide:

Alignment to shareholders’ interest:

♦ Has economic profit as a core component of plan design ♦ Focuses on sustained growth in share price and delivering constant return on assets as well as focusing the executive on key non financial drivers of value
♦ Attracts and retains high calibre executives

Alignment to program participants’ interest:

♦ Rewards capability and experience
♦ Reflects competitive reward for contribution to shareholder growth
♦ Provides a clear structure for earning rewards
♦ Provides recognition for contribution

The framework provides a mix of fixed and variable pay, and a blend of short and long term incentives. As executives gain seniority with the group, the balance of this mix shifts to a higher proportion of “at risk” rewards.

Director Remuneration additional points There are no employment agreements or consultancy agreements between non executive Directors and the Company. The Board does not have any termination payments, other than statutory entitlements for retiring non-executive Directors.

On 1st January 2007 the executive director Mr John Manusu signed a 3 year employment contracts. This contract includes , , . employment terms, performance clauses and termination payments.

Employment contracts

The CEO, Mr Manusu, is employed under contract. The current employment contract commenced on 1st January 2007 and terminates on 31st December 2009. The Company shall commence discussion on renewal of the contract, one (1) year prior to the expiration of the initial term. Under the terms of the current contract:

Mr Manusu may resign from his position and thus terminate this contract by giving 4 weeks written notice. On resignation any options will be forfeited.
Mr Manusu is entitled to resign from his position and terminate this contract due to the occurrence of a purchase, takeover, or merger by giving seven (7) days written notice no later than 90 days after the date of sale or transfer of the Company. Where he elects to terminate this contract due to takeover Mr Manusu is entitled to the higher of: a) The balance of the salary payable in respect of the unexpired portion of this contract; or b) 2 years’ salary (based on the fixed component then being paid under this contract)
• For reasons of illness or bankruptcy, the Company may terminate this agreement by providing one (1) months’ written notice or provide payment in lieu of the notice period (based on the fixed component of Mr Manusu’s remuneration).
The Company may terminate this contract for whatever reason other than serious misconduct (such as redundancy), with or without notice. In this event, the CEO is entitled to the higher of:

Page 016 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

a) The balance of the salary payable in respect of the unexpired portion of this contract; or b) 2 years’ salary (based on the fixed component then being paid under this contract)

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

The CFO, Mr Patel, is employed under contract. The current employment contract commenced on 1st January 2007 and terminates on 31st December 2009. The Company shall commence discussion on renewal of the contract, one (1) year prior to the expiration of the initial term. Under the terms of the current contract:

Mr Patel may resign from his position and thus terminate this contract by giving 4 weeks written notice. On resignation any options will be forfeited.
Mr Patel is entitled to resign from his position and terminate this contract due to the occurrence of a purchase, takeover, or merger by giving seven (7) days written notice no later than 90 days after the date of sale or transfer of the Company. Where he elects to terminate this contract due to takeover Mr Patel is entitled to the higher of:
a) The balance of the salary payable in respect of the unexpired portion of this contract; or b) 2 years’ salary (based on the fixed component then being paid under this contract)
For reasons of illness or bankruptcy, the Company may terminate this agreement by providing one (1) months’ written notice or provide payment in lieu of the notice period (based on the fixed component of Mr Patel’s remuneration).
The Company may terminate this contract for whatever reason other than serious misconduct (such as redundancy), with or without notice. In this event, the CEO is entitled to the higher of:
a) The balance of the salary payable in respect of the unexpired portion of this contract; or b) 2 years’ salary (based on the fixed component then being paid under this contract)
The Company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs the CFO is only entitled to that portion of remuneration which is fixed, and only up to the date of termination. On termination with cause any unvested options will immediately be forfeited.

Non Executive Directors

Fees and payments to non executive Directors reflect the demands which are made on, and the responsibilities of, the Directors. Non Executive Directors fees and payments are reviewed annually by the Board. The Board also has agreed to the advice of independent remuneration consultants to ensure Non Executive Directors’ fees and payments are appropriate and in line with the market. The Chairman’s fees are determined independently to the fees of Non Executive Directors based on comparative roles in the external market. The Chairman is not present at any discussions relating to determination of his remuneration. Non Executive Directors may opt each year to receive a percentage of their remuneration in NuSep Ltd shares, which would be acquired on market.

Directors’ Fees

The current base remuneration was last reviewed effective 11 September 2006. Non Executive Directors’ fees are determined within an aggregate fee pool limit, which is periodically recommended for approval by shareholders. The maximum non executive Directors fee pool limit is $250,000 per year.

Retirement Allowance for Directors

In line with recent guidance on Non Executive Directors’ remuneration, the Board has resolved not to have any retirement allowances for Non Executive Directors.

Page 017 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

Executive Pay

The executive pay and reward framework has four components:

♦ Base pay and benefits
♦ Short term performance incentives
♦ Long term incentives
♦ Other remuneration such as superannuation.

The combination of these comprises the executive’s total remuneration. The Company also has long term equity linked to their performance incentives.

Base Pay

Structured as a total employment cost package which may be delivered as a mix of cash and prescribed non financial benefits at the executives’ discretion.

Executives are offered a competitive base pay that comprises the fixed component of pay and rewards. External remuneration consultants provide analysis and advice to ensure base pay is set to reflect the market for a comparable role in a similar sized biopharmaceutical company to the Remuneration Committee for its consideration. Base pay for senior executives is reviewed annually to ensure the executive’s pay is competitive with the market.

Retirement Benefits

Retirement benefits are delivered under the NuSep employee superannuation fund.

Short Term Incentives

It is planned that should NuSep achieve a non financial and bottom line target set by the remuneration committee, then a pool of short term incentives (STI) will be available for executives to allocate during the annual review. Under the planned scheme, cash incentives (bonuses) are payable in cash during September each year. Using the above targets will ensure rewards are only available when value has been created for shareholders and when the results are consistent with the business plan. The incentive pool is to be leveraged for performance above the threshold to provide an incentive for executives to out perform their budgets. The incentive is designed to represent a significant percentage of the executives salary, up to 50% in any one year.

Each executive is to attract a target STI opportunity depending on the accountabilities of the role and impact on the organisation or business unit performance.

Each year, the remuneration committee considers the appropriate targets and key performance indicators (KPIs) to link the STI plan and the level of payout if targets are met for the executive directors. The CEO conducts the same assessment in conjunction for the senior executive team. These KPI’s and linked STI will be reviewed by the remuneration committee. This includes setting any maximum payout under the STI plan, and minimum levels of performance to trigger payment of STI.

KPIs linked to short term incentive plans will be based on group, individual business and personal objectives. The KPIs will require performance in increasing sales, reducing operating costs and achieving specific targets in relation to return on assets and economic value added (EVA), as well as other key, strategic non-financial measures linked to drivers of performance in future reporting periods.

The short term bonus payments may be adjusted up or down in line with under or over achievement against the target performance levels. This is at the discretion of the remuneration committee. The STI targets and bonuses are reviewed annually.

Long Term Incentives

The objective of the Company to reward senior management in a manner which aligns elements of remuneration with the creation of shareholder wealth. The long term incentive grants to executives are delivered in the form of share options.

Details of Remuneration

Details of the nature and amount of each element of the emoluments of each Director of NuSep Ltd and specified executive of the Company and the consolidated entity with the highest authority levels for the year ended 30 June 2007 are set out in the following tables.

Page 018 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

Directors of NuSep

ectors of NuSep
2007	Short-Term			Post-employment		Share based payments
Name	Cash Salary and Fees $	Bonus $	Consulting fees and other benefits $	Super- annuation $	Retirement Benefits $	Options $	Total $	% perfom ance related
Nicholas Caré John Manusu Dr Hari Nair Dr Choon Lee Iain Howard Sorrell	23,333 205,414 16,666 16,666 16,666	- - - - -	- - - - 4,993	-	-	5,175	28,508 227,670 20,116 20,116 25,109	- - - - -
				8,456	-	13,800
				-	-	3,450
				-	-	3,450
				-	-	3,450
Total	278,745	-	4,993	8,456	-	29,325	321,519

The amount of options remuneration is determined on a pro rata basis, by amortising the fair value estimate of each option over the vesting period and the individual option grant.

Senior Executive Employment Agreements

All of NuSep senior executive team have been offered employment contracts. These contracts include employment terms, remuneration, performance clauses and termination payments. Under the general terms of the current executive contracts:

the executive may resign from their position and thus terminate the contract by giving 4 weeks written notice. On resignation any options will be forfeited.
the agreement will automatically terminate unless the agreement is renewed by the parties, in writing, prior to the expiration of the initial term. Employee’s employment will automatically continue on an at-will basis on the same terms here-in, meaning that it may be terminated at any time, by either party, with or without cause and with or without notice.

Executives of NuSep

ecutives of NuSep
2007	Short-Term			Post-employment		Share based payments
Name	Cash Salary $	Bonus $	Non- monetary benefits, and Allowances $	Super- annuation $	Retirement Benefits $	Options $	Total $	% perform ance related
Prakash Patel Dr Greg Rogers Dr John Andrews Brian Ayling	83,333 110,000 79,206 74,888	-	-	7,500	-	5,175	96,008	- - - 8.69%
		-	-	8,456	-	3,124	121,580
		-	-	7,128	-	3,124	89,458
		8,487	5,836	6,938	-	1,481	97,630
Total	347,427	8,487	5,836	30,022	-	12,904	404,676

The amount of options remuneration is determined on a pro rata basis, by amortising the fair value estimate of each option over the vesting period and the individual option grant.

Prakash Patel is Chief Financial Officer and Company Secretary. Dr Greg Rogers is Director of Operations. Dr John Andrews is Chief Scientific Officer.

Brian Ayling is VP Sales and commenced employment on 1 January 2007.

Share options granted to Directors and the specified executives

Share options were issued during the year to the Directors and executives with the highest authority levels of NuSep and consolidated entity as part of their remuneration. These options and the terms are outlined in table below.

Page 019 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

The fair value of each option is estimated on grant date using Black-Scholes option pricing model, with the following assumptions used:

2007 Dividend yield 0% Risk-free interest rate 6.03% - 6.09% Historical volatility 45% Expected volatility 45% Expected option life 2 - 5 years

Shares Under Option

The number of options over ordinary shares in NuSep issued to directors and executives during the year is as follows:

Directors

ectors
2007	Balance at start of year	Granted as remunerat ion	Exercised during the year	Lapsed during the year	Balance at end of the year	Exercisable	Non Exercisable
Nicholas Caré John Manusu Dr Hari Nair Dr Choon Lee Iain Howard Sorrell	-	300,000	-	-	300,000	100,000	200,000
	-	800,000	-	-	800,000	266,667	533,333
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
Total	-	1,700,000	-	-	1,700,000	566,668	1,133,332

Executives

ecutives
2007	Balance at start of year	Granted as remunerat ion	Exercised during the year	Lapsed during the year	Balance at end of the year	Exercisable	Non Exercisable
Prakash Patel Dr Greg Rogers Dr John Andrews Brian Ayling	-	300,000	-	-	300,000	100,000	200,000
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
Total	-	900,000	-	-	900,000	300,001	599,999

CORPORATE GOVERNANCE

In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of NuSep Ltd support and have adhered to the principles of corporate governance. The company’s corporate governance statement is contained in the following section of the annual report.

AUDITOR’S INDEPENDENCE DECLARATION

We have received the independence declaration from the auditor of NuSep Ltd, RSM Bird Cameron, a copy of which is included on page 51 of the financial report. 58

NON- AUDIT SERVICES

The following non-audit services were provided by the entity’s auditor RSM Bird Cameron. The Directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The nature and scope of each type of non-audit services provided means that auditor’s independence was not compromised.

RSM Bird Cameron received or are due the following amounts for the provision of non-audit services at 30 June 2007:

Independent Accountants report $7,000.

Page 020 Financial Report

NuSep Ltd and its Controlled Entities

Directors’ Report

Refer to note 22 of the financial statement for details of the remuneration that RSM Bird Cameron received or are due to receive for the provision of audit or other services.

This report is made in accordance with a resolution of the Board of Directors.

==> picture [77 x 34] intentionally omitted <==

Nicholas Carè Chairman Sydney 28 September 2007

Page 021 Financial Report

NuSep Ltd and its Controlled Entities

CORPORATE GOVERNANCE STATEMENT

The Directors of NuSep are committed to achieving and demonstrating the highest standards of corporate governance. The Directors have noted carefully the guidelines on the principles of corporate governance issued by the Australian Stock Exchange Limited (“ASX”) in March 2003, the ASX guideline issued on 31 March 2004 and the ASX Corporate Governance Council guidance on principle 7 and support their intent. The Company’s framework is largely consistent with the recommendations and exceeded them in some areas. Changes have been made to the Company’s governance arrangements to further refine and align the Company’s Corporate Governance with the ASX 10 point guidelines. The Company and its controlled entities together are referred to as the NuSep Group in this statement.

The relationship between the Board and the senior management is critical to NuSep’s long term success. The Directors are responsible to the shareholders for the performance of NuSep in both the short and the longer term and seek to balance these sometime competing objectives in the best interests of NuSep as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure NuSep including its controlled entities are properly managed.

Day to day management of the Group’s affairs and the implementation of the corporate strategy and policy initiatives are formally delegated by the Board to the Chief Executive Officer (CEO) and the Chief Financial Officer (CFO) as set out in the Board Charter. These delegations are reviewed on an annual basis.

A description of NuSep main Corporate Governance practices are set out below. All of these practices, unless otherwise stated, have been in effect throughout the last financial year. NuSep has used the ASX 10 Corporate Governance principles as a framework against which to report its Corporate Governance principles.

1. Lay solid foundations for management and oversight

The NuSep Board Charter and Corporate Governance Guidelines states in section 3.3 that the Company “Recognise the need for a clear division of the roles between the executive and non executive Board members”.

The Board has adopted a formal charter that sets out the responsibilities reserved by the Board and those delegated to the Managing Director/CEO. The charter is reviewed annually to ensure it remains consistent with accepted practice in the context of the Board’s objectives and responsibilities.

Specifically, the Board is charged with: setting the strategic direction of the organisation and monitoring management’s performance within that framework; reviewing whether there are adequate resources available to meet Group objectives; appointing and removing the Managing Director and overseeing succession plans for the senior executive team; approving and monitoring financial reporting and capital management; approving and monitoring the progress of business objectives; assessing the risk management framework and whether appropriate procedures are being followed; ensuring that the Group has appropriate corporate governance structures in place including standards of ethical behaviour and promoting a culture of corporate and social responsibility; and monitoring whether the Board is appropriately skilled to meet the changing needs of the company. The Board and its sub committees have no involvement in the operational role of the organisation.

The roles of Chairman and Managing Director are separated and the Managing Director may not become Chairman.

The Chairman is responsible for leading the Board in its duties, facilitating effective discussions at board meetings and ensuring procedures are in place to evaluate board performance. The Managing Director is responsible for the efficient and effective operation of the organisation, and for bringing material and other relevant matters to the attention of the Board in an accurate and timely matter.

2. Structure the board to add value

The NuSep Board Charter and Corporate Governance guideline states in section 4.1 that the Company “ shall have a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties”.

Skills

A fundamental requirement of NuSep Directors is an understanding of the markets that the Company services. All Directors meet this threshold requirement. They also bring a diverse range of skills and backgrounds including accountancy, clinical trial, drug development, process development and international business skills. The Board consists of five Directors (four nonexecutive and one executive). The experience and qualifications of each Director and their terms of office are further discussed on pages 3-4 and pages 8-12. 10-11 and pages 15-19

Page 022 Financial Report

NuSep Ltd and its Controlled Entities

Experience

The Directors have an appropriate mix of tenure, blending experience with new membership. The Board considers this mix invaluable. NuSep’ business involves, converting the Company from an Australian based manufacturing and research organisation into the leading supplier to the BioSeparations market. Experience in mergers & acquisitions, managing cross border business, international licensing, joint ventures and manufacturing in the BioSeparations field is highly desirable. Such experience and judgment is required for effective decision-making. The Board considers that these Directors continue to exercise independent judgment in the task of enhancing shareholder value.

Appointment and removal

Board succession planning is considered an important part of the governance process. Progressive and orderly renewal of board membership is important. The appointment and removal of Directors is governed by the constitution, and by sections 4 & 5 of the Board Charter. The Board has not adopted a specific tenure threshold.

Independence

The Board has adopted a policy that a majority of its Director’s must be independent using the definition of independence from the Guidelines which is set out below.

An independent Director is a non-executive Director and:

♦ Is not a substantial shareholder of the company or an officer of, or directly or indirectly associated with, a substantial shareholder of the company;
♦ Within the last three years has not been employed in an executive capacity by the company or another group member, or been a Director after ceasing to hold any such employment;
♦ Within the last three years has not been a principal of a material professional adviser or a material consultant to the company or another group member, or an employee materially associated with the service provided;
♦ Is not a material supplier or customer of the company or other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer;
♦ Has no material contractual relationship with the company or another group member other than as a Director of the company;
♦ Has not served on the Board for a period which could, or could reasonably be perceived to, materially interfere with the Director’s ability to act in the best interests of the company;

The Board employs a materiality threshold in judging whether customer, supplier, consultant, shareholder or professional adviser relationships affect the independence of NuSep Directors.

The Board has adopted AASB standard 1031 to determine levels of materiality. A relationship is presumed immaterial when it represents less than 5% of NuSep issued capital or group revenue, and presumed material when it generates more than 10% of issued capital or group revenue during a twelve-month period in the absence of evidence or convincing argument to the contrary. In considering such evidence or argument NuSep considers the strategic value and other material but non-quantitative aspects of the relationship in question.

The Board has considered each relationship between its non-executive Directors and any shareholder, customer, supplier, consultant or professional adviser to NuSep. The Board has determined that none of these past or present relationships of Directors breaches the materiality threshold or otherwise compromises the independence of Directors.

The threshold for the purpose of assessing the materiality of relationships between a non-executive Director and NuSep (other than as a Director) is set according to the significance of that relationship to the Director in the context of their activities as a whole. No Director has a relationship considered significant enough to compromise their independence on the NuSep Board.

A list of each Director’s commitments outside NuSep is set out on pages 3 and 4 of this report. A brief analysis of each non-10 & 11 executive Director’s relationships with entities that have an association with NuSep is provided on the following page.

Chairman, Mr Nicholas Caré – non-executive Director. Mr Caré has no commercial association with any customer to NuSep. Mr Caré does not supply any consultancy or other professional services to NuSep. Mr Caré is not a substantial shareholder in NuSep.
Dr Hari Nair- non-executive Director. Dr Nair has no commercial association with any customer to NuSep. Dr Nair is the CEO of Life Therapeutics Limited a company which supplies diagnostic products to NuSep. The total level of these transactions is insignificant to both companies and does not constitute a conflict of interest. Further Dr Nair does not supply any consultancy or other professional services to NuSep. Dr Nair is not a substantial shareholder in NuSep.
Dr Choon Lee - non-executive Director. Dr Lee has no commercial association with any customer or supplier to NuSep. Dr Lee is a substantial shareholder in NuSep.

Page 023 Financial Report

NuSep Ltd and its Controlled Entities

Mr Iain Howard Sorrell - non-executive Director. Mr Sorrell has no commercial association with any customer or supplier to NuSep. Further Mr Sorrell provided consultancy services of less than $5,000 to NuSep during the period. Mr Sorrell is not a substantial shareholder in NuSep.

At each meeting of the Board, Directors table their current outside interests, if any. If it was considered that a Director had a material potential conflict, it would be noted and where appropriate the relevant Director absents himself or herself for that specific item of business. That decision is minuted. No such event has occurred during the last year.

Board Committees

The Board has established two committees, an Audit Committee and a Remuneration Committee. These committees have been established to assist the Board perform its duties. Each committee is constituted in accordance with a charter. These committees meet to discuss issues delegated to them and then make recommendations back to the Board. The Board considers these recommendations, but is not bound to accept the recommendations of the committees. The establishment of and delegation of tasks to the committees does not dilute the responsibilities of the Board as a whole.

The Nomination and Remuneration Committee of the Board comprises the independent non-executive Directors. The Committee’s responsibilities cover all the matters recommended in the Guidelines, which included setting Director competence standards, reviewing succession plans, evaluating the Board’s performance, making recommendations for the appointment and removal of Director’s, making recommendations to the Board on executive director remuneration and incentive policies and the remuneration packages of non-executive directors. The committee also reviews NuSep recruitment; retention and termination policies; incentive schemes; superannuation arrangements and other Company remuneration policies. The Nomination and Remuneration Committee leads the process of selecting new Directors for consideration by the whole Board.

Directors are required to advise the Chairman, Mr Nicholas Caré, before accepting additional external directorships and give assurance that any new responsibilities will not interfere with the proper execution of their responsibilities to NuSep.

The Audit Committee is discussed below under point 4 on the next page.

Membership of the Board’s committees and attendance by Directors at meetings is outlined on pages 3 and 4. 10 and 11.

Independent advice

NuSep Directors may seek external professional advice at the expense of the company on matters relating to their role as Directors of NuSep. However, they must first request approval from the Chairman which must not unreasonably be withheld. If permission is withheld the matter may be referred to the whole Board. No such request was made during the last year.

3 Promote ethical and responsible decision-making

NuSep Board Charter and Corporate Governance Guidelines states in section 1.1 that Directors “ seek to ensure that NuSep operates ethically, safely and profitably in the interest of all stakeholders ”.

Code of Ethics and Conduct

NuSep’ Board Charter promotes ethical and responsible decision-making by Directors and employees. The Charter requires high standards of honesty, integrity, fairness and equity in all aspects of employment with NuSep. The Charter also sets the task for management of delivering shareholder value, with the oversight of the Board, through the sustainable and efficient operation of the company. Specific obligations regarding fitness for office also apply to NuSep Directors and management by virtue of its role as a developer, a manufacturer and supplier of medical devices, diagnostic products, and potentially therapeutic products. NuSep has comprehensive policies and procedures in place for observing these requirements.

Employees sign acceptance of this code of ethics as part of their employment with NuSep.

Share Dealing Rules

NuSep also has formal Share Dealing Rules that set the parameters for dealing in the securities of NuSep and prohibit insider trading. While Directors and employees are encouraged to be long term shareholders in NuSep, the company has a policy on insider trading to prohibit short term trading.

The policy provides that Directors can only trade in the eight weeks following the announcement of the company’s half and full year results and the eight weeks following the AGM. Share transactions at other times can only be undertaken with the Chairman’s written approval.

Corporate Governance Education

All of NuSep corporate governance policies are available to staff on NuSep internal and external websites. To increase awareness and understanding of all these policies, NuSep incorporated a corporate governance section into the established induction program for new employees.

Page 024 Financial Report

NuSep Ltd and its Controlled Entities

4. Safeguard integrity in financial reporting

NuSep Board Charter and Corporate Governance Guidelines states in section 7.3.3 that the Audit Committees’ role is to “ establish and maintain a structure to independently verify and safeguard the integrity of the Company’s financial reporting ”.

NuSep believes its practices satisfy this principle.

NuSep has a highly structured six-monthly reporting process, culminating in Board sign-off and release of financial results to the market. Further, the Chief Executive Officer and Chief Financial Officer provide letters of assurance to the Board for each half-year and full-year result.

NuSep Audit Committee is constituted in accordance with the Guidelines, and its responsibilities and composition requirements are set out in the Audit Committee Charter.

The Audit Committee’s primary responsibilities are to establish and maintain a structure to independently verify and safeguard the integrity of the company’s financial reporting. In addition the committee reviews NuSep financial and external reporting; review and assess the external auditors’ activities, scope and independence; review the management processes for the identification of significant business risks and exposures and oversee the monitoring of internal control structures, including controls against conflicts of interest and fraud. The Committee also has specific responsibility for recommending the appointment or dismissal of external auditors and monitoring any non-audit work carried out by the external audit firm. The procedures for appointment of an external auditor are outlined in the charter. No Director has any association, past or present, with NuSep external auditor.

Dr Hari Nair is the Chairman of the Audit Committee. The Audit Committee consists of all the non-executive directors and the CFO reports to this committee, although is not a member of the committee. The Committee may meet whenever necessary, and subsequently relays a summary of discussions and any significant matters arising to the Board followed by meeting minutes.

External audits

NuSep is scrutinized and audited by government, regulators, customers and investors. We view this scrutiny as a further validation of our efforts to maintain and promote the integrity of our markets, as well as the prudential operation of our systems.

During the period NuSep underwent two ISO and two supplier audits. These audits are undertaken in order to provide assurances to the market regulators and NuSep customers regarding the operational integrity of NuSep systems and processes.

The external auditor, RSM Bird Cameron, under the scrutiny of the Audit Committee, presently conducts the financial regulatory audits in return for reasonable fees. No changes were made to the Audit Committee charter during the year.

5 Make timely and balance disclosure

NuSep Board Charter and Corporate Governance Guidelines states in section 20.1 that the Company “ will at all times provide timely and balanced disclosure of all material matters concerning the Company to its stakeholders ”.

NuSep fulfills its disclosure responsibilities absolutely and is proud of its disclosure record.

NuSep endeavours to keep stakeholders informed of developments through its quarterly newsletters. NuSep also offers all stakeholders the opportunity to receive announcements via email once they have been disclosed to the ASX.

The Senior Executives have ultimate authority and responsibility for approving market disclosure, which in practice is exercised in consultation with the Chairman. The Board reviews public announcements at each meeting, and considers disclosure obligations in the context of each item of business which comes before it.

NuSep considers its disclosed discussion of financial results meets the standards outlined in the Guidelines. This disclosure includes availability of materials on the NuSep website and provision of all information necessary for investors to make informed decisions about an investment in NuSep securities.

6 Respect the rights of shareholders

NuSep Board Charter and Corporate Governance Guidelines states in section 1.1 that the “ Directors act in the best interests of NuSep as a whole and with honesty and in good faith ”.

NuSep has adopted a shareholder communication approach that identifies disclosure and transparency as important qualities for NuSep shareholders and prospective investors. NuSep therefore aims to provide good quality, clear communication with shareholders, using available methods and technologies.

Page 025 Financial Report

NuSep Ltd and its Controlled Entities

A newsletter is sent to all shareholders and other interested stakeholders on a quarterly basis. This newsletter updates developments over the last quarter and reports against the company’s strategic goals.

NuSep views shareholder meetings as an opportunity for shareholders to meet with and question the Board and management of NuSep. NuSep external auditor attends all annual general meetings and is available to answer shareholder questions. For the annual general meeting to be held in November 2007, NuSep will also accept prior to the meeting, written questions from shareholders for the Chairman or auditors to answer at the meeting. Written answers to these questions will be available at the meeting and published on the website.

A copy of all investor presentations given in the last year are also available on the website.

NuSep website, www.nusep.com, is a key source of information for NuSep shareholders and prospective shareholders. NuSep places all company announcements on the site immediately following confirmation of their release to the market. Analyst briefing material is released as a company announcement. NuSep also displays annual and half-year reports to shareholders, speeches and presentations given by the Chairman, Managing Director and management and other useful business indicators including press releases and quarterly shareholder newsletters. Email is also an important method of communication for investors. All public announcements can be received by email when shareholders and other stakeholders provide their details to NuSep at www.nusep.com.

7 Recognise and manage risk

NuSep Board Charter and Corporate Governance Guidelines states in section 7.3.5 that the Audit Committee “ regularly reviews the adequacy, security and objectivity of the internal control framework and internal control and audit plan and assesses significant business risks identified by the executive management team through the committee ”.

NuSep takes this responsibility seriously and has committed to put in place appropriate procedures for risk management.

Financial Risks

The Audit Committee has responsibility for reviewing the risk management framework within NuSep. It receives presentations from the heads of each division on risks of each business unit and risk containment measures adopted. Risk is broadly considered as anything that may impede the achievement of NuSep strategic goals.

The Audit Committee receives periodic reports that monitor compliance with existing statutory requirements.

CEO and CFO sign-off

NuSep has a Chief Executive Officer (CEO) and Chief Financial Officer (CFO) sign off. As of June 30, 2007, the sign off was done by Mr John Manusu (CEO) and Mr Prakash Patel (CFO). This sign-off states to the Board in writing that to the best of their knowledge the integrity of the financial statements is founded on a sound system of risk management and internal compliance and control which operates efficiently and effectively in all material respects.

Operational Risks

NuSep operates in a highly regulated environment. The Company must meet all of the Governmental and regulatory requirements of the markets into which it operates, manufactures, distributes and sells. To ensure compliance, the company has a regulatory affair and quality assurance framework that has been accepted by Governmental organisations, regulatory bodies, partners, customers, and staff.

Senior executive officers play an important role in maintaining a company-wide commitment to compliance with applicable requirements and regulations. The regulatory and quality functions report directly to the CEO.

Support for NuSep regulatory compliance and quality assurance principles is achieved throughout the Company by:

♦ Educating employees about all applicable government rules and regulations that affect the operation of the Company;
♦ Monitoring and Auditing compliance to all applicable rules and regulations that affect the operation of the Company; ♦ Identifying, investigating, and reporting (in a timely manner) any detected deviations, errors, and/or accidents from applicable requirements and regulations that affect the operation of the Company. Included in these investigations is a root-cause analysis and a corrective action/preventive action (CAPA) system to prevent recurrence of the problem;
♦ Incorporating regulatory and quality endpoints into the KPI’s of all employees.

Ensuring compliance to the regulatory and quality assurance principles is demonstrated by the employment of regulatory and quality assurance staff who report directly to the CEO, performing internal audits, and auditing performed by the regulatory bodies including, the ISO9000 Quality Management Systems registrar and the Australian Therapeutic Goods Administration.

8 Encourage enhanced performance

NuSep Board Charter and Corporate Governance Guidelines states in section 7.4.2 the Remuneration and Nomination Committee “ is to fairly review and actively encourage enhanced Board and management effectiveness ”.

Page 026 Financial Report

NuSep Ltd and its Controlled Entities

NuSep Board Charter and the Nomination and Remuneration Committee charter establish the process for evaluating the performance of the Board, individual Directors, Board Committees, the executive directors and key executives. The Nomination and Remuneration Committee takes responsibility for assessing that the framework and the processes used for conducting evaluations and then making recommendations to the Board in relation to the performance of the executive directors and non-executive directors. The Nomination and Remuneration Committee also reviews the organisations remuneration policies and procedures. This process is outlined in more detail on pages 8-12 of this report. 15-19 of this report.

Education

All new NuSep staff and Directors undertake induction programs. On joining NuSep, Directors receive an information kit containing copies of the Board Charter and Corporate Governance Guidelines, NuSep Constitution and copies of financials for the last 12 months. New Board members also receive an industry briefing from management and a references file with information relevant to the operation of NuSep and the industry. Additionally the Board receives periodic briefings on topical issues and holds Board meeting in both Australia and the US so Directors can become more familiar with the operational aspects of NuSep.

The Board has access to the resources of the Company Secretary and also approves the appointment or removal on the advice of management. The Secretary is responsible for providing reference files and monthly board papers to each Director and ensuring that management provides content in adequate detail. The Company Secretary and the CFO are also responsible and accountable to the Board on all ASX governance matters.

9 Remunerate fairly and responsibly

NuSep Board Charter and Corporate Governance Guidelines states in section 7.4.2 that the Remuneration and Nomination Committee will “ ensure that procedures are in place to remunerate Directors, senior executives and staff sufficiently and reasonable and that this reward is tied to the corporate and individuals performancey ”.

NuSep Board has put in place a number of measures to implement this principle as disclosed and demonstrated by the public future sales and profit projections.

Discussion on NuSep remuneration policies of non-executive Directors, executive Directors and senior executives of the company and the relationship between such policy and the company’s performance is provided in the Directors’ report.

10 Recognise the legitimate interests of stakeholders

NuSep Board Charter and Corporate Governance Guidelines states in section 1.1 “ Directors act in the best interests of NuSep as a whole and with honesty and in good faith ” and “ Consistent with these principles, Directors seek to ensure that NuSep operates ethically, safely and profitably in the interests of all stakeholders ”.

NuSep has a diverse range of stakeholders and has a number of measures in place that recognise their interests. These stakeholders include:

♦ Shareholders;
♦ Employees;
♦ Suppliers and Customers;
♦ Health Regulators; ♦ Governments.

The NuSep Board Charter and Corporate Governance Guidelines sets out the principals of code of conduct expected of all NuSep Directors and employees. These guidelines also set the standard for Directors dealing with NuSep obligations to external stakeholders. Based on the Corporate Governance Guidelines, NuSep directors are set guidelines on their behavior with improved standards of care and diligence, to address the issue of privacy, occupational health and safety, reinforce the requirement for fair and competitive market behavior and the avoidance of conflicts of interest.

NuSep also supplies all employees with an Employee Handbook which outlines, among other things, personal responsibilities, confidentiality, corporate guidelines, occupational health and safety procedures and standards of care and diligence expected of all employees.

NuSep acknowledges that, beyond its accountability as a public corporation to its shareholders, it also carries the expectations of a wider set of stakeholder groups. NuSep endeavors to fulfill these expectations by making a difference in the lives of the people the organisation comes in contact with.

Page 027 Financial Report

NuSep Ltd and its Controlled Entities

Income Statement

For the period ended 30 June 2007

Notes	CONSOLIDATED For the period ended 30 June 2007 $'000	PARENT For the period ended 30 June 2007 $'000
Continuing operations Revenue 4 Cost of sales 5 Gross Loss Other Income Marketing expenses General and Administration expenses Research and Development expenses Finance cost expenses 5 Loss before income tax Income tax expense 6 Loss after tax from continuing operations Net loss for the period Net loss attributable to members of parent Earnings per share 7 – basic for loss for the year – diluted for loss for the year	791 (1,618) (827) 60 (636) (2,606) (906) (32) (4,947) - (4,947) (4,947) (4,947) Cents (62.3) (62.3)	1,144 (1,644)
		(500) 60 (56) (2,533) (906) (24)
		(3,959) -
		(3,959)
		(3,959)
		(3,959)

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

Page 028 Financial Report

NuSep Ltd and its Controlled Entities

Balance Sheet As at 30 June 2007

Notes	CONSOLIDATED As at 30 June 2007 $'000	PARENT As at 30 June 2007 $'000
CURRENT ASSETS Cash and cash equivalents 8 Trade and other receivables 10 Inventories 11 Other assets 12 TOTAL CURRENT ASSETS NON-CURRENT ASSETS Cash and cash equivalents 13 Financial assets 14 Property, plant and equipment 15 TOTAL NON-CURRENT ASSETS TOTAL ASSETS CURRENT LIABILITIES Trade and other payables 16 Short-term provisions 17 TOTAL CURRENT LIABILITIES NON-CURRENT LIABILITIES Other liabilities 18 Long-term provisions 19 TOTAL NON-CURRENT LIABILITIES TOTAL LIABILITIES NET ASSETS EQUITY Issued capital 20 Reserves 21 Retained losses 21 TOTAL EQUITY	209 167 472 40 888 1,000 300 2,275 3,575 4,463 1,465 151 1,616 1,000 47 1,047 2,663 1,800 6,620 127 (4,947) 1,800	188 841 368 37
		1,434
		1,000 300 2,275
		3,575
		5,009
		1,079 145
		1,224
		1,000 47
		1,047
		2,271
		2,738
		6,620 77 (3,959)
		2,738

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

Page 029 Financial Report

NuSep Ltd and its Controlled Entities

Cash Flow Statement For the period ended 30 June 2007

Notes	CONSOLIDATED For the period ended 30 June 2007 $'000	PARENT For the period ended 30 June 2007 $'000
Cash flows from operating activities Receipts from customers Payments to suppliers and employees Government grants Interest received Finance costs Net cash flows used in operating activities 9 Cash flows from investing activities Proceeds on sale of property, plant & equipment Purchase of property, plant and equipment Purchase of investments Demerger proceeds Advance to controlled entities Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of shares Share issue costs Net cash flows from financing activities Net increase in cash and cash equivalents Net foreign exchange difference Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period 8	536 (3,222) 211 51 (32) (2,456) 8 (99) (300) 321 - (70) 2,798 (66) 2,732 206 3 - 209	428 (2,917) 211 51 (24)
		(2,251)
		8 (99) (300) 321 (226)
		(296)
		2,798 (66)
		2,732
		185 3 -
		188

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

Page 030 Financial Report

NuSep Ltd and its Controlled Entities

Statement of Changes in Equity For the period ended 30 June 2007

Consolidated Balance 1 November 2006 Transaction costs on share issue Currency translation difference Total income and expense for the period recognised directly in equity Loss for the period Total income and expense for the period Contributed capital Issue of share capital Cost of share based payment Balance 30 June 2007 arent Balance 1 November 2006 Transaction costs on share issue Currency translation difference Total income and expense for the period recognised directly in equity Loss for the period Total income and expense for the period Contributed capital Issue of share capital Cost of share based payment Balance 30 June 2007	Issued Capital Foreign currency translation Reserve Share options Reserve Accumulated Losses Total Equity $'000 $'000 $'000 $'000 $'000
	- - - - - (130) - - - (130) - 50 - - 50
	(130) 50 - - (80) - - - (4,947) (4,947)
	(130) 50 (4,947) (5,027) 3,888 3,888 2,862 - - - 2,862 - - 77 - 77
	6,620 50 77 (4,947) 1,800
	- - - - - (130) - - - (130) - - - - -
	(130) - - - (130) - - - (3,959) (3,959)
	(130) - (3,959) (4,089) 3,888 3,888 2,862 - - - 2,862 - - 77 - 77
	6,620 - 77 (3,959) 2,738

Parent

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

Page 031 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

1. CORPORATE INFORMATION

The financial reports of NuSep Ltd (the Company) cover the period from 1 November 2006 to 30 June 2007, were authorised for issue in accordance with a resolution of the directors on 28 September 2007. NuSep Ltd is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian stock exchange. NuSep Ltd commenced trading on 1 November 2007.

The nature of the operations and principal activities of the Group are described in note 3.

2. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

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

The financial report covers the consolidated group of NuSep Ltd and controlled entities, and NuSep Ltd as an individual parent entity. NuSep Ltd is a listed public company, incorporated and domiciled in Australia.

The financial report complies with all International Financial Reporting Standards (IFRS) in their entirety.

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

Basis of preparation

The accounting policies set out below have been consistently applied to all years presented.

Reporting Basis and Conventions

The financial report has been prepared on an accruals basis and is based on historical costs modified by the revaluation of selected non-current assets, financial assets and financial liabilities for which the fair value basis of accounting has been applied.

Going Concern

The net current liability for the consolidated entity for the year was $0.73m. The directors are confident, based on current information, that they will be able to reduce net cash outflows from operations for the year ending 30 June 2008. The company has also in September 2007 completed a $2.77m capital raising.

The Directors regularly monitor the company's cash position and on an on-going basis consider a number of strategic and operational plans to ensure that adequate funding continues to be available for the company to meet its business objectives. Based on the above, this general purpose financial report is prepared on a going concern basis as the Directors consider that the company has access to sufficient cash resources to enable it to continue as a going concern.

Accounting Policies

a) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all entities controlled by NuSep Ltd as at 30 June 2007 and the results of all controlled entities for the period then ended. NuSep Ltd and its controlled entities together are referred to in this financial report as the Group.

A list of controlled entities is contained in Note 26 to the financial statements. All controlled entities have a June financial year-end.

All inter-company balances and transactions between entities in the consolidated group, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

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

Page 032 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

b) Significant accounting, estimates and assumptions

The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the group.

Key Estimates – Impairment

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Valuein-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

Share-based payment transactions

The Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. The fair value is determined by using a binomial or Black Scholes option pricing model, using the assumptions detailed in note 23.

c) Revenue

Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised to the extent that it is probable that the economic benefits will flow to the entity and it can be reliably measured. Revenue is recognised for the major business activities as follows:

a) Sale of goods

A sale is recorded when goods or services have been despatched to a customer pursuant to a sales order and the associated risks have passed to the carrier or customer. Where cash is received for goods not yet despatched revenue is deferred until risk is transferred to the carrier or customer.

b) Interest Income

Other revenue includes interest income, which is recognised as it accrues.

c) Management fees

Management fees are charged to the subsidiaries for applicable head office expenses incurred.

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

d) Government grants

Government grants are recognised at fair value where there is reasonable assurance that the grant will be received and all grant conditions will be met. Grants relating to expense items are recognised as income over the periods necessary to match the grant to the costs they are compensating. Grants relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight-line basis.

e) Borrowing costs

Borrowing costs are recognised in income in the period in which they are incurred.

f) Leases

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legal ownership that is transferred to entities in the consolidated group, are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the lower of the amounts equal to the fair value of the leased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of the lease term.

Page 033 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

g) Cash and cash equivalents

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of 3 months or less, and bank overdrafts. Bank overdrafts would be shown within short-term borrowings in current liabilities on the balance sheet.

h) Trade and other receivables

Trade receivables, which generally have 30-45 day terms, are recognised and carried at original invoice amount less an allowance for any uncollectible amounts. An estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when identified.

Receivables from related parties are recognised and carried at the nominal amount due.

i) Inventories

Inventories are measured at the lower of cost and net realisable value. The cost of manufactured products includes direct materials, direct labour and an appropriate portion of variable and fixed overheads. Overheads are applied on the basis of normal operating capacity. Costs are assigned on the basis of standard cost.

j) Foreign currency transactions and balances

Functional and presentation currency

The functional currency of each of the group’s entities is measured using the currency of the primary economic environment in which that entity operates. The consolidated financial statements are presented in Australian dollars which is the parent entity’s functional and presentation currency.

Transaction and balances

Foreign currency transactions are translated into functional currency using the exchange rates prevailing at the date of the transaction. Foreign currency monetary items are translated at the year-end exchange rate. Non-monetary items measured at historical cost continue to be carried at the exchange rate at the date of the transaction. Non-monetary items measured at fair value are reported at the exchange rate at the date when fair values were determined.

Exchange differences arising on the translation of non-monetary items are recognised directly in equity to the extent that the gain or loss is directly recognised in equity, otherwise the exchange difference is recognised in the income statement.

Group companies

The financial results and position of foreign operations whose functional currency is different from the group’s presentation currency are translated as follows:

assets and liabilities are translated at year-end exchange rates prevailing at that reporting date;
income and expenses are translated at average exchange rates for the period; and
retained earnings are translated at the exchange rates prevailing at the date of the transaction.

Exchange differences arising on translation of foreign operations are transferred directly to the group’s foreign currency translation reserve in the balance sheet. These differences are recognised in the income statement in the period in which the operation is disposed.

Page 034 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

k) Income Tax

The charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

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 consolidated group will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law.

l)

Goods and services tax (GST)

Revenues, expenses and assets are recognised net of the amount of GST amount 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 balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

m) Property, plant and equipment

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

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 asset’s employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

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

Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Page 035 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

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 consolidated group commencing from the time the asset is held ready for use. 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:

Plant and equipment 3-10 years Leasehold improvements The lease term

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

n) Investments

Interest in controlled entities are carried at the lower of cost or net realisable amount and reviewed at each balance date to reflect the parent entity’s interest in the underlying net assets of the controlled entity.

Interest in non-controlled entities are carried at the lower of cost or net realisable amount and reviewed at each balance date to reflect the parent entity’s interest in the underlying net assets of the non-controlled entity.

o) Intangible assets

a) Research and Development Costs
Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

b) Patents and Trademarks

Costs associated with Patents and Trademarks are expensed in the year in which they are incurred, unless the expenditure will generate future economic benefits.

p) Trade and other payables

These amounts represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition. These amounts are carried at cost which is the fair value of the consideration to be paid in the future for goods and services received, whether or not billed to the consolidated entity.

q) Interest-bearing loans and borrowings

All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

Page 036 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

r) Provisions

Provisions are recognised when the group has a legal or constructive obligation, as a result of past events, for which it is probable that an outflow of economic benefits will result and that outflow can be reliably measured.

s) Employee Entitlements

a) Wages, Salaries, Annual Leave and Bonuses Liabilities for wages, salaries, bonuses and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid when the liabilities are settled, plus related on-costs.

b) Long Service Leave

The liability for long service leave expected to be settled within 12 months of the reporting date is recognised in other payables and is measured in accordance with (a) above. The liability for long service leave expected to be settled more than 12 months from the reporting date is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using interest rates on national government guaranteed securities with terms to maturity that match, as closely as possible, the estimated future cash outflows.

c) Superannuation

Contributions to superannuation plans are charged as an expense when the contributions are paid or become payable.

d) Employee benefit on-costs

Employee benefit on-costs, including payroll tax, are recognised and included in employee benefit liabilities and costs when the employee benefits to which they relate are recognised as liabilities.

e) Share-based compensation

Equity-based compensation benefits are provided to employees via the NuSep Directors, Employee and Consultant Option Plan. For share based payments transactions with employees and directors, the company measures the fair value of the equity instruments granted at the grant date and expense this amount over the vesting period. A separate class of reserve has been created to record the value of equity benefits provided to employees and directors as part of their remuneration.

The cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. The fair value of equity compensation is recorded as an expense on a straight-line basis over the vesting period of the related plan. The cost of equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (‘vesting date’). Fair value is determined by using a binomial or Black Scholes option pricing model.

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

Shares issued in lieu of services is recognised directly to the income statement based on the fair value of the underlying expenses incurred.

In valuing equity-settled transactions, no account is taken of any performance conditions, other than conditions linked to the price of the shares of NuSep Ltd.

The cumulative expense recognised for equity-settled transactions at each reporting date until vesting date reflects (i)the extent to which the vesting period has expired and (ii)the Company’s best estimate of the number of equity instruments that will ultimately vest. No adjustment is made for the likelihood of market performance conditions being met as the effect of these conditions is included in the determination of fair value at grant date. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period.

Page 037 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

If an equity-settled award is cancelled, it is treated as if it had vested on the date of cancellation, and any expense not yet recognised for the award is recognised immediately. However, if a new award is substituted for the cancelled award and designated as a replacement award on the date that it is granted, the cancelled and new award are treated as if they were a modification of the original award, as described in the previous paragraph.

The dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share, unless they are anti-dilutive.

t) Impairment of assets

At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement.

Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

u) Earnings per share

Basic Earnings Per Share

Basic EPS is calculated as net profit after tax attributable to members, divided by the weighted average number of ordinary shares outstanding during the financial year.

Diluted Earnings Per Share

Diluted EPS is calculated as net profit after tax attributable to members divided by the weighted average number of ordinary shares and dilutive potential ordinary shares.

v)

Contributed equity

Issued and paid-up capital is recognised at the fair value of the consideration received by the Company. Any transaction costs arising on the issue of shares are recognised directly in equity as a reduction of the share proceeds received.

w) Rounding of amounts

The parent entity has applied the relief available to it under ASIC Class Order 98/100 and accordingly, amounts in the financial report and directors’ report have been rounded off to the nearest thousand dollars ($'000).

Page 038 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

3. Segment Reporting

a) Business segments

The consolidated entity is organised on a global basis into the following divisions by product and service type.

Gels

Gels develops, manufactures and distributes pre-cast electrophoresis gels into the laboratory market. Distribution is based in Atlanta, Munich and Sydney with manufacturing in Sydney

Biologicals

Manufacture and distribution of biological products into the marketplace. The business unit is based in Sydney.

Separations

Develops and markets the Gradiflow technology in both the commercial and research markets, including the Sperm Sorter. The business unit is based in Sydney.

Corporate & shared services

This division conducts corporate functions of the organisation.

b) Geographical segments

Although the consolidated entity’s divisions are managed on a global basis they operate in 3 main geographical areas:

Australia

The home country of the parent entity which is also the main operating entity.

USA

A focus market with distribution channels in place across all divisions.

Europe

Comprises mainly of operations from the Gels division.

Other countries

Comprises of sales to countries in addition to USA, Australia and Europe.

Further comments on the operations and the results of those operations are set out in the Director’s report.

Page 039 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

For the period ended 30 June 2007
Revenues from sales or services
Revenues from outside the operating
activities:
Interest
Other
Total segment revenue
Profit/(Loss) from ordinary activities
Profit/(Loss) from ordinary activities
after income tax expense
Depreciation and amortisation
expense
Segment assets
Segment liabilities
Acquisition of capital assets
Cash flow information
Net cash flow from Operating
activities
Net cash flow from Investing
activities
Net cash flow from Financing
activities

Gels
Biologicals
Separations
Corporate
& Shared
Services
Consolidated
$000
$000
$000
$000
$000
418
240
133
-
791
-
-
-
-
-
-
52
8
52
8
418
240
133
60
851
(1,676)
148
(854)
(2,565)
(4,947)
(1,676)
148
(854)
(2,565)
(4,947)
144
-
165
366
675
805
78
231
3,349
4,463
335
39
112
2,177
2,663
12
-
-
87
99
(656)
112
(437)
(1,475)
(2,456)
(12)
-
-
(58)
(70)
-
-
-
2,732
2,732
Gels
Biologicals
Separations
Corporate
& Shared
Services
Consolidated
$000
$000
$000
$000
$000

Geographical segments

Although the consolidated entity’s divisions are managed on a global basis they operate in the following geographical areas being Australia, USA and Europe.

Australia USA Europe Other countries	Segment revenues from sale of goods 2007 $000 452 296 34 9 791	Segment assets 2007 $000 4,286 177 - - 4,463

Page 040 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

Segment accounting policies

Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 2 and accounting standard, AASB 114 Segment Reporting. Segment revenue, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis.

Segment assets include all assets used by a segment and consist primarily of receivables, inventory, plant & equipment and deposits.

4. Revenue

4. Revenue
Revenue Revenue from sales or services Government grants Finance and other revenue Interest from other persons Proceeds on sale of assets Total Revenue 5. Expenses Expenses Cost of sales of goods Depreciation: Plant and equipment Leasehold improvements Total depreciation Finance costs: Interest and finance charges paid/payable Net loss on disposals of property, plant and equipment Exchange Losses Salaries and wages including benefits Rental expense relating to operating leases Write-off of obsolete stock	Consolidated For the period ended 30 June 2007 $000 660 131 791 52 8 60 851 Consolidated For the period ended 30 June 2007 $000 1,618 414 261 675 32 2 61 1,770 529 352	Parent Entity For the period ended 30 June 2007 $000 1,013 131
		1,144 52 8
		60
		1,204
		Parent Entity For the period ended 30 June 2007 $000 1,644 414 261 675 24 2 61 1,368 529 204

Page 041 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

6. Income Tax Expense

The major components of income tax expense are:

Income tax Accounting loss before tax from continuing operations Accounting loss before income tax The prima facie tax on loss from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax receivable on loss from ordinary activities before income tax at 30% Add: Tax effect of: Reverse research and development Less: Tax effect of: Research and development @125% Income tax benefit not reported in the consolidated income statement Income tax expense recorded in Income Statement Deferred income tax Deferred income tax at 30 June 2007 relates to Deferred Tax Liabilities Total Deferred Tax Liability Deferred Tax Assets Provisions and employee benefits Other Total Deferred Tax Asset	Income tax Accounting loss before tax from continuing operations Accounting loss before income tax The prima facie tax on loss from ordinary activities before income tax is reconciled to the income tax as follows: Prima facie tax receivable on loss from ordinary activities before income tax at 30% Add: Tax effect of: Reverse research and development Less: Tax effect of: Research and development @125% Income tax benefit not reported in the consolidated income statement Income tax expense recorded in Income Statement Deferred income tax Deferred income tax at 30 June 2007 relates to Deferred Tax Liabilities Total Deferred Tax Liability Deferred Tax Assets Provisions and employee benefits Other Total Deferred Tax Asset	Consolidated 2007 $000 (4,947) (4,947) (1,484) 272 (340) (1,552) - the following: Consolidated 2007 $000 - - 120 114 234		Parent Entity 2007 $000 (3,959)
				(3,959)
				(1,188) 272 (340)
				(1,256)
				-
				Parent Entity 2007 $000 - - 93 103 196

The Group has separate tax consolidation groups within Australia and the United States. Both tax consolidated jurisdictions have tax losses which are not recognised. The tax losses are available, indefinitely for offset against future taxable profits of the companies in which losses arose within each tax consolidated jurisdiction.

At 30 June 2007, the Group did not recognise any deferred tax assets or deferred tax liabilities.

Page 042 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

7. Earnings per share

The following reflects the income and share data used in the basic and diluted earning per share computation:

Loss after tax from continuing operations Net loss for the period Earnings per share – basic for loss for the year – diluted for loss for the year Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per share	Consolidated 2007 $000 (4,947)
	(4,947)
	Consolidated 2007 Cents (62.3) (62.3) 7,941,100
	7,941,100

Information concerning the classification of securities

Options

Options granted under the NuSep Directors, Employee and Consultants Share Option Plan is considered to be potential ordinary shares and have not been included in the determination of diluted earnings per share as they are considered anti-dilutive. The options have not been included in the determination of basic earnings per share. Details relating to the options are set out in note 23.

8. Current Assets – Cash and Cash Equivalents

	Consolidated	Parent Entity
	2007	2007
	$000	$000
Cash at bank	209	188

Page 043 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

9. (a) Reconciliation of operating loss to net cash provided by operating activities

Loss from ordinary activities after income tax expense: Adjustment for non-cash items: Depreciation & Amortisation Share option liability Net (gain)/loss on sale of assets Net exchange differences on changes in operating assets & liabilities Change in operating assets and liabilities: Decrease/(Increase) in inventories Decrease/(Increase) in trade debtors Decrease/(Increase) in other operating assets Increase/(Decrease) in trade creditors Increase/(Decrease) in short term provisions Increase/(Decrease) in other operating liabilities Increase/(Decrease) in long term provisions Net cash outflows from operating activities (b) Demerger of entity Purchase consideration Share capital issued Cash inflow Assets and liabilities held at acquisition: Cash and cash equivalents Inventories Property, plant and equipment Employee benefit liabilities Goodwill on consolidation	Consolidated For the period ended 30 June 2007 $000 (4,947) 675 77 2 50 (4,143) 465 (176) (40) 910 (37) 555 10 (2,456) Consolidated For the period ended 30 June 2007 $000 3,567 3,888 321 321 938 2,853 (224) (3,888) -	Parent Entity For the period ended 30 June 2007 $000 (3,959) 675 77 2 -
		(3,205) 570 (626) (38) 670 (42) 410 10
		(2,251)
		Parent Entity For the period ended 30 June 2007 $000 3,567
		3,888
		321
		321 938 2,853 (224)
		(3,888)

		-

The assets and liabilities arising from the demerger are recognised at fair value which is equal to its carrying value.

Page 044 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

10. Current Assets – Trade and Other Receivables

Consolidated 2007 $000 Trade receivables 167 Receivable from wholly owned entities - 167 11. Current Assets – Inventories Consolidated 2007 $000 Raw materials – at cost 197 Finished goods – at cost 373 Less: provision for obsolete inventory (98) 472 12. Current Assets – Other Assets Consolidated 2007 $000 Prepayments 40 13. Non Current Assets – Cash and cash equivalents Consolidated 2007 $000 Cash at bank 1,000 Refer to Note 27(d)(ii) for further details. 14. Non Current Assets – Financial Assets Consolidated 2007 $000 Shares in other unlisted corporation 300	Parent Entity 2007 $000 116 725
	841
	Parent Entity 2007 $000 197 228 (57)
	368
	Parent Entity 2007 $000 37
	Parent Entity 2007 $000 1,000
	Parent Entity 2007 $000 300

Page 045 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

15. Non-current Assets – Property, plant and equipment

Plant and equipment – at cost Less: accumulated depreciation Total property, plant and equipment Leasehold improvements – at cost Less: accumulated depreciation Total leasehold improvements Total property, plant and equipment	Consolidated 2007 $000 1,119 (414) 705 1,831 (261) 1,570 2,275	Parent Entity 2007 $000 1,119 (414)
		705
		1,831 (261)
		1,570

		2,275

Reconciliations

Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below.

Consolidated Carrying amount at 1 November 2006 Acquisition assets Additions Disposals Depreciation & amortisation expense Carrying amount at 30 June 2007 Parent Entity Carrying amount at 1 November 2006 Acquisition assets Additions Disposals Depreciation & amortisation expense Carrying amount at 30 June 2007	Plant & Equipment Leasehold Improvements Total $000 $000 $000 - - - 1,022 1,831 2,853 99 - 99 (2) - (2) (414) (261) (675) 705 1,570 2,275 $000 $000 $000 - - - 1,022 1,831 2,853 99 - 99 (2) - (2) (414) (261) (675) 705 1,570 2,275

16. Current liabilities – Trade and Other Payables

Unsecured Liabilities Trade payables Unearned revenue Other creditors and accruals	Consolidated 2007 $000 910 80 475 1,465	Parent Entity 2007 $000 670 80 329
		1,079

Trade creditors represent liabilities for goods and services provided to the consolidated entity prior to the end of the financial year and which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

Included in other creditors is an advance of $146,322 by two directors of the company as their commitment to underwrite the Unmarketable Parcel Sale Facility (UPSF) per the terms of the short form prospectus dated 8 August 2007.

Page 046 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

17. Current liabilities – Provisions

Provision for employee benefits Other provisions 18. Non-current liabilities – Other Liabilities Deferred rental	Consolidated 2007 $000 150 1 151 Consolidated 2007 $000 1,000	Parent Entity 2007 $000 144 1
		145
		Parent Entity 2007 $000 1,000

Deferred rental is the lease liability that has been recognised to reflect the liability under the lease for the property at 22 Rodborough Road. The rental liability will be amortised over the term of the lease.

19. Non-current liabilities – Provisions

Provision for Employee Benefits	Consolidated Parent Entity 2007 $000 2007 $000 47 47

Provision for employee benefits is a provision that has been recognised for employee entitlements relating to long service leave. In calculating the present value of future cash flows in respect of long service leave, the probability of long service leave being taken is based on historical data. The measurement and recognition criteria relating to employee benefits has been included in Note 2 to this report.

Provision for employee benefits Opening balance 1 November 2006 Take on amount from demerger Provision utilised Provision expense Closing balance 30 June 2007 Notes 17 & 19	Consolidated 2007 $000 - 224 (113) 86 197	Parent Entity 2007 $000 - 224 (113) 80
		191

Page 047 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

20. Issued Capital

(a) Share Capital Ordinary Shares – fully paid	Parent Entity 2007 Shares 10,658,440	Parent Entity 2007 $000 6,620

(b) Movements in ordinary share capital of the company during the period were as follows:

2007	2007
Date	!"#$%&'	Number of Shares	Issue Price	$000
1 November 2006 Share issue on NuSep demerger 20 February 2007 Share issue under rights issue 27 February 2007 Share issue under rights issue 27 February 2007 Share issue in lieu of fees 30 June 2007 Closing Balance Less- transaction costs arising on share issues 30 June 2007 Closing Balance*		4,934,592 - 2,545,385 $0.50 3,050,000 $0.50 128,463 $0.50		3,888 1,273 1,525 64
		10,658,440		6,750
				(130)
				6,620

shares issued to Life Therapeutics Limited in consideration for the demerger of NuSep. There was no cash consideration received by NuSep for the issue of these shares.

The company has authorised share capital amounting to 10,658,440 ordinary shares.

(c) Ordinary Shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amounts paid on the shares held. On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

(d) Listed Options

Set out in the table below are summaries of options issued, exercised and lapsed during the year.

Grant date	Expiry date	Vesting commencement date	Exercise price	Balance at start of year	Issued during the year	Exercised during the year	Lapsed /Cancelled during theyear	Balance at end of the year
Consolidated and parent entity– 2007:
Listed Options
28 February 2007	31 March 2008	28 February2007	$0.50	-	1,431,045	-	-	1,431,045

Page 048 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

(e) Unlisted Options

Set out in the table below are summaries of options issued, exercised and lapsed during the year.

Grant date	Expiry date	Vesting commencement date	Exercise price	Balance at start of year	Issued during the year	Exercised during the year	Lapsed /Cancelled during the year	Balance at end of the year
Consolidated and parent entity – 2007:
Third party Options
1 December 2006	1 November 2009	1 December 2006	$0.50	-	550,000	-	-	550,000
20 December 2006	31 March 2008	20 December 2006	$0.50	-	300,000	-	-	300,000
Directors Option
1 December 2006	1 November 2009	1 December 2006	$0.50	-	566,667	-	-	566,667
1 December 2006	1 November 2010	1 December 2007	$0.75	-	566,667	-	-	566,667
1 December 2006	1 November 2011	1 December 2008	$1.00	-	566,666	-	-	566,666
Executives Option
1 December 2006	1 November 2009	1 December 2006	$0.50	-	100,000	-	-	100,000
1 December 2006	1 November 2010	1 December 2007	$0.75	-	100,000	-	-	100,000
1 December 2006	1 November 2011	1 December 2008	$1.00	-	100,000	-	-	100,000
20 December 2006	1 November 2009	20 December 2006	$0.50	-	133,333	-	-	133,333
20 December 2006	1 November 2010	1 December 2007	$0.75	-	133,333	-	-	133,333
20 December 2006	1 November 2011	1 December 2008	$1.00	-	133,334	-	-	133,334
1 April 2007	1 November 2009	1 April 2007	$0.50	-	66,667	-	-	66,667
1 April 2007	1 November 2010	1 December 2007	$0.75	-	66,667	-	-	66,667
1 April 2007	1 November 2011	1 December 2008	$1.00	-	66,666	-	-	66,666
				-	3,450,000	-	-	3,450,000

Page 049 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements

For the period ended 30 June 2007

21. Reserves and retained losses

(a) Reserves Balance 1 November 2006 Change during the year Balance 30 June 2007 This is represented by: Share options reserve Foreign currency translation reserve (b) Accumulated losses Accumulated losses at the beginning of the financial year Net loss attributable to members of NuSep and Controlled Entities Accumulated losses at the end of the financial year	Consolidated 2007 $000 - 127 127 77 50 127 - (4,947) (4,947)	Parent Entity 2007 $000 - 77
		77
		77 -
		77
		- (3,959)
		(3,959)

(c) Dividends

No dividends have been paid or provided for. There are no available franking credits as at 30 June 2007.

Nature and purpose of reserves

Share options reserve

This option reserve records items recognised as expenses on valuation of employee share options.

Foreign currency translation reserve

The foreign currency translation reserve records exchange differences arising on translation of a foreign controlled subsidiary.

22. Remuneration of auditors

Amounts receivable or due and receivable by RSM Bird Cameron for: Audit & Assurance services Audit Other services Independent Accountants Report Total remuneration for services	Consolidated 2007 $ 12,000 7,000 19,000	Parent Entity 2007 $ 12,000 7,000
		19,000

It is the consolidated entity’s policy to employ RSM Bird Cameron on assignments additional to their statutory audit duties where their expertise and experience with the consolidated entity are important. It is the consolidated entity’s policy to seek competitive tenders for all major consulting projects.

Page 050 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements

For the period ended 30 June 2007

23. Directors and executive disclosures

(a) Details of Key Management Personnel

(i) Directors

Nicholas Caré Chairman Non-executive John Manusu Managing Director/CEO Dr Hari Nair Non-executive Director Dr Choon Lee Non-executive Director Iain Howard Sorrell Non-executive Director

(ii) Executives

Prakash Patel Chief Financial Officer and Company Secretary Dr Greg Rogers Director of Operations Dr John Andrews Chief Scientific Officer Brian Ayling VP Sales

(b) Remuneration of Key Management Personnel

Short-term employee benefits Post-employment benefits Share-based payments	Consolidated 2007 $ 645,488 38,478 42,229 726,195	Parent Entity 2007 $ 556,277 31,540 40,748
		628,565

The Company has taken advantage of the relief provided by Corporations Regulation 2M.6.04 and has transferred the detailed remuneration disclosures to the Directors’ Report. The relevant information can be found in the remuneration report on pages 8 to 12. 15-19.

(c) Share based compensation - Options

Options remuneration has been calculated in accordance with the fair value measurements provisions of AASB 2 “Shared Based Payments” in line with transitioning NuSep accounting policies and financial reporting from current Australian Standards to Australian equivalents of IFRS (AIFRS).

The fair value of each option is estimated on grant date using Black-Scholes option pricing model, with the following assumptions used:

2007 Dividend yield 0% Risk-free interest rate 6.03% - 6.09% Historical volatility 45% Expected volatility 45% Expected option life 2 - 5 years

The amount of options remuneration is determined on a pro rata basis, by amortising the fair value estimate of each option over the vesting period and the individual option grant. The share based expenses for options remuneration has been recognised as an expense in the income statement and held as part of the share options reserve in the balance sheet.

During the financial year options were granted as equity compensation benefits to certain directors and executives as disclosed below. The options were free of charge. Each option entitles holders to subscribe for one fully paid ordinary share in NuSep Ltd at the exercise price shown below.

Page 051 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

(i) Options holding of directors and executives

Directors

ectors
2007	Balance at start of the year	Granted as remunerat ion	Exercised during the year	Lapsed during the year	Balance at end of the year	Exercisable	Non Exercisable
Nicholas Caré John Manusu Dr Hari Nair Dr Choon Lee Iain Howard Sorrell	-	300,000	-	-	300,000	100,000	200,000
	-	800,000	-	-	800,000	266,667	533,333
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
Total	-	1,700,000	-	-	1,700,000	566,668	1,133,332

Executives

ecutives
2007	Balance at start of the year	Granted as remunerat ion	Exercised during the year	Lapsed during the year	Balance at end of the year	Exercisable	Non Exercisable
Prakash Patel Dr Greg Rogers Dr John Andrews Brian Ayling	-	300,000	-	-	300,000	100,000	200,000
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
	-	200,000	-	-	200,000	66,667	133,333
Total	-	900,000	-	-	900,000	300,001	599,999

(ii) Options granted & vested during the year

Directors

ectors
2007	Granted during the year	First Exercisable Date	Vesting	Value per Option at grant date	Exercise price per share	Value of options granted during the year	Expiry Date
Nicholas Caré John Manusu Dr Hari Nair Dr Choon Lee Iain Howard Sorrell	300,000 800,000 200,000 200,000 200,000	1 December 2006	100,000	$0.50	$0.12	$11,410	1 November 2009
		1 December 2007	100,000	$0.75	$0.09	$8,550	1 November 2010
		1 December 2008	100,000	$1.00	$0.08	$8,180	1 November 2011
		1 December 2006	266,667	$0.50	$0.12	$30,427	1 November 2009
		1 December 2007	266,667	$0.75	$0.09	$22,800	1 November 2010
		1 December 2008	266,666	$1.00	$0.08	$21,813	1 November 2011
		1 December 2006	66,667	$0.50	$0.12	$7,607	1 November 2009
		1 December 2007	66,667	$0.75	$0.09	$5,700	1 November 2010
		1 December 2008	66,666	$1.00	$0.08	$5,453	1 November 2011
		1 December 2006	66,667	$0.50	$0.12	$7,607	1 November 2009
		1 December 2007	66,667	$0.75	$0.09	$5,700	1 November 2010
		1 December 2008	66,666	$1.00	$0.08	$5,453	1 November 2011
		1 December 2006	66,667	$0.50	$0.12	$7,607	1 November 2009
		1 December 2007	66,667	$0.75	$0.09	$5,700	1 November 2010
		1 December 2008	66,666	$1.00	$0.08	$5,453	1 November 2011
Total			1,700,000			$159,460

Page 052 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

Executives

ecutives
2007	Granted during the year	First Exercisable Date	Vesting	Value per Option at grant date	Exercise price per share	Value of options granted during theyear	Expiry Date
Prakash Patel Dr Greg Rogers Dr John Andrews Brian Ayling	300,000 200,000 200,000 200,000	1 December 2006	100,000	$0.50	$0.12	$11,410	1 November 2009
		1 December 2007	100,000	$0.75	$0.09	$8,550	1 November 2010
		1 December 2008	100,000	$1.00	$0.08	$8,180	1 November 2011
		20 December 2006	66,667	$0.50	$0.12	$7,607	1 November 2009
		1 December 2007	66,667	$0.75	$0.09	$5,700	1 November 2010
		1 December 2008	66,666	$1.00	$0.08	$5,453	1 November 2011
		20 December 2006	66,667	$0.50	$0.12	$7,607	1 November 2009
		1 December 2007	66,667	$0.75	$0.09	$5,700	1 November 2010
		1 December 2008	66,666	$1.00	$0.08	$5,453	1 November 2011
		1 April 2007	66,667	$0.50	$0.12	$7,606	1 November 2009
		1 December 2007	66,667	$0.75	$0.09	$5,700	1 November 2010
		1 December 2008	66,666	$1.00	$0.08	$5,454	1 November 2011
Total			900,000			$84,420

(iii) Options exercised during the year No options were exercised during period.

(d) Shareholding of directors and executives

The numbers of shares in the company held during the financial year by each current Director, and executives of NuSep Ltd and its subsidiaries are set out below. There were no shares granted during the reporting period as compensation.

Directors

ectors
Name	Balance at start of the year	Ordinary shares issued resulting on the exercise of options	Net change other	Balance at the end of the year
Nicholas Caré John Manusu Dr Hari Nair Dr Choon Lee Iain Howard Sorrell	- - - - -	- - - - -	44,738 1,008,671 28,140 779,800 35,648	44,738 1,008,671 28,140 779,800 35,648
Total	-	-	1,896,997	1,896,997

Executives

Name	Balance at start of the year	Ordinary shares issued resulting on the exercise of options	Net change other	Balance at the end of the year
Prakash Patel Dr Greg Rogers Brian Ayling	- - -	- - -	48,935 46,435 15,000	48,935 46,435 15,000
Total	-	-	110,370	110,370

Page 053 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

(e) Other transactions with Director and Director-related entities

Two Directors Dr Choon Lee and Mr John Manusu advanced an unsecured loan to the Company in December 2006 as detailed on the IPO prospectus dated 14 December 2006. The loan was advanced to cover working capital until the funds from capital raising became available.

The Directors partially underwrote the rights issues under the IPO prospectus dated 14 December 2006. Underwriting fees were paid on normal commercial terms and conditions.

24. Employee benefits and Superannuation Commitments

Employee Benefits

Employee benefit and related on-costs liabilities Provision for employee benefits -current (note 17) Provision for employee benefits - non-current (note 19) Aggregate employee benefit and related on-costs liabilities Employee numbers Average number of employees during the financial year	Consolidated 2007 $000 150 47 197 Number 30	Parent Entity 2007 $000 144 47 191 Number 26

Employee Share Incentive Scheme

The establishment of the NuSep Directors, Employee and Consultants Option Plan was approved by special resolution at the annual general meeting of the company held on 11 September 2006. All full time employees and directors of NuSep and its controlled entities are eligible to participate in the plan.

Directors and Executive

In the case of the Directors and executives the share options become effective from the date the options are granted at which time 1/3 become vested. The second 1/3 will vest on the second anniversary and the final 1/3 will vest on the third anniversary.

The issue of options to Directors was approved at the annual general meeting of the company held on 11 September 2006.

Options granted under the plan carry no dividend or voting rights. When exercisable, each option is convertible into one ordinary share at any time on or before the expiry date at a fixed exercise price per share.

Superannuation commitments

NuSep participates in the Colonial Master Fund, an externally managed superannuation plan under which employees or their dependents are entitled to benefits on retirement, disability or death. The company makes contributions as specified in the rules of the fund which are at least equal to those required under the Superannuation Guarantee Charge legislation. Contributions by the consolidated entity of up to 9% of employment wages and salaries are legally enforceable in Australia.

Page 054 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

25. Related party transactions

Ultimate Parent

NuSep Ltd (incorporated in Australia) is the ultimate parent entity.

Wholly-owned group transactions

Transactions between NuSep Ltd and other entities in the wholly-owned group during the years ended 30 June 2007 consist of the distribution of electrophoresis gels, biological products and provision of marketing services by NuSep Inc and provision of management services and loans advanced by NuSep Ltd.

		Parent entity	Parent entity
		For the
		period ended
		30 June	2007
		$’000
Aggregate amounts included in the determination of profit from
ordinary activities before income tax that resulted from transactions
with entities in the wholly-owned group:
Sale of finished product			543
Aggregate amounts receivable from entities in the wholly-owned
group at balance date, non trade receivable are non interest bearing:
Current receivables			512
Non-current receivables (loans)			213
Investments in controlled entities
			Cost of Parent Entity’s
			investment
			2007
			$000
Non current
Share in controlled entities – at cost				-
			Equity Holding
	Country of		2007
Name of entity	Incorporation	Class of share		%
NuSep, Inc	United States	Ordinary	100

26. Investments in controlled entities

27. Financial Risk Management

(a) Credit Risk Exposures

The carrying amounts of financial assets included in the consolidated statement of financial position represent the economic entity’s maximum exposure to credit risk in relation to these assets.

The company minimises concentrations of credit risk in relation to trade receivables by undertaking transactions with strong, creditworthy customers across all business segments.

Page 055 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

(b) Interest Rate Risk Exposures

The following table sets out the Group’s exposure to interest rate risk, repricing maturities and the effective interest rates on financial instruments at balance date.

Notes 30 June 2007 Financial assets Cash on hand 8 Cash on deposit 13 Trade & Other debtors 10 Total financial assets Financial liabilities Trade creditors 16 Other creditors & accruals 16 Total financial liabilities Net financial assets/(liabilities) Weighted average effective interest rate	Fixed Interest Rate Floating interest rate 1 year or less 1 to 5 years Non- interest bearing Total $000 $000 $000 $000 $000 209 - - - 209 - 1,000 - - 1,000 - - - 167 167
	209 1,000 - 167 1,376
	- - - 910 910 - - - 555 555
	- - - 1,465 1,465
	209 1,000 - (1,298) (89)
	5.50% 6.91% - - -

(c) Foreign Exchange Risk

Foreign exchange risk arises when future commercial transactions and recognised assets and liabilities are denominated in a currency that is not the entity’s functional currency.

A portion of the Company’s customers are either US based or are billed in US dollars. This creates a natural hedge against foreign exchange risk. Inventory is held in the US and the balance sheet can be affected by movements in the US$/A$ exchange rates.

(d) Net Fair Value of Financial Assets and Liabilities

(i) On-Balance Sheet

The net fair value of cash and cash equivalents and non-interest bearing monetary financial assets and financial liabilities of the consolidated entity approximates their carrying amounts.

The net fair value of other monetary financial assets and financial liabilities is based upon market prices where a market exists or by discounting the expected future cash flows by the current interest rates for assets and liabilities with similar risk profiles.

(ii) Off-balance Sheet

The company has on issue a $1.0m bank guarantee as a rental bond for the lease on the property at 22 Rodborough Road, Frenchs Forest. The company has a cash deposit with BankWest to cover the facility. The $1.0m deposit is earning a 6.91%pa interest.

There are no other off balance sheet financial assets and liabilities.

28. New Accounting Standards and interpretations

Certain new accounting standards and interpretations have been published that are not mandatory for the 30 June 2007 reporting date, of which none have been early adopted. None of these are expected to materially affect the entity’s financial report.

Page 056 Financial Report

Nusep Ltd and its Controlled Entities Notes to Financial Statements For the period ended 30 June 2007

29. Non-cash financing and investing activities

Non-cash financing and investing activities are outlined below.

	Consolidated	Parent Entity
	2007	2007
	$000	$000
Shares issued in lieu of services
Shares issued in lieu of services	64	64

30. Commitments for expenditure

(a) Capital commitments

There are no commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities.

(b) Operating Lease Commitments Commitments in relation to leases contracted for at the reporting date but not recognised as liabilities, payable: Within one year Later than one year but not later than 5 years Later than 5 years Representing: Non-cancellable operating leases	Consolidated 2007 $000 793 3,172 932 4,897 4,897 4,897	Parent Entity 2007 $000 793 3,172 932
		4,897
		4,897
		4,897

The Group has an operating lease for its commercial property. This non-cancellable lease has remaining a noncancellable lease term of 6 years. The commercial property lease also includes a clause to enable upward revision of the rental charge on commercially negotiated terms.

31. Events After The Balance Sheet Date

The following events occurred subsequent to 30 June 2007:

a) The Company released on 8th August 2007 a Short Form Prospectus for the Share Purchase Offer for up to 90.3million shares at an issue price of 25 cents per Share to shareholders to raise up to $22.6millon. This included the Unmarketable Parcel Sale Facility to reduce the number of small shareholders.
b) The Company on 12th September 2007 announced that it has raised over $2.77m under the Share Purchase Offer (SPO) that closed on 10th September 2007. The SPO shares will be issued post the EGM on 25th September 2007. Once these shares have been issued the Company will have a total issued capital of approximately 21.7m ordinary shares.

Except for the items discussed above no other matters or circumstances have arisen since 30 June 2007 that have significantly affected, or may significantly affect:

(a) The consolidated entity’s operations in future financial years, or
(b) The results of those operations in future financial years, or
(c) The consolidated entity’s state of affairs in future financial years.

Page 057 Financial Report

Directors’ Declaration

The directors of the company declare that:

1 the financial statements and notes, as set out on pages 20 to 49, are in accordance with the 27 to 56 Corporations Act 2001 and:
(a) comply with Accounting Standards and the Corporations Regulations 2001: and

(b) give a true and fair view of the financial position as at 30 June 2007 and of the performance for the period ended on that date of the company and consolidated group:

2 the Chief Executive Officer and Chief Financial Officer have each declared that:

(a) the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;
(b) the financial statements and notes for the financial period comply with the Accounting Standards; and
(c) the financial statements and notes for the financial period give a true and fair view.
3 in the directors’ opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable

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

==> picture [77 x 34] intentionally omitted <==

Nicholas Carè Chairman

Sydney 28 September 2007

Page 058 Financial Report

==> picture [517 x 76] intentionally omitted <==

Level 12, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +6 2 9233 8933 F +61 2 9233 8521 www.rsmi.com.au

AUDITOR’S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS ACT 2001 TO THE DIRECTORS OF NUSEP LIMITED AND CONTROLLED ENTITIES

I declare that, to the best of my knowledge and belief, during the year ended 30 June 2007 there have been:

(i) no contraventions of the auditor independence requirements as set out in the Corporations Act 2001 in relation to the audit; and

(ii) no contraventions of any applicable code of professional conduct in relation to the audit.

==> picture [197 x 42] intentionally omitted <==

RSM Bird Cameron Partners Chartered Accountants

==> picture [85 x 45] intentionally omitted <==

Sydney, New South Wales Dated: 28 September 2007

H R Moll Partner

T:\02 NuSep Ltd\Finance\Audit\2006_07\Annual Accounts\Email NuSep Auditor's Independece Declaration 30.6.07.doc

9#:10(;66"-*,("4<(

I79(@"0+(?#)014(5#0&40,(",(#4( "4+/4+4&())$0(6"0)(16(I79( J4&04#&"14#%=(#4(#66"%"#&"14(16("4+/4+*4&(

!"#$"%"&'(%")"&*+($'(#(

50&.=(7'+4'=(9%$1304=((

+%#"+(#4+(?#4$*00#(
--134&"48(#4+(-14,3%&"48(6"0),K(
@A(BC(DCE(FGE(HBC(

!*8",%#&"14(

==> picture [22 x 46] intentionally omitted <==

==> picture [501 x 38] intentionally omitted <==

,-.)(#//012+(34+0( 5016*,,"14#%(7+#0+,(

Page 059 Financial Report

==> picture [517 x 76] intentionally omitted <==

Level 12, 60 Castlereagh Street Sydney NSW 2000 GPO Box 5138 Sydney NSW 2001 T +6 2 9233 8933 F +61 2 9233 8521 www.rsmi.com.au

INDEPENDENT AUDITOR’S REPORT

TO THE MEMBERS OF

NUSEP LIMITED

We have audited the accompanying financial report of NuSep Limited (“the company”) and NuSep Limited and Controlled Entities (“the consolidated entity”), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors' declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

We have also audited the remuneration disclosures contained in the directors’ report. As permitted by the Corporations Regulations 2001, the company has disclosed information about the remuneration of directors and executives (“remuneration disclosures”), required by Accounting Standard AASB 124 Related Party Disclosures, under the heading “remuneration report” in pages 8 to 12 of the directors’ 15-19 of the directors’ report and not in the financial report.

Directors’ Responsibility for the Financial Report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 2, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.

The directors of the company are also responsible for the remuneration disclosures contained in the directors’ report.

Auditor’s Responsibility

Our responsibility is to express an opinion on the financial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the financial report is free from material misstatement. Our responsibility is to also express an opinion on the remuneration disclosures contained in the directors’ report based on our audit.

52 9#:10(;66"-,("4<( 50&.=(7'+4'=(9%$1304*=((

T:\02 NuSep Ltd\Finance\Audit\2006_07\Annual Accounts\Email NuSep Audit Report 30.6.07.doc

!"#$"%"&'(%")"&+($'(#( ,-.)(#//012+(34+0( 5016,,"14#%(7+#0+,( !*8",%#&"14(

+%#"+(#4+(?#4$*00#(

@A(BC(DCE(FGE(HBC(

I79(@"0+(?#)014(5#0&40,(",(#4( "4+/4+4&())$0(6"0)(16(I79( J4&04#&"14#%=(#4(#66"%"#&"14(16("4+/4+*4&( #--134&"48(#4+(-14,3%&"48(6"0),K(

==> picture [22 x 46] intentionally omitted <==

==> picture [501 x 38] intentionally omitted <==

Page 060 Financial Report

==> picture [507 x 28] intentionally omitted <==

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the financial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors’ report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions.

Independence

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

Auditor’s Opinion on the Financial Report and Remuneration Disclosures

In our opinion:

(a) the financial report of NuSep Limited is in accordance with the Corporations Act 2001, including:
(i) giving a true and fair view of the company's and consolidated entity’s financial position as at 30 June 2007 and of their performance for the year ended on that date; and
(ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001; and
(b) the financial report also complies with International Financial Reporting Standards as disclosed in Note 2.

Auditor’s Opinion on the AASB 124 remuneration Disclosures Contained in the Directors’ Report

In our opinion the remuneration disclosures that are contained in pages 8 to 12 of the directors’ report 15-19 of the directors’ report comply with Accounting Standard AASB 24.

==> picture [197 x 42] intentionally omitted <==

RSM Bird Cameron Partners Chartered Accountants

==> picture [85 x 46] intentionally omitted <==

Sydney, New South Wales Dated: 28 September 2007

H R Moll Partner

53 T:\02 NuSep Ltd\Finance\Audit\2006_07\Annual Accounts\Email NuSep Audit Report 30.6.07.doc

==> picture [493 x 32] intentionally omitted <==

Page 2 of 2

Page 061 Financial Report

Shareholder Information

The shareholder information set out below was applicable as at 21 September 2007.

A. Distribution Of Equity Securities

Analysis of numbers of equity security holders by size of holding:

1 – 1,000 1,001 – 5,000 5,001 – 10,000 10,001 – 100,000 100,001 – Over	Number of Ordinary Shares 3,185 947 95 115 10
	4,352

There were 3,721 holders of less than a marketable parcel of ordinary shares, total shares held is 1,369,379.

B. Equity Security Holders

Twenty Largest Quoted Equity Security Holders

The name of the twenty largest holders of quoted equity securities are listed below:

Mr John Manusu
Bactence Pty Ltd
Mancu Pty Ltd
Mr Nicodemo D Scali
Mr Henry Lam
I E Properties Pty Ltd
ANZ Nominees Limited
Nutsville Pty Ltd
HSBC Custody Nominees (Australia) Limited
Ms Rosemary Manusu
Bactence Pty Ltd
Mr Alex Manusu
Ms Kate Manusu
Mr Howard Pericles Manusu
Morton Sales Pty Limited
Mr Ian Thompson & Mr Peter Randal Thompson
Peroma Investments Pty Ltd
M/S Rosemary Roslyn Manusu
Citicorp Nominees Pty Limited
Apportionment Services Pty Ltd

Ordinary Shares
Number Held
Percentage of
issued shares
1,447,111
13.58
775,000
7.27
600,000
5.63
380,000
3.57
194,000
1.82
183,000
1.72
165,745
1.56
160,000
1.50
153,092
1.44
128,874
1.21
100,000
0.94
99,313
0.93
95,000
0.89
87,512
0.82
80,192
0.75
80,000
0.75
78,366
0.74
61,624
0.58
60,965
0.57
52,169
0.49
4,981,963
46.76

Page 062 Financial Report

C. Substantial Shareholders as at 21 September 2007.

Ordinary shares Mr John Manusu Bactence Pty Ltd D. Unquoted Equity Securities NuSep Directors, Employee and Consultants Option Plan	Number held Percentage 1,447,111 13.58 775,000 7.27 Number on Issue Number of Holders 3,450,000 12
	3,450,000 12

E. Voting Rights

The voting rights attaching to each class of equity securities are set out below:

(a) Ordinary Shares

On a show of hands, one vote for every member or proxy of a member present and entitled to vote. On a poll, every member shall have one vote for each fully paid share held.

(b) Options

No voting rights.

Corporate Directory

NuSep Ltd ABN 33 120 047 556

Directors

Nicholas Caré (Chairman) John Manusu (Managing Director) Dr Hari Nair (Non-executive Director) Dr Choon Lee (Non-executive Director) Iain Howard Sorrell (Non-executive Director)

Company Secretary

Prakash Patel

Registered Office

22 Rodborough Road Frenchs Forest, NSW 2086 Australia

Tel: 61 2 8977 9000 Fax: 61 2 8977 9099 Email: [email protected] Website: www.nusep.com

Share Registry

Registries Limited Level 2, 28 Margaret Street Sydney, NSW 2000 Australia

Solicitors

David Landa Stewart 86 Bay Street Boardway, NSW 2007 Broadway

Auditors

RSM Bird Cameron Level 12, 60 Castlereagh Street Sydney, NSW 2000

22 Rodborough Rd Frenchs Forest NSW 2086 Australia Ph: +61 2 8977 9000 www.NuSep.com

AI assistant

MEMPHASYS LIMITED. — Annual Report 2007

65314_rns_2007-10-24_7f0e83ae-3908-49ed-ac85-5b4519f7ee0e.pdf

Strategy

Distribution

Technology

Customers

Technology

Chairman’s Report Nicholas Caré

Distribution

Customers

Managing Director’s Report John Manusu

Page 05

Technology

Distribution

Customers

Acquisitions

Biologicals

Separations

MF10

Strategy

Product Offering

The Sperm Sorter Gradifl ow Technology in Sperm Separation

Three million IVF babies born worldwide

Annual Financial Report for the period ended 30 June 2007

NuSep Ltd and its Controlled Entities

Directors’ Report

Directors

NuSep Ltd and its Controlled Entities

Directors’ Report

Company Secretary

Meetings of Directors

CORPORATE INFORMATION

Corporate Structure

Principal Activities

Employees

Dividends

NuSep Ltd and its Controlled Entities

Directors’ Report

REVIEW OF OPERATIONS

Operating results for the year

Gels

Biologicals

NuSep Ltd and its Controlled Entities

Directors’ Report

Separations

Corporate & Shared Services

Likely Developments and Expected Results of Operations

Significant Change in State of Affairs

NuSep Ltd and its Controlled Entities

Directors’ Report

MATTERS SUBSEQUENT TO THE END OF THE FINANCIAL YEAR

SHARE OPTIONS

Unissued Shares

ENVIRONMENTAL REGULATION AND PERFORMANCE

INDEMNIFYING DIRECTORS AND OFFICERS

PROCEEDING ON BEHALF OF THE COMPANY

ROUNDING OF AMOUNTS

NuSep Ltd and its Controlled Entities

Directors’ Report

REMUNERATION REPORT

NuSep Ltd and its Controlled Entities

Directors’ Report

Non Executive Directors

Directors’ Fees

Retirement Allowance for Directors

NuSep Ltd and its Controlled Entities

Directors’ Report

Executive Pay

Base Pay

Retirement Benefits

Short Term Incentives

Long Term Incentives

Details of Remuneration

NuSep Ltd and its Controlled Entities

Directors’ Report

Directors of NuSep

Senior Executive Employment Agreements

Executives of NuSep

NuSep Ltd and its Controlled Entities

MEMPHASYS LIMITED. Annual Report 2007