SILEX SYSTEMS LIMITED

Silex Systems Limited & its controlled entities ABN 69 003 372 067

Financial Statements for the year ended 30 June 2007

Company Directory Directors Mr B S Patterson – Chairman Dr M P Goldsworthy – Managing Director/CEO Mr C D Wilks Dr C S Goldschmidt Mr R P Campbell

Audit Committee Mr R P Campbell - Chairman Dr C S Goldschmidt Mr B S Patterson

Remuneration Committee Mr B S Patterson – Chairman Mr R P Campbell

Company Secretary Mr B J Spillane

Registered office and principal place of business

Building 64, Lucas Heights Science & Technology Centre New Illawarra Road, Lucas Heights, New South Wales 2234, Australia Ph: 61 2 9532 1331 Fax: 61 2 9532 1332 Postal address: PO Box 75, Menai Central, New South Wales 2234

Website address: www.silex.com.au

Share Registry

Computershare Registry Services Pty Limited Level 5, 115 Grenfell Street, Adelaide, South Australia 5000, Australia GPO Box 1903 Adelaide SA 5001, Australia Enquiries within Australia: 1300 556 161 Enquiries outside Australia: 61 3 9415 4000 Email: [email protected] Website: www.computershare.com.au

Stock Exchange

Listed on the Australian Stock Exchange Auditors PricewaterhouseCoopers

Solicitors

Allens Arthur Robinson

Sullivan and Cromwell (USA)

Bankers

Australia and New Zealand Banking Group Limited

American Depository Receipts (ADR) Information

Silex Systems Limited has established a Level 1 ADR Program. Silex ADRs may be purchased on the Overthe-Counter “Pink Sheet” (OTC) market. Details are as follows: Ratio: 1 ADR = 5 ordinary shares Symbol: SILXY CUSIP: 827046 10 3 Exchange: OTC Country: Australia

IMPORTANT NOTICE:

Forward Looking Statements and Business Risks:

Silex is a research and development company whose assets are its proprietary rights in technologies, including, but not limited to, the SILEX technology, Translucent technology and Fiberbyte technology. In general, the Company's technologies are in the development stage and have not been commercially deployed and are therefore high risk. Accordingly, the statements in this annual report regarding the future of the Company's technologies and commercial prospects are forward looking and actual results could be materially different from those expressed or implied by such forward looking statements as a result of various risk factors. Some risk factors that could affect future results and commercial prospects include, but are not limited to, results from the uranium enrichment development program and the stable isotopes program, the demand for enriched materials including uranium, silicon, oxygen, carbon and others, the outcomes of the Company's interests in the development of various semiconductor, photonic and alternative energy technologies, the time taken to develop various technologies, the development of competing technologies, the potential for third party claims against the Company’s ownership of Intellectual Property associated with its numerous technologies, the potential impact of government regulations or policies, and the outcomes of various commercialisation strategies undertaken by the Company.

Directors’ report

DIRECTORS’ REPORT

Your directors present their report on the consolidated entity consisting of Silex Systems Limited (Silex or the Company) and the entities it controlled at the end of, or during the year ended 30 June 2007.

1. Directors

The following persons were directors of Silex Systems Limited during the whole of the financial year and up to the date of this report:

Mr B S Patterson - Chairman Dr M P Goldsworthy - Managing Director Mr C D Wilks Dr C S Goldschmidt Mr R P Campbell

2. Principal Activities

During the year the principal continuing activity of the consolidated entity consisted of research and development of the laser isotope separation technology known as ‘SILEX’. Silex also has a 70.3% fully diluted interest in Translucent Inc, a California based company which is researching and developing a solar energy conversion cell, a thermoelectric power technology, revolutionary silicon based materials and manufacturing technology for application to both the optical communications and mainstream computer chip industries.

In addition to these activities, the controlled entity Fiberbyte Pty Ltd (Fiberbyte) is developing data acquisition equipment utilising its proprietary USBinSync technology. Silex increased its interest in Fiberbyte from 89% to 90% during the year.

3. Dividend

No dividend payments were made during the year. No dividend has been recommended or declared by the Board.

4. Review of operations and activities Trading Results

A summary of consolidated revenue and results is set out below:

Revenue from ordinary activities Profit/(loss) before tax Income tax expense Profit/(loss) after related income tax expense Net (profit)/loss attributable to minority interest Net profit/(loss) attributable to members of Silex Systems Limited	2007 2006 $ $
	35,744,201 1,112,110
	11,967,069 (10,260,336) (3,226,150) -
	8,740,919 (10,260,336) 26,502 (12,921)
	8,767,421 (10,273,257)

Comments on the operations and the results of those operations are set out below:

The increase in revenue is mainly due to revenue from the Uranium Project. In May 2006, Silex and General Electric signed a Commercialisation and License Agreement for the SILEX Uranium enrichment technology. The government approvals required before Silex was entitled to the up front payment from General Electric under the contract were received in October 2006. Revenue for the current year includes $26,878,000 as an up front payment plus recoverable project costs of $7,344,000 (both nil last year).

The improved result was mainly due to increased revenue. This was partly offset by higher costs. Income tax expense was $3,226,150 compared to nil last year.

The Company’s cash reserves are invested in bank bills/term deposits and the remainder as cash or deposits at call with banks.

Directors’ report

5. Earnings per share

Basic earnings per share Diluted earnings per share	2007 2006 Cents Cents
	6.4 (7.6) 6.3 (7.6)

6. Significant changes in state of affairs The significant changes in the state of affairs of the consolidated entity during the course of the year included the following:

During the year the required government approvals were received for the Uranium Project Agreement with General Electric. As a consequence Silex received an up front payment of US$20 million (US$15 million cash and US$5 million from settlement of a convertible promissory note). General Electric is reimbursing Silex for its costs on the Uranium Project.
During the year the Company moved most of its Uranium project staff and equipment to the United States to work on the “Test Loop” project with General Electric.

7. Matters subsequent to the end of the financial year The directors are not aware of any matters or circumstances which are not otherwise dealt with in the financial statements that have significantly or may significantly affect the operations of the consolidated entity, the results of its operations or the state of the consolidated entity in subsequent years.

8. Likely developments and expected results of operations

Silex is a research and development company with interests in a number of technology projects both in Australia and overseas. The Company’s future prospects remain dependent on the outcome of those technical programs and the group’s success in ultimately commercialising these technologies.

The Group’s primary technologies are summarised below:

Uranium Enrichment Program

Silex is developing a novel method of enriching uranium using lasers. During the year, the required government approvals for the Agreement with General Electric were received. The majority of the Uranium project team moved to the US in the first half of 2007 to work on the test loop program with General Electric. If the test loop is successful, Silex will be entitled to a milestone payment of US$15 million. Work would then commence on the next stage of the project.

Stable Isotope Program

Silex has been conducting a parallel Stable Isotope Program for several years with the aim of demonstrating cost-effective enrichment of stable isotopes such as silicon, carbon and oxygen. Enriched silicon has the potential to be used as a new material for the semiconductor industry. The unique properties of these enriched materials and the costs and benefits of using them have yet to be fully determined.

Translucent Inc

Silex has a 70.3% fully diluted interest in Translucent Inc, a California based company which is researching and developing a solar energy conversion cell, a thermoelectric power technology, revolutionary silicon based materials and manufacturing technology for application to both the optical communications and mainstream computer chip industries.

These technologies are still in the development phase. Future commercial prospects for the Translucent technology will depend on continued success with the technical program, third party validation of the technologies, sufficient protection of IP including Patents, and successful implementation of commercialisation strategies.

Fiberbyte

Silex holds a 90% interest in Fiberbyte, an Adelaide based company with novel technology in the field of optical communications test and measurement equipment, and data acquisition technology. Fiberbyte is looking to form a commercial alliance with an industry player to accelerate the commercialisation of its innovative technology.

Directors’ report

9. Share options

Shares under option

Unissued ordinary shares of Silex Systems Limited under option at the date of this report are as follows:

	Issue Price
Number of options	of shares	Grant date	Expiry date
115,000	$0.55	12th November 2002	11th November 2007
225,000	$0.65	9th September 2003	8th September 2008
100,000	$0.65	11th November 2003	10th November 2008
119,000	$0.95	3rd May 2004	2nd May 2009
240,000	$0.85	4th May 2005	3rd May 2010
100,000	$1.77	22nd November 2005	21st November 2010
3,400,000	$3.60	22nd June 2006	21st June 2011
350,000	$7.01	9th March 2007	8th March 2012
250,000	$6.79	22nd August 2007	21st August 2012
4,899,000

The terms and conditions of the options on issue are discussed in Note 36 of the financial statements. No option holder has any right under the option to participate in any other share issue of the Company or of any other entity. Between balance date and the date of this report 250,000 options were granted and these are included in the above table.

Shares issued on the exercise of options

The following ordinary shares of Silex Systems Limited were issued during the year ended 30 June 2007 on the exercise of options granted under the Silex Systems Limited Employee Share Option Plan.

Issue price Date optionsgranted of shares	Number of shares issued
14th August 2002 $0.73 9th September 2003 $0.65 11th November 2003 $0.65 3rd May 2004 $0.95 8th July 2004 $0.88 4th May 2005 $0.85	227,000 220,000 250,000 275,000 32,500 443,000
	1,447,500

Between balance date and the date of this report, the following options were exercised resulting in the issue of 548,500 ordinary shares. These options have been excluded from the shares under option table above.

Date options exercised Issue price of shares	Number of shares issued
9th July 2007 $0.88 9th July 2007 $0.85 26th July 2007 $0.73 26th July 2007 $0.95 26th July 2007 $0.85 10th August 2007 $0.85 30th August 2007 $0.85 19th September 2007 $0.85	17,500 140,000 13,000 21,000 153,000 120,000 50,000 34,000
	548,500

Directors’ report

10. Remuneration report

The remuneration report is set out under the following main headings:

A Principles used to determine the nature and amounts of remuneration
B Details of remuneration
C Share based compensation D Additional information

The information provided under headings A-D include remuneration disclosures that are required under Accounting Standard AASB 124 Related Party Disclosures. These disclosures have been transferred from the financial report and have been audited. The disclosures in Section D are additional disclosures required by the Corporations Act 2001 and the Corporations Regulations 2001 which have not been audited.

A Principles used to determine the nature and amount of remuneration(audited)

The objective of the Company’s executive reward framework is to ensure reward for performance is competitive. The framework aligns executive reward with achievement of strategic objectives and the creation of value for shareholders, and conforms with market best practice for delivery of reward. The Board ensures that executive reward satisfies the following key criteria for good reward governance practices:

competitiveness and reasonableness
acceptability to shareholders
transparency

Alignment to shareholders’ interests:

focuses on sustained growth in share price as well as focusing the executive on key nonfinancial 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 recognition for contribution.

The framework provides a blend of fixed pay and short and long-term incentives.

Directors’ fees

The current base remuneration was last reviewed with effect from 1 July 2006. Directors’ fees are currently $60,000 per director. Additional fees of $5,000 per annum are also payable from 1 July 2006 for membership on the audit committee and $5,000 per annum for the remuneration committee. Non – executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders. The maximum non-executive directors’ fees currently stands at $350,000 per annum and was approved by shareholders at the Annual General Meeting on 1 December 2006.

Executive pay

The executive pay and reward framework has four components:

base pay and benefits
short-term performance incentives
long-term incentives via the issue of share options, and
other remuneration such as superannuation.

The combination of these comprises the executive’s total remuneration.

Base pay

Executive salaries are 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. Base pay for senior executives is reviewed annually to ensure the executive’s pay is competitive with the market. An executive’s pay is also reviewed on promotion.

Directors’ report

There are no guaranteed base pay increases fixed in any senior executives’ contracts, or arrangements.

Benefits

Executives receive benefits including car allowances.

Retirement benefits

Retirement benefits are delivered under the Silex Systems Limited Superannuation Fund or an alternative fund of the executive’s choice. These fund are accumulation funds.

Short-term incentives

At the discretion of the Board, if the Company achieves pre-determined targets set by the Board, then a pool of short-term incentive (STI) funds may be made available for executives and senior staff for allocation during the annual review, or other appropriate times.

A bonus of $400,000 was approved for CEO Dr Michael Goldsworthy in October 2006 for his efforts in securing the Commercialisation and License Agreement with General Electric and the associated government approvals, which lead to the up front payment from General Electric in October 2006. Brad Spillane was paid a bonus of $60,000 in December 2006 for his efforts over the last five years with Silex and for his efforts in the helping the signing of the Commercialisation and License Agreement with GE.

Long-term incentives

Silex Systems Limited Employee Option Plan

Information on the Silex Systems Limited Employee Share Option Plan is set out in note 36 to the financial statements.

B Details of remuneration (audited)

Details of the remuneration of the directors and the key management personnel (as defined in AASB 124 Related Party Disclosures) of Silex Systems Limited and the Silex Systems Limited Group are set out in the following tables.

Key management personnel of Silex Systems Limited and the Silex Group

2007		Short- term employee benefits		Post- employment benefits	Long term benefits	Share- based payments
Name	Cash salary and fees $	Cash bonus $	Non - monetary benefits $	Superannuation $	Long service leave $	Options $	Total $
Executive directors Dr M P Goldsworthy Mr C D Wilks Non executive directors Dr C S Goldschmidt Mr B S Patterson Mr R P Campbell Other key management personnel B J Spillane Company Secretary and Financial Controller	506,203 93,750 65,000 70,000 15,000 120,217	400,000 - - - - 60,000	78,772 - - - - 11,278	12,686 8,438 5,850 6,300 61,300 12,686	9,789 - - - - 2,316	1,126,860 563,430 - - - 70,620	2,134,310 665,618 70,850 76,300 76,300 277,117
Total	870,170	460,000	90,050	107,260	12,105	1,760,910	3,300,495

Directors’ report

2006	Short- term employee benefits	Short- term employee benefits	Short- term employee benefits	Post- employment benefits	Long term benefits	Share- based payment
Name	Cash salary and fees $	Cash bonus $	Non - monetary benefits $	Superannuation $	Long service leave $	Options $	Total $
Executive directors Dr M P Goldsworthy Mr C D Wilks Non executive directors Dr C S Goldschmidt Mr B S Patterson Mr R P Campbell Other key management personnel B J Spillane Company Secretary and Financial Controller	415,007 77,960 40,000 40,000 40,000 93,844	200,000 - - - - -	28,057 - - - - 10,815	12,139 7,016 3,600 3,600 3,600 8,446	51,675 - - - 1,330	27,786 13,893 - - - 32,503	734,664 98,869 43,600 43,600 43,600 146,938
Total	706,811	200,000	38,872	38,401	53,005	74,182	1,111,271

The relative proportions of remuneration that are linked to performance and those that are fixed are as follows:

Name	Fixed remuneration	Fixed remuneration	At risk- STI	At risk- STI	At risk – LTI	At risk – LTI
Executive directors Dr M P Goldsworthy Mr C D Wilks Other key management personnel B J Spillane	2007	2006	2007	2006	2007	2006
	28.5% 15.4% 52.9%	69.0% 85.9% 77.9%	18.7% - 21.6%	27.2% - -	52.8% 84.6% 25.5%	3.8% 14.1% 22.1%

There are no other senior managers/executives in the Group.

C Share-based compensation (audited)

Options

Options are granted under the Silex Systems Limited Employee Option Plan to other key management personnel. Full time and part time staff of the consolidated entity are eligible to participate in the plan. Options are granted under the plan for no consideration. Options are granted for a five year period and vest 100% after two years. Options are also granted to executive directors. These are subject to shareholder approval, are granted for a five year period and vest 100% after two years.

The terms and conditions of each grant of options affecting remuneration in the previous, this or future reporting periods are as follows:

Directors’ report

Grant date	Expirydate	Exercise price	Value per option at grant date	Date exercisable
9 September 2003 3 May 2004 4 May 2005 22 November 2005 22 June 2006 9 March 2007	8 September 2008 2 May 2009 3 May 2010 21 November 2010 21 June 2011 8 March 2012	$0.65 $0.95 $0.85 $1.77 $3.60 $7.01	$0.25 $0.29 $0.33 $0.95 $1.88 $3.26	100% after 9 September 2005 100% after 3 May 2006 100% after 4 May 2007 100% after 22 November 2007 100% after 22 June 2008 100% after 9 March 2009

Options granted under the plan carry no dividend or voting rights. When exerciseable, each option is convertible into one ordinary share.

The exercise price of options is based on the weighted average price at which the Company’s shares are traded on the Australian Stock Exchange during the five days immediately before the options are granted, plus five cents.

Details of options over ordinary shares in the company provided to each director of Silex Systems Limited and each of the key management of the group are set out below. When exerciseable, each option is converted into one ordinary share of Silex Systems Limited. Further information on options is set out in note 36 to the financial statements.

Name	Number of options granted during theyear	Number of options granted during theyear	Number of options vested during theyear	Number of options vested during theyear
	2007	2006	2007	2006
Directors of Silex Systems	Limited
Dr M P Goldsworthy Mr C D Wilks	- -	1,200,000 600,000	- -	- -
Other key management personnel of the Group
Mr B J Spillane	-	50,000	170,000	60,000

The assessed fair value at grant date of options granted to the individuals is allocated equally over the period from grant date to vesting date, and the amount is included in the remuneration tables. Fair values at grant date are independently determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The model inputs for options granted during the year ended 30 June 2007 included:

(a) options are granted for no consideration. 100% vests and are exerciseable after two years of the date of grant

(b) exercise price $7.01 (2006: $1.77 and $3.60)
(c) Grant date: 9 March 2007 (2006: 22 November 2005 and 22 June 2006)
(d) Expiry date: 8 March 2012 (2006: 21 November 2010 and 21 June 2011)
(e) Share price at grant date: $7.36 (2006: $1.79 and $3.80)
(f) Expected volatility of the Company’s shares: 45% (2006: 60% and 55%)
(g) Expected dividend yield: nil (2006: nil)
(h) Risk-free interest rate: 6.5% (2006: 6%)

The minimum value of options issued during the year is nil. The maximum value of options issued during the year to directors and key management personnel is nil.

Shares provided on exercise of remuneration options

Directors’ report

Details of ordinary shares in the Company provided as a result of the exercise of remuneration options to each director of Silex Systems Limited and other key management personnel of the Group are set out below:

Name	Number of ordinary shares issued on exercise of options duringtheyear	Number of ordinary shares issued on exercise of options duringtheyear
	2007	2006
Directors of Silex Systems Limited
-	-	-
Other keymanagementpersonnel of the Group
B Spillane	87,000	22,000

The amounts paid per ordinary share by each director and other key management personnel on the exercise of options at the date of exercise were as follows:

Exercise date	Amount paid per share	Number of shares	Exercise date	Amount paid per share	Number of shares
15 September 2005 4 October 2005 27 February 2006 21 March 2006 11 July 2006 11 August 2006 30 August 2006 13 September 2006	$0.65 $0.65 $0.73 $0.73 $0.73 $0.73 $0.73 $0.73	10,000 10,000 1,000 1,000 2,000 2,000 20,000 3,000	27 October 2006 30 November 2006 30 November 2006 12 December 2006 1 February 2007 29 March 2007 9 May 2007	$0.73 $0.73 $0.65 $0.65 $0.95 $0.95 $0.85	5,000 5,000 10,000 10,000 10,000 10,000 10,000

No amounts are unpaid on any shares issued on the exercise of options.

D Additional information - unaudited

Principles used to determine the nature and amount of remuneration: relationship between remuneration and company performance

The overall level of executive reward takes into account the performance of the Group over a number of years, with greater emphasis given to the current and prior year.

Details of remuneration: cash bonuses and options

For each cash bonus and grant of options included in the tables on pages 5 to 7, the percentage of the available bonus or grant that was paid, or that vested is set out below. The maximum value of options to vest is based on the value determined using the binomial model taking the value calculated as at grant date.

Directors’ report

	Cash bonus	Cash bonus	Options	Options	Options	Options	Options	Options
Name	Paid %	Forfeited %	Financial Year granted	Vested %	Forfeited %	Financial years in which options mayvest	Minimum total value of grant yet to vest $	Maximum total value of grant to vest $
Dr M P Goldsworthy	100	-	Y/E 30/6/2006	-	-	30/06/2008	Nil	2,253,720
Mr C D Wilks	N/A	N/A	Y/E 30/6/2006	-	-	30/06/2008	Nil	1,126,860
Mr B J Spillane	100	-	Y/E 30/6/2004 Y/E 30/6/2005 Y/E 30/6/2006	100 100 -	- - -	N/A N/A 30/06/2008	N/A N/A Nil	N/A N/A 93,905

Further details relating to options are set out below:

Name	A Remuneration consisting of options	B Value at grant date $	C Value at exercise date $	D Value at lapse date $	E Total of columns B-D $
Dr M P Goldsworthy Mr C D Wilks Mr B J Spillane	52.8% 84.6% 25.5%	- - -	N/A N/A 480,300	- - N/A	- - 480,300

A = The percentage of the value of remuneration consisting of options, based on the value of options expensed during the current year.

B = The value at grant date calculated in accordance with AASB 2 Share Based Payments of options granted during the year as part of remuneration.

C = The value at exercise date of options that were granted as part of remuneration and were exercised during the year.

D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the year.

Share options granted to directors and the most highly remunerated officers

No options over unissued ordinary shares of Silex Systems Limited were granted during or since the end of the financial year to the most highly remunerated officers of the Company as part of their remuneration.

No options have been granted since the end of the year.

Other executives of the consolidated entity

There are no officers, other than Executive Directors and Executives noted above, involved in, concerned in, or taking part in, the management of the commercial affairs of Silex Systems Limited.

Performance of Silex Systems Limited

Year ended 30 June	EPS Cents	STI $	Share price at 30 June $
2003 2004 2005 2006 2007	(3.2) (6.9) (7.6) (7.6) 6.4	- - - 200,000 460,000	0.39 0.82 1.11 4.08 12.49

Directors’ report

The improvement in the earnings per share in the current year, due largely to the Uranium Project revenue, has been reflected in a higher share price. The share price has increased significantly between when the agreement with General Electric was announced in May 2006 and 30 June 2007. The share price has increased over the last 5 years as progress has been made on the Company’s projects and increased interest in the Company has been generated in the market. Progress on the projects has not directly been reflected in EPS as the projects are still in the research and development phase and, apart from the Uranium Project, are yet to generate substantial revenue. Until 30 June 2005, earnings per share were calculated in accordance with Australian GAAP as opposed to Australian Equivalents to International Financial Reporting Standards (AIFRS). The STI’s in the last 2 years are related to the progress made on the Uranium Project.

11. Information on Directors

a) Directors' profiles

Mr Barry Patterson ASMM, MIMM, FAICD Chairman – non executive

Experience and expertise

Mr Patterson has a corporate mining background, but in more recent years has held directorial positions in a number of both public and private companies. He is a major shareholder in Silex through his interest in Polly Pty Ltd.

Other current directorships

Non-executive director of Sonic Healthcare Limited since 1993.

Former directorships in last 3 years

Non executive director of National 1 Limited from June 2003 to July 2004.

Special responsibilities

Chairman of the Board Member of audit committee Chairman of remuneration committee

Dr Michael Goldsworthy

BSc (Hons), MSc, PhD, FAIP Managing Director/CEO - Executive

Experience and expertise

Dr Goldsworthy received his PhD in Physics from The University of New South Wales. Prior to starting with Silex Systems Limited in 1988, Dr Goldsworthy was a member of the University's academic staff and was involved in a number of laser-associated research projects. Dr Goldsworthy is the founder of the Company and has been the driving force behind the SILEX project, and the establishment of the consolidated entity’s extensive interests in solar, semiconductor and photonics technologies.

Other current directorships

None

Former directorships in last 3 years

None

Special responsibilities

Managing Director

Mr Christopher Wilks

BComm, ASA, FCIS, FCIM, FAICD Director – executive Experience and expertise

Mr Wilks is responsible for financial oversight and corporate development of Silex. Mr Wilks has a background in chartered accounting and investment banking. He was previously a partner in a private investment bank and has held positions on the board of a number of public companies.

Directors’ report

Other current directorships

Executive director of Sonic Healthcare Limited since 1989, and non-executive director of Independent Practitioner Network Limited since August 2005.

Former directorships in last 3 years

Non executive director of SciGen Limited from 1999 to October 2005.

Special responsibilities

Company secretary until his resignation as company secretary on 19 September 2007.

Dr Colin Goldschmidt

MB BCh, FRCPA, FAICD Non-executive

Experience and expertise

Dr Goldschmidt is the CEO and Managing Director of Sonic Healthcare Limited. He was appointed to this role in 1993 and has overseen Sonic’s growth within Australia and its expansion into the UK, Europe and the USA. He joined Sonic in 1987 as a pathologist, after completing his Australian Pathology Fellowship training in Sydney in 1986.

Other current directorships

Managing Director of Sonic Healthcare Limited since 1993, and non-executive director of Independent Practitioner Network Limited since August 2005.

Former directorships in last 3 years

Non-executive director of SciGen Ltd from 1999 to October 2005.

Special responsibilities

Member of audit committee

Mr Peter Campbell

FCA, FTIA, FAICD Non-executive Experience and expertise

Mr Campbell is a Chartered Accountant with his own practice based in Sydney. He is a Fellow of both the Institute of Chartered Accountants in Australia and the Taxation Institute of Australia and is a registered Company Auditor.

Other current directorships

Non-executive director of Sonic Healthcare Limited since 1993, non-executive director of Admerex Limited since January 2007 and non-executive director of QRxPharma Limited since April 2007.

Former directorships in last 3 years

Non-executive director of SciGen Ltd from 1999 to February 2005.

Special responsibilities

Chairman of audit committee Member of remuneration committee

b) Directors’ interests in shares and options as at the date of this report

Director’s name	Class of shares	No. of shares	Share options
B S Patterson	Ordinary	4,073,863	-
M P Goldsworthy	Ordinary	6,049,533	1,200,000
C D Wilks	Ordinary	2,894,021	600,000
C S Goldschmidt	Ordinary	2,625,937	-
R P Campbell	Ordinary	1,354,823	-

Directors’ report

12. Company secretaries

B J Spillane, B.Comm, CA was appointed to the position of company secretary in 2003. Mr Spillane has been Financial Controller of Silex since he joined the Company in 2001. Before joining Silex Systems Limited he was a Financial Accountant in the building products industry for ten years and prior to that an auditor for five years.

Mr Wilks BComm, ASA, FCIS, FCIM, FAICD has held a number of directorial positions with Australian public companies and has a background in investment banking. He resigned as company secretary on 19 September 2007 but remains a director of the Company.

13. Meetings

The number of Directors’ meetings held during the financial year and the number of meetings attended by each director are set out in the following table:

	Directors’	Meetings	Audit Committee	Audit Committee	Remuneration Committee	Remuneration Committee
			Meetings		Meetings
	Number	Number	Number	Number	Number	Number
Director’s name	Held	Attended	Held	Attended	Held	Attended
B S Patterson	9	9	2	2	1	1
M P Goldsworthy	9	9	-	-	-	-
C D Wilks	9	9	-	-	-	-
C S Goldschmidt	9	9	2	2	-	-
R P Campbell	9	8	2	2	1	1

14. Indemnification and Insurance of Directors

The Company has entered into agreements to indemnify the Directors of the Company against all liabilities to persons (other than the Company or related body corporate) which arise out of the performance of their normal duties as Directors or Executive Officers unless the liability relates to conduct involving lack of good faith. The Company has agreed to indemnify the Directors and Executive Officers against all costs and expenses incurred in defending an action that falls within the scope of the indemnity.

The Directors' and Officers' liability insurance provides cover against all costs and expenses involved in defending legal actions and any resulting payments arising from a liability to persons (other than the Company) incurred in their position as a Director or Executive Officer unless the conduct involves a wilful breech of duty or an improper use of inside information or position to gain advantage. The insurance policy does not allow specific disclosure of the nature of the liabilities insured against or the premium paid under the policy.

15. Environmental regulation

The Company is subject to the environmental and health and safety regulations applicable to tenants of the Lucas Heights Science and Technology Centre. The Company is also bound by the rules and regulations set out in the Australian Radiation Protection and Nuclear Safety Act, 1998, and is a licensee under the Act.

To the best of the Directors' knowledge, all environmental and health and safety regulatory requirements have been met and there have been no claims made during the financial year.

16. Non-audit services

The company may decide to employ the auditor on assignments additional to their statutory audit duties where the auditor’s expertise and experience with the company and/or the consolidated entity are important.

Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for audit and non-audit services provided during the year are set out below.

The board of directors has considered the position and, in accordance with the advice received from the audit committee is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

Directors’ report

All non-audit services have been reviewed by the audit committee to ensure they do not impact the impartiality and objectivity of the auditor
None of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor’s own work, acting in a management or a decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.

During the year the following fees were paid or payable for services provided by the auditor of the parent company, its related practices and non-related audit firms

Consolidated
2007	2006
$	$

Remuneration of auditors

During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non-audit firms: (a) Assurance services Audit services PricewaterhouseCoopers Australian firm Audit and review of financial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services Other assurance services PricewaterhouseCoopers Australian firm IFRS accounting services Audit of government grants Total remuneration for other assurance services Total remuneration for assurance services (b) Taxation services PricewaterhouseCoopers Australian firm Training course fees Total remuneration for taxation services (c) Advisory services PricewaterhouseCoopers Australian firm Corporate finance advice Total remuneration for advisory services Total remuneration	105,812 78,383
	105,812 78,383
	- 6,000 3,000 2,500
	3,000 8,500
	108,812 86,883
	718 -
	718 -
	- -
	- -
	109,530 86,883

17. Auditors

PricewaterhouseCoopers continues in office in accordance with section 327 of the Corporations Act 2001 .

18. Auditors’ independence declaration

A copy of the auditors’ independence declaration as required under section 307C of the Corporations Act 2001 is set out on page 15.

Directors’ report

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

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Dr M P Goldsworthy Managing Director

Mr C D Wilks Director

Sydney, 27/09/07

Directors’ report

Auditors’ Independence Declaration

As lead auditor for the audit of Silex Systems Limited for the year ended 30 June 2007, I declare that to the best of my knowledge and belief, there have been:

a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Silex Systems Limited and the entities it controlled during the period.

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Andrew Sneddon Partner PricewaterhouseCoopers

Sydney 27 September 2007

Liability limited by a scheme approved under Professional Standards Legislation

Corporate governance statement For the year ended 30 June 2007

CORPORATE GOVERNANCE STATEMENT

Silex Systems Limited (the Company) and the board are committed to achieving and demonstrating the highest standards of corporate governance.

The directors are responsible to the shareholders for the performance of the Company in both the short and the longer term and seek to balance sometimes competing objectives in the best interests of the Group as a whole. Their focus is to enhance the interests of shareholders and other key stakeholders and to ensure the Group is 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 Managing Director and senior executives.

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

1. Role of the board of directors

The board of directors is accountable to shareholders for the performance of the Group and is responsible for the corporate governance practices of the Group.

The board’s principal objective is to maintain and increase shareholder value while ensuring that the Group’s overall activities are properly managed.

Silex’s corporate governance practices provide the structure which enables the board’s principal objective to be achieved, whilst ensuring that the business and affairs of the group are conducted ethically and in accordance with the law.

The board’s overall responsibilities include:

providing strategic direction and approving corporate strategies;
monitoring management and financial performance and reporting;
monitoring and ensuring the maintenance of adequate risk management controls and reporting mechanisms, and
ensuring the business is conducted ethically and transparently.

The board delegates responsibility for day-to-day management of the business to the Managing Director. The Managing Director also oversees the implementation of strategies approved by the board. The board uses committees to support it in matters that require more intensive review and involvement. Details of the board committees are provided below.

As part of its commitment to good corporate governance, the board undertakes regular reviews of the practices and standards governing the board’s composition, independence and effectiveness, the accountability and compensation of directors and the board’s responsibility for the stewardship of the Group.

2. Composition of the board

The board is comprised of both executive and non-executive directors with a majority of non-executive directors. Non-executive directors bring a balanced perspective to the board’s consideration of strategic, risk and performance matters and are best placed to exercise independent judgement and review and constructively challenge the performance of management.

The Chairman is an independent non-executive director, the majority of the board are independent of management and all directors are required to bring independent judgement to bear in their board decision making. The Chairman is elected by the full board.

The Company maintains a mix of directors on the board from different backgrounds with complementary skills and experience.

The board undertakes an annual board performance review and considers the appropriate mix of skills required by the board to maximise its effectiveness and its contribution to the Group.

Corporate governance statement For the year ended 30 June 2007

3. Board members

The Directors of the Company in office at the date of this statement are:

Name	Age	Position	Expertise
Dr M P Goldsworthy	49	Managing Director/CEO	Physicist and Co-
			inventor of the SILEX
			Technology
Mr C D Wilks	49	Director	Investment Banking,
			Finance and Company
			Management
Dr C S Goldschmidt	53	Non-executive Director	Company Management
Mr B S Patterson	66	Non-executive	Company Management
		Director/Chairman
Mr R P Campbell	62	Non-executive Director	Finance and Accounting,
			Computing and
			Company Management

All of Silex’s non-executive directors, including the Chairman, are considered independent. An independent director cannot be a substantial shareholder (as defined in section 9 of the Corporations Act 2001 ). The size and composition of the board is determined by the full board.

4. Directors’ independence

The board has adopted specific principles in relation to directors’ independence. These state that to be deemed independent, a director must be a non-executive and:

not be a substantial shareholder of the Company or an officer of, or otherwise associated directly with, a substantial shareholder of the Company
within the last three years, not have been employed in an executive capacity by the Company or any other group member, or been a director after ceasing to hold any such employment
within the last three years not have been a principal of a material professional adviser or a material consultant to the Company or any other group member, or an employee materially associated with the service provided
not be a material supplier or customer of the Company or any other group member, or an officer of or otherwise associated directly or indirectly with a material supplier or customer
must have no material contractual relationship with the Company or a controlled entity other than as a director of the Group
be free from any interest and any business or other relationship which could, or could reasonably be perceived to, materially interfere with the director’s ability to act in the best interests of the Company.

Materiality for these purposes is determined on both quantitative and qualitative bases. In addition, a transaction of any amount or a relationship is deemed material if knowledge of it may impact the shareholders’ understanding of the director’s performance.

5. Term of office

The Company’s Articles of Association specifies that all directors other than the Managing Director must retire from office no later than the third annual general meeting (AGM) following their last election. Where eligible, a director may stand for re-election.

Prior to appointment or being submitted for re-election each non-executive director is required to specifically acknowledge that they have and will continue to have the time available to discharge their responsibilities to the Company.

Corporate governance statement For the year ended 30 June 2007

6. Chairman and Chief Executive Officer (CEO)

The Chairman is responsible for leading the board, ensuring directors are properly briefed in all matters relevant to their role and responsibilities, and facilitating board discussions.

The CEO is responsible for the day-to-day management of the Company’s affairs, and for implementing Group strategies and policies as determined by the Board of Directors.

7. Board meetings

The board meets formally at least 9 times a year to consider a broad range of matters, including progress with respect to the Company’s various development programs, strategy, financial reviews, acquisitions and investments. Details of meetings and attendances are set out in the Directors’ Report.

8. Independent professional advice

Directors and board committees have the right, in connection with their duties and responsibilities, to seek independent professional advice at the Company's expense. Prior written approval of the Chairman is required, but this will not be unreasonably withheld.

9. Performance assessment

The board undertakes an annual self assessment of its collective performance, the performance of the Chairman and of its committees. This was performed in February 2007 and all deemed satisfactory.

The Chairman undertakes an annual assessment of the performance of individual directors and meets privately with each director to discuss this assessment.

10. Corporate reporting

The Managing Director and Financial Controller have made the following certifications to the board:
that the Company’s financial reports are complete and present a true and fair view, in all material respects, of the financial condition and operational results of the Company and Group and are in accordance with relevant accounting standards
that the above statement is founded on a sound system of risk management and internal compliance and control and which implements the policies adopted by the board and that the Company’s risk management and internal compliance and control is operating efficiently and effectively in all material respects.

11. Board committees

The board has established a number of committees to assist in the execution of its duties and to allow detailed consideration of complex issues. Current committees of the board are the remuneration and audit committees. Each is comprised of a majority of non-executive directors. The committee structure and membership is reviewed on an annual basis.

12. Remuneration committee

The remuneration committee consists of the following non-executive directors: B S Patterson (Chairman)

R P Campbell

Details of these directors’ attendance at remuneration committee meetings are set out in the directors’ report.

The remuneration committee advises the board on remuneration and incentive policies and practices generally, and makes specific recommendations on remuneration packages and other terms of employment for executive directors, other senior executives and non-executive directors. Further information on directors’ and executives’ remuneration is set out in the directors’ report and note 28 to the financial statements.

13. Audit committee

The audit committee consists of the following directors: R P Campbell (Chairman) C S Goldschmidt B S Patterson

Corporate governance statement For the year ended 30 June 2007

Details of these directors’ qualifications and attendance at audit committee meetings are set out in the directors’ report.

The audit committee has appropriate financial expertise and all members are financially literate and have an appropriate understanding of the industries in which the Group operates.

The audit committee has its own written charter setting out its role and responsibilities, composition, structure, membership requirements and the manner in which the committee is to operate. The charter is reviewed on an annual basis and is available on the Company website.

Minutes of committee meetings are tabled at the subsequent board meeting.

The audit committee operates in accordance with a charter. The main responsibilities of the committee are to:

review, assess and approve the financial reports and all other financial information published by the Company or released to the market
assist the board in reviewing the effectiveness of the organisation's internal control environment covering:
effectiveness and efficiency of operations
reliability of financial reporting
compliance with applicable laws and regulations
oversee the effective operation of the risk management framework
recommend to the board the appointment, removal and remuneration of the external auditors, and review the terms of their engagement, the scope and quality of the audit and assess performance
consider the independence and competence of the external auditor on an ongoing basis
review and approve the level of non-audit services provided by the external auditors and ensure it does not adversely impact on auditor independence
review and monitor related party transactions and assess their propriety
report to the board on matters relevant to the committee’s role and responsibilities.

In fulfilling its responsibilities, the Audit Committee receives regular reports from management and the external auditors. It also meets with the external auditors at least twice a year – more frequently if necessary, and reviews any significant disagreements between the auditors and management, irrespective of whether they have been resolved. The external auditors have a clear line of direct communication at any time to either the Chairman of the Audit Committee or the Chairman of the board.

The audit committee has authority, within the scope of its responsibilities, to seek any information it requires from any employee or external party.

14. Nomination committee

The Board has decided that it is in the Company’s best interest that the full Board deal with nomination issues. As a result a Nomination Committee has not been established.

15. External auditors

The Company and audit committee policy is to appoint external auditors who clearly demonstrate quality and independence. The performance of the external auditor is reviewed annually and applications for tender of external audit services are requested as deemed appropriate, taking into consideration assessment of performance, existing value and tender costs. It is

PricewaterhouseCoopers policy to rotate audit engagement partners on listed companies at least every five years.

An analysis of fees paid to the external auditors, including a break-down of fees for non-audit services, is provided in note 30 to the financial statements. It is the policy of the external auditors to provide annual declarations of their independence to the audit committee.

The external auditor is requested to attend the annual general meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the audit report.

Corporate governance statement For the year ended 30 June 2007

16. Risk assessment and management

The board, through the audit committee, is responsible for ensuring there are adequate policies in relation to risk management, compliance and internal control systems. These policies, detailed in the audit committee charter are available on the Company website. In summary, the Company policies are designed to ensure strategic, operational, legal, reputation and financial risks are identified, assessed, effectively and efficiently managed and monitored to enable achievement of the Group’s business objectives.

Considerable importance is placed on maintaining a strong control environment. There is an organisation structure with clearly drawn lines of accountability and delegation of authority. Adherence to the Code of Conduct is required at all times and the board actively promotes a culture of quality and integrity.

Detailed control procedures cover management accounting, financial reporting, project appraisal, environment, health and safety, IT security, compliance and other risk management issues.

17. Occupational Health and Safety (OH&S)

The Company recognises the importance of occupational health and safety (OH&S) issues and is committed to the highest levels of performance. To help meet this objective the OH&S Committee was established to facilitate the systematic identification of OH&S issues and to ensure they are managed in a structured and rigorous manner. This system has been operating for a number of years and allows the Company to:

monitor its compliance with all relevant OH&S legislation and regulations,
continually assess and improve the effectiveness of the Company’s OH&S program,
encourage employees to actively participate in the management of all OH&S issues, and
reinforce the importance of safe work practices throughout the Company, as mandated by management.

18. Environmental regulation

As noted in the Directors’ report, the Company is subject to the environmental and health and safety regulations applicable to tenants of the Lucas Heights Science and Technology Centre. The Company is also bound by the rules and regulations set out in the Australian Radiation Protection and Nuclear Safety Act, 1998, and is a licensee under that Act. To the best of the Directors' knowledge, all environmental regulatory requirements have been met.

19. Code of conduct

The Company has developed a Code of Conduct (the Code) which has been fully endorsed by the board and applies to all directors and employees.

In summary, the Code requires that at all times Company personnel act with the utmost integrity, objectivity and in compliance with the letter and the spirit of the law and company policies.

A copy of the Code is available on the Company’s website.

20. Share trading policy

The Company has in place a formal share trading policy which places certain prohibitions on the trading of the Company’s shares. The policy is on the Company’s website. All Silex share dealings by directors are promptly notified to the Australian Stock Exchange (ASX).

21. Independent professional advice and access to information

Each director has the right to seek independent professional advice at the Company’s expense. However, prior approval of the Chairman is required, which is not unreasonably withheld.

All directors have access to Company records and information and receive detailed financial and operational reports from senior management during the year to enable them to carry out their duties. Directors also liaise with senior management as required, and may consult with other employees and seek additional information on request.

Corporate governance statement For the year ended 30 June 2007

22. Conflicts of interest of directors

The board has guidelines dealing with disclosure of interests by directors and participation and voting at board meetings where any such interests are discussed. In accordance with the Corporations Act 2001 , any director with a material personal interest in a matter being considered by the board does not receive the relevant board papers, must not be present when the matter is being considered, and may not vote on the matter.

Further details of directors’ remuneration, superannuation and retirement payments are set out in the Directors’ Report.

23. Continuous disclosure and shareholder communication

The Company has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Company and its controlled entities that a reasonable person would expect to have a material effect on the price of the Company’s securities. These policies and procedures also include the arrangements the Company has in place to promote communication with shareholders and encourage effective participation at general meetings. The Company’s Continuous Disclosure Policy is available on the Company’s website.

The Company Secretary has been nominated as the person responsible for communications with the Australian Stock Exchange (ASX). This role includes responsibility for ensuring compliance with the continuous disclosure requirements in the ASX Listing Rules and overseeing and co-ordinating information disclosure to the ASX, analysts, brokers, shareholders, the media and the public.

Information disclosed to the ASX is posted on the Company’s web site as soon as it is disclosed to the ASX. Procedures have also been established for reviewing whether any price sensitive information has been inadvertently disclosed, and if so, this information is also immediately released to the market.

24. The role of shareholders

The Board of Directors aims to ensure that the shareholders are informed of all major developments affecting the group’s state of affairs. Information is communicated to shareholders as follows:

The annual report is distributed to all shareholders who have elected to receive it and is posted on the company’s website. The board ensures that the annual report includes relevant information about the operations of the group during the year, changes in the state of affairs of the group and details of likely future developments, in addition to the other disclosures required by the Corporations Act 2001 ;
Proposed major changes in the group which may impact on share ownership rights are submitted to a vote of shareholders.

The board encourages full participation of shareholders at the Annual General Meeting to ensure a high level of accountability and identification with the group’s strategy and goals. Important issues are presented to the shareholders as single resolutions.

The shareholders are responsible for voting on the appointment of directors.

25. ASX Principles of Good Corporate Governance and Best Practice Recommendations

The ASX has released 10 principles of corporate governance. Silex has established a Corporate Governance section on its website (www.silex.com.au) which sets out the information required by the Recommendations plus other relevant information. Below is a listing of each of those principles and recommendations and a comment on Silex’s position:

Principle 1. Lay solid foundations for management and oversight.

Principle 1. Lay solid foundations for management and oversight.	Principle 1. Lay solid foundations for management and oversight.	Principle 1. Lay solid foundations for management and oversight.
	Recommendation 1.1 Formalise and disclose the functions reserved to the board and those delegated to management.	Silex’s Position The functions reserved to the board and those delegated to management are detailed in section 1.

Corporate governance statement For the year ended 30 June 2007

Principle 2. Structure the board to add value.

Principle 2. Structure the board to add value.	Principle 2. Structure the board to add value.	Principle 2. Structure the board to add value.
	The composition of the Board is detailed in section 2 and 3 above. The board has been structured to add value to the Company.
	Recommendation 2.1 A majority of the board should be independent directors.	All of the 3 non-executive directors are independent making a majority of the board independent.
	Recommendation 2.2 The chairperson should be an independent director.	The chairperson, Mr B S Patterson is an independent director.
	Recommendation 2.3 The roles of chairperson and chief executive should not be exercised by the same individual.	Mr B S Patterson is the chairperson and Dr M P Goldsworthy is the chief executive.
	Recommendation 2.4 The board should establish a nomination committee.	The board has decided not to establish a nomination committee as it believes the full board is better equipped to handle such matters.
	Recommendation 2.5 Provide the information indicated in the Guide to reporting on Principle 2.	This information is provided in this corporate governance statement.
	Principle 3. Promote ethical and responsible decision-making. Details on ethical standards are disclosed in section 19 above.
	Recommendation 3.1 Establish a code of conduct.	The Company has established a Code of Conduct.
	Recommendation 3.2 Disclose the policy concerning trading in company securities by directors, officers and employees.	Directors’ share trading prohibitions are detailed in section 20. All employees are prohibited from buying and selling Silex shares at any time if they are aware of any material price sensitive information that has not been made available to the public. This however does not restrict employees from exercising options (granted under the Silex Employee Option Plan) over unissued Silex shares. Trading of the subsequently issued shares is however subject to the prohibitions above. The Share trading policy is available on the Company’s website.
	Recommendation 3.3 Provide the information indicated in the Guide to reporting on Principle 3.	Details are included above.
	Principle 4. Safeguard integrity in financial reporting The Company has a structure of review and authorisation designed to ensure the truthful and factual presentation of the Company’s financial position.
	Recommendation 4.1 Require the chief executive officer and chief financial officer (or equivalent) to state in writing to the board that the company’s financial reports present a true and fair view, in all material aspects, of the company’s financial condition and operational results and are in accordance with relevant accounting standards.	The chief executive officer and Financial Controller have complied with this recommendation.
	Recommendation 4.2 The board should establish an audit Committee.	The audit committee has been established for a number of years.

Corporate governance statement For the year ended 30 June 2007

Recommendation 4.3 Structure the audit committee so that it consists of: - only non-executive directors - a majority of independent directors - at least 3 members -	The audit committee is comprised of 3 non- executive independent directors.
Recommendation 4.4 The audit committee should have a formal charter.	The role and responsibilities of the audit committee are summarised in section 13.
Recommendation 4.5 Guide to reporting on Principle 4.	Details are contained above.
Principle 5. Make timely and balanced disclosure The Company has mechanisms in place to ensure compliance with ASX Listing Rule requirements. Refer section 23 above for more details.
Recommendation 5.1 Establish written policies and procedures designed to ensure compliance with ASX Listing Rule disclosure requirements and to ensure accountability at a senior management level for that compliance.	The Company has written policies and procedures on information disclosure that focus on continuous disclosure of any information concerning the Company that a reasonable person would expect to have a material effect on the price of the Company’s securities.
Recommendation 5.2 Provide the information indicated in the Guide to reporting on Principle 5.	A summary of the policies and procedures designed to guide compliance with Listing Rule disclosure requirements is contained in Section 23.
Principle 6. Respect the rights of shareholders. The Company respects the rights of its shareholders via effective communication and making it easy for them to participate at general meetings.
Recommendation 6.1 Design and disclose a communications strategy to promote effective communication with shareholders and encourage effective participation at general meetings.	Refer section 24 for details of Company strategy.
Recommendation 6.2 Request the external auditor to attend the annual general meeting.	Our auditors, PricewaterhouseCoopers are asked to attend the annual general meeting.
Principle 7. Recognise and manage risk. The Company has established a sound system of risk management and internal control.
Recommendation 7.1 The board or appropriate board committee should establish policies on risk oversight and management.	The board has established risk management policies.
Recommendation 7.2 The chief executive officer and the chief financial officer (or equivalent) should state to the board in writing that: 7.2.1 the statement given in accordance with best practice recommendation 4.1(the integrity of financial statements) is founded on a sound system of risk management and internal compliance and control which implements the policies adopted by the board 7.2.2 the company’s risk management and internal compliance and control system is operating efficiently and effectively in all material respects.	A statement has been provided by the Chief Executive Officer and the Financial Controller.

Corporate governance statement For the year ended 30 June 2007

	Corporate governance statement For the year ended 30 June 2007

Recommendation 7.3 Provide the information indicated in the Guide to reporting on Principle 7.	Information is provided in section 16.
Principle 8 Encourage enhanced performance. Enhanced board and management effectiveness is actively encouraged.
Recommendation 8.1 Disclose the process for performance evaluation of the board, its committees and individual directors, and key executives.	Refer section 9 and Directors’ Report for more details.
Principle 9. Remunerate fairly and responsibly. The remuneration committee adopts policies that attract and maintain talented and motivated directors and employees so as to encourage enhanced performance.
Recommendation 9.1 Provide disclosure in relation to the company’s remuneration policies to enable investors to understand (i) the costs and benefits of those policies and (ii) the link between remuneration paid to directors and key executives and corporate performance.	The Directors’ report contains details of remuneration paid to directors and executives. Where bonuses are paid, details of the reason for the bonus are described.
Recommendation 9.2 The board should establish a remuneration committee.	The role and composition of the remuneration committee is summarised in section 12.
Recommendation 9.3 Clearly distinguish the structure of non-executive directors’ remuneration from that of executives.	Executive and non-executive directors’ fees are clearly separated in the Directors’ report.
Recommendation 9.4 Ensure that payment of equity-based executive remuneration is made in accordance with thresholds set in plans approved by shareholders.	The Silex Employee Share Option Plan has been approved by shareholders. Options issued to executive directors during the prior year were approved by shareholders at the last Annual General Meeting.
Recommendation 9.5 Provide the information indicated in the Guide to reporting on Principle 9.	This information is provided in this statement of corporate governance and the Directors’ report.
Principle 10. Recognise the legitimate interests of stakeholders. The Company recognises that it has obligations to non-shareholder stakeholders such as employees, customers,researchpartners and the communityas a whole.
Recommendation 10.1 Establish and disclose a code of conduct to guide compliance with legal and other obligations to legitimate stakeholders.	Details of the Code of conduct and compliance with environmental regulations is detailed in sections 18 and 19.

Annual financial report – 30 June 2007

Contents
	Page
Financial report
Income statements	26
Balance sheets	27
Statements of recognised income and expense	28
Cash flows statements	29
Notes to the financial statements	30
Directors’ declaration	70
Independent audit report to the members	71

This financial report covers both Silex Systems Limited as an individual entity and the consolidated entity consisting of Silex Systems Limited and its controlled entities.

Silex Systems Limited is a company limited by its shares, incorporated and domiciled in Australia.

Its registered office and principal place of business is: Silex Systems Limited Building 64, Lucas Heights Science & Technology Centre New Illawarra Road, Lucas Heights NSW 2234

A description of the nature of the consolidated entity’s operations and its principal activities is included in the directors report on pages 1 to 3, which is not part of this financial report.

The financial report was authorised for issue by the directors on 27 September 2007. The Company has the power to amend and reissue the financial report.

Income statements For the year ended 30 June 2007

Notes Revenue from continuing operations 4 Other income 5 Research and development materials Finance costs 6 Depreciation and amortisation expense 6 Employee benefits expense Professional fees Printing, postage and stationery Rent Travelling expenses Changes in inventories Raw materials and stores used Provision for diminution of investment in controlled entities 6 Net foreign exchange losses Other expenses from ordinary activities Profit/(loss) before income tax expense Income tax expense 7 Net profit/(loss) Profit/(loss) is attributable to: Equity holders of Silex Systems Limited Minority interest Earnings per share for profit from continuing operations attributable to the ordinary equity holders of the company Basic earnings per share Diluted earnings per share		Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
		35,744,201 1,112,110 36,483,508 1,373,061 390,776 544,554 - 457,554 (3,763,844) (908,051) (2,873,502) (231,388) (9,997) (949) (9,997) (949) (1,588,562) (1,925,886) (76,403) (71,192) (12,644,450) (6,225,615) (7,889,150) (3,986,504) (1,488,053) (1,331,232) (2,386,888) (637,971) (85,664) (79,266) (51,383) (40,795) (417,519) (370,563) (257,634) (222,771) (651,535) (299,596) (509,756) (198,657) 41,735 90,590 - - (45,875) (91,970) - - - - (4,700,000) (4,450,000) (2,642,122) - (4,358,137) - (872,022) (774,462) (365,668) (278,177)
		11,967,069 (10,260,336) 13,004,990 (8,287,789) (3,226,150) - (3,226,150) -
		8,740,919 (10,260,336) 9,778,840 (8,287,789)
		8,767,421 (10,273,257) 9,778,840 (8,287,789) (26,502) 12,921 - -
		8,740,919 (10,260,336) 9,778,840 (8,287,789)
		Cents Cents 6.4 (7.6) 6.3 (7.6)

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

Balance sheets As at 30 June 2007

Note ASSETS Current assets Cash and cash equivalents 8 Held to maturity investments 9 Trade and other receivables 10 Inventories 11 Other 12 Total current assets Non-current assets Receivables 13 Property, plant and equipment 14 Deferred tax assets 15 Intangible assets 16 Other financial assets 17 Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables 18 Borrowings 19 Provisions 20 Total current liabilities Non-current liabilities Borrowings 21 Provisions 23 Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity 24 Reserves 25 (a) (Accumulated losses) 25 (b) Parent equity interest Minority interest Total equity	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	22,623,517 15,040,749 21,065,771 12,644,989 - 1,390,040 - - 1,791,841 318,825 2,188,071 36,469 91,166 127,380 - - 81,322 156,332 53,880 132,620
	24,587,846 17,033,326 23,307,722 12,814,078
	191,116 269,070 13,915,414 12,252,559 2,212,401 3,030,158 168,843 106,424 7,932 3,899 7,932 3,899 8,397,054 8,782,985 - - - - 113,525 4,586,361
	10,808,503 12,086,112 14,205,714 16,949,243
	35,396,349 29,119,438 37,513,436 29,763,321
	1,399,232 1,742,322 898,523 1,372,795 23,804 6,726,759 23,804 6,726,759 445,028 248,422 425,802 247,943
	1,868,064 8,717,503 1,348,129 8,347,497
	98,211 - 98,211 - 100,631 147,081 91,965 130,021
	198,842 147,081 190,176 130,021
	2,066,906 8,864,584 1,538,305 8,477,518
	33,329,443 20,254,854 35,975,131 21,285,803
	49,224,639 47,531,679 49,224,639 47,531,679 3,948,931 1,278,408 4,484,947 1,267,419 (19,844,127) (28,611,548) (17,734,455) (27,513,295)
	33,329,443 20,198,539 35,975,131 21,285,803 - 56,315 - -
	33,329,443 20,254,854 35,975,131 21,285,803

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

Statements of recognised income and expense For the year ended 30 June 2007

Exchange differences on translation of foreign controlled entity Net income recognised directly in equity Profit/(loss) for the year Total recognised income and expense for the year Total recognised income and expense for the year is attributable to: Members of Silex Systems Limited Minority interest	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	(630,962) 236,159 - -
	(630,962) 236,159 - - 8,740,919 (10,260,336) 9,778,840 (8,287,789)
	8,109,957 (10,024,177) 9,778,840 (8,287,789)
	8,136,459 (10,037,098) 9,778,840 (8,287,789) (26,502) 12,921 - -
	8,109,957 (10,024,177) 9,778,840 (8,287,789)

The above statements of recognised income and expense should be read in conjunction with the accompanying notes.

Cash flow statements For the year ended 30 June 2007

Notes Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Interest paid Income tax (paid) Net cash inflows/(outflows) from operating activities 34 Cash flows from investing activities Capital injection in controlled entity, net of cash acquired Payment for additional interest in controlled entities Payments for purchase of controlled entity, net of cash acquired Loans to related parties Payments for property, plant and equipment Proceeds from sale of property, plant and equipment Proceeds from maturity of held to maturity assets Repayment of loans by related parties Net cash inflows/(outflows) from investing activities Cash flows from financing activities Proceeds from issue of shares Proceeds from promissory note Repayment of promissory note Repayment of hire purchase liabilities Net cash inflows/(outflows) from financing activities Net increase in cash held Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash Cash and cash equivalents at end of year 8	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	33,331,202 844,010 32,678,896 41,399 (16,415,882) (8,792,757) (11,260,575) (4,520,980) 1,347,336 619,272 1,209,018 442,442 (9,997) (949) (9,997) (949) (3,228,360) - (3,228,360) -
	15,024,299 (7,330,424) 19,388,982 (4,038,088)
	- - - (790,000) (10,000) - (10,000) - - - (1) - (140,717) - (2,744,374) - (571,671) (555,158) (17,195) (23,046) 9,636 14,027 9,636 12,727 1,390,040 1,736,842 - - 171,928 120,160 - -
	849,216 1,315,871 (2,761,934) (800,319)
	1,118,091 674,426 1,118,091 674,426 - 6,849,500 - 6,849,500 (6,726,759) - (6,726,759) - (22,985) (29,681) (22,985) (29,681)
	(5,631,653) 7,494,245 (5,631,653) 7,494,245
	10,241,862 1,479,692 10,995,395 2,655,838 15,040,749 13,416,292 12,644,989 9,989,151 (2,659,094) 144,765 (2,574,613) -
	22,623,517 15,040,749 21,065,771 12,644,989

Financing arrangements 21 Non-cash financing and investing activities 35

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

Notes to the financial statements 30 June 2007

Note	Contents	Page
1	Summary of significant accounting policies	31
2	Financial risk management	39
3	Critical accounting estimates and judgements	40
4	Revenue	40
5	Other income	41
6	Expenses	41
7	Income tax	42
	Assets
8	Current assets - Cash and cash equivalents	43
9	Current assets- Held to maturity investments	43
10	Current assets – Trade and other receivables	43
11	Current assets - Inventories	44
12	Current assets - Other Assets	44
13	Non-current assets – Receivables	44
14	Non-current assets - Property, plant and equipment	46
15	Non-current assets – Deferred tax assets	48
16	Non-current assets - Intangibles	49
17	Non-current assets - Other financial assets	50
	Liabilities
18	Current liabilities – Trade and other payables	50
19	Current liabilities - Borrowings	50
20	Current liabilities - Provisions	51
21	Non-current liabilities – Borrowings	51
22	Non-current liabilities – Deferred tax liabilities	52
23	Non-current liabilities – Provisions	53
	Total equity
24	Contributed equity	53
25	Reserves and accumulated losses	56
26	Franking account balance	57
27	Commitments for expenditure	57
28	Key management personnel disclosures	58
29	Related party transactions	60
30	Remuneration of auditors	62
31	Segment information	62
32	Earnings per share	65
33	Investments in controlled entities	65
34	Reconciliation of profit/(loss) after income tax
	to net cash inflow/(outflow) from operating activities	66
35	Non-cash financing and investing activities	66
36	Share-based payments	66
37	Events occurring after reporting date	69

Notes to the financial statements 30 June 2007

Note 1 Summary of significant accounting policies

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. The financial report includes separate financial statements for Silex Systems Limited as an individual entity and the consolidated entity consisting of Silex Systems Limited and its subsidiaries.

(a) Basis of preparation

This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRSs), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

Compliance with IFRSs

Australian Accounting Standards include Australian equivalents to International Financial Reporting Standards (AIFRS). Compliance with AIFRS ensures that the consolidated financial statements and notes of Silex Systems Limited comply with International Financial Reporting Standards (IFRS). The parent entity financial statements and notes also comply with IFRS except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Presentation and Disclosure.

Early adoption of standard

The Group has elected to apply the following pronouncement to the annual reporting period beginning 1 July 2006:

(i) revised AASB 101 Presentation of Financial Statements (issued October 2006)

This includes applying the pronouncement to the comparatives in accordance with AASB 108 Accounting Policies, Changes in Accounting Estimates and Errors . No adjustments to any of the financial statements were required for the above pronouncement, but certain disclosures are no longer required and have therefore been omitted.

Historical cost convention

These financial statements have been prepared under the historical cost convention.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements, are disclosed in note 3.

(b) Principles of consolidation

(i) Subsidiaries

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Silex Systems Limited (''company'' or ''parent entity'') as at 30 June 2007 and the results of all subsidiaries for the year then ended. Silex Systems Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

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

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases. The Company has elected, under AASB1, to grandfather pre-transition business combinations.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(i)). The Group applies a policy of treating transactions with minority interest as transactions with parties external to the Group. Disposals to minority interests result in gains and losses

Notes to the financial statements 30 June 2007 (continued)

for the Group that are recorded in the income statement. Purchases from minority interests result in goodwill, being the difference between any consideration paid and the relevant share acquired of the carrying value of identifiable net assets of the subsidiary.

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Minority interests in the results and equity of subsidiaries are shown separately in the consolidated income statement and balance sheet respectively.

(c) Segment reporting

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

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Silex Systems Limited’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;
income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and
all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings, are taken to shareholders’ equity. When a foreign operation is sold or borrowings repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

(e) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid. Revenue is recognised for the major business activities as follows:

(i) Sale of goods

A sale is recorded when goods have been despatched to a customer pursuant to a sales order and the associated risks have passed to the carrier or customer.

Notes to the financial statements 30 June 2007 (continued)

(ii) Interest income

Interest revenue is recognised using the effective interest method.

(iii) DARPA income

Revenue is recorded when the conditions under the agreement are met and there is reasonable assurance that the funds will be received.

(iv) Recoverable project costs

A sale is recorded when the customer is invoiced.

(f) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

Government grants relating to the purchase of property, plant and equipment are included in non-current liabilities as deferred income and are credited to the income statement on a straight line basis over the expected lives of the related assets.

(g) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses. Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

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

Silex Systems Limited has not implemented the tax consolidation legislation. Fiberbyte is not a wholly owned subsidiary. Enertex was 100% owned at 30 June 2007 but it had not commenced major activities at this time.

(h) Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long term payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are

Notes to the financial statements 30 June 2007 (continued)

classified as operating leases (note 27). Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

(i) Acquisitions of assets

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer to note 1(r)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired. Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(j) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

(k) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of nine months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(l) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are due for settlement no more than 60 days from the date of recognition.

Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

(m) Inventories

Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials on an actual cost basis.

Notes to the financial statements 30 June 2007 (continued)

(n) Investments and other financial assets

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, held-to-maturity investments, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date.

(i) Loans and receivables

Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet (notes 10 and 13).

(ii) Held to maturity investments

Held to maturity investments are fixed term deposits with financial institutions that the Group’s management has the positive intention and ability to hold to maturity.

(iii) Investment in subsidiaries

Investment in subsidiaries is booked in the accounts of the parent entity at the fair value of assets given as consideration.

(o) Derivatives

Derivatives are initially recognised at fair value on the date a derivative contract is entered into and are subsequently remeasured to their fair value. The method of recognising the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged. The Group designates certain derivatives as either; (1) hedges of the fair value of recognised assets or liabilities or a firm commitment (fair value hedge); or (2) hedges of highly probable forecast transactions (cash flow hedges).

The Group documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Group also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions have been and will continue to be highly effective in offsetting changes in fair values or cash flows of hedged items.

(i) Fair value hedge

Changes in the fair value of derivatives that are designated and qualify as fair value hedges are recorded in the income statement, together with any changes in the fair value of the hedged asset or liability that are attributable to the hedged risk.

(ii) Derivatives that do not qualify for hedge accounting

Certain derivative instruments may not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognised immediately in the income statement.

(p) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments traded in active markets (such as publicly traded derivatives, and trading and available-for-sale securities) is based on quoted market prices at the balance sheet date. The quoted market price used for financial assets held by the Group is the current bid price; the appropriate quoted market price for financial liabilities is the current ask price.

The fair value of financial instruments that are not traded in an active market (for example,

Notes to the financial statements 30 June 2007 (continued)

over-the-counter derivatives) is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date. Quoted market prices or dealer quotes for similar instruments are used for long-term debt instruments held. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of forward exchange contracts is determined using forward exchange market rates at the balance sheet date.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

(q) Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Cost may also include transfers from equity of any gains/losses on qualifying cash flow hedges of foreign currency purchases of property, plant and equipment.

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.

Depreciation on assets is calculated using the straight line method to allocate their cost or revalued amounts, net of their residual values, over their estimated useful lives, as follows:

- Leasehold improvements	2 years
- Plant and Machinery	3-10 years
- Vehicles	5-7 years
- Furniture, fittings and equipment	3-10 years

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 (note 1(j)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement. When revalued assets are sold, it is Group policy to transfer the amounts included in other reserves in respect of those assets to retained earnings.

(r) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisitions of associates is included in investments in associates. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold.

Goodwill is allocated to cash-generating units for the purpose of impairment testing. Each of those cash-generating units represents the Group’s investment in each country of operation by each primary reporting segment (note 31).

(ii) Intellectual property

Intellectual property on acquisition of investment in subsidiaries is amortised on a straight line basis over five years.

Notes to the financial statements 30 June 2007 (continued)

(iii) Research and development

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

Costs incurred on development projects relating to the design and testing of new or improved products are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. Other expenditure that does not meet these expenditure are recognised as an expense as incurred. Given the stage of development of the Company’s technologies, research and developments costs are expensed as incurred.

(s) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 45 days of recognition.

(t) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.

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

(i) Convertible note

The Group had a US$5 million convertible note with General Electric at 30 June 2006 which was classified in Borrowings. Maturity was dependent upon US government approval. Full government approvals were received in October 2006 and the note was settled as part consideration for the Up Front Agreement payment by GE.

(u) Borrowing costs

Borrowing costs are recognised as expenses in the period in which they are incurred.

(v) Provisions

Provisions for legal claims and service warranties are recognised when: the Group has a present legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

(w) Employee benefits

(i) Wages and salaries, annual leave and sick leave

Liabilities for wages and salaries, including non-monetary benefits and annual leave 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. Liabilities for non-accumulating sick leave are recognised when the leave is taken and measured at the rates paid or payable.

(ii) Long service leave

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

Notes to the financial statements 30 June 2007 (continued)

terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Retirement benefit obligations

Some employees of the Group are entitled to benefits on retirement, disability or death from the Group’s defined contribution superannuation plan. The fund receives fixed contributions from Group companies and the Group’s legal or constructive obligation is limited to these contributions.

(iv) Share-based payments

Share-based compensation benefits are provided to employees via the Silex Systems Limited Employee Option Plan. Ownership-based remuneration is also provided to employees via the Translucent Inc Employee Option Plan. Information relating to these schemes is set out in note 36.

The fair value of options granted under the Silex Systems Limited Employee Option Plan and Translucent Inc Employee Option Plan are recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options.

The fair value at grant date is independently determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions. Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.

Upon the exercise of options, the balance of the share-based payments reserve relating to those options is transferred to share capital.

(x) Contributed equity

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a business, are included in the cost of the acquisition as part of the purchase consideration.

(y) Earnings per share

(i) Basic earnings per share

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

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(z) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net

Notes to the financial statements 30 June 2007 (continued)

amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

(aa) New accounting standards and UIG interpretations

Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2007 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below.

(i) AASB 7 Financial Instruments: Disclosures and AASB 2005-10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038]

AASB 7 and AASB 2005-10 are applicable to annual reporting periods beginning on or after 1 January 2007. The Group has not adopted the standards early. Application of the standards will not affect any of the amounts recognised in the financial statements, but may impact the type of information disclosed in relation to the Group’s financial instruments.

(ii) AASB-1 10 Interim Financial Reporting and Impairment

AASB-I 10 is applicable to reporting periods commencing on or after 1 November 2006. The Group has not recognised an impairment loss in relation to goodwill, investments in equity instruments or financial assets carried at cost in an interim reporting period but subsequently reversed the impairment loss in the annual report. Application of the interpretation will therefore have no impact on the Group’s or the parent entity’s financial statements.

Note 2. Financial risk management

The Group’s activities expose it to a variety of financial risks; market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the financial performance of the Group. The Group at times uses derivative financial instruments such as foreign exchange contracts to hedge certain risk exposures.

Risk management is carried out by senior management under policies approved by the Board of Directors. Senior management identifies, evaluates and hedges financial risks in close co operation with the Group’s operating units. The Board provides principles for overall risk management, as well as policies covering specific areas, such as mitigating foreign exchange, interest rate and credit risk, use of derivative financial instruments and investing excess liquidity.

(a) Market risk

(i) 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.

The Group operates internationally and is exposed to foreign exchange risk arising from currency exposures to the US dollar.

Forward contracts are sometimes used to manage foreign exchange risk. Senior management is responsible for managing exposures in each foreign currency.

(ii) Fair value interest rate risk Refer to (d) below.

(b) Credit risk

Notes to the financial statements 30 June 2007 (continued)

The Group has a significant concentration of credit risk with its main receipts coming from Ausindustry, DARPA, banks (interest income) and GE. The Group has policies in place to ensure that sales of products and services are made to customers with an appropriate credit history. Cash transactions are limited to high credit quality financial institutions. The Group has policies that limit the amount of credit exposure to any one financial institution.

(c) Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and marketable securities.

(d) Cash flow and fair value interest rate risk

As the Group has significant interest-bearing assets, the Group’s income and operating cash flows are influenced by changes in market interest rates.

The Group manages its cash flow interest-rate risk by having a spread of maturity dates with different institutions.

Note 3. Critical accounting estimates and judgements

Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

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

(i) Estimated impairment of goodwill

The Group tests annually whether goodwill has suffered any impairment, in accordance with the accounting policy stated in note 1(r). The recoverable amounts of cash generating units have been determined based on the value-in-use calculations. These calculations require the use of assumptions. Refer to note 16 for details of these assumptions.

(ii) Income taxes

The Group is subject to income taxes in Australia and jurisdictions where it has foreign operations. Significant judgement is required in determining the worldwide provision for income taxes. There are many transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business. The Group recognises liabilities for anticipated tax audit issues based on estimates of whether additional taxes will be due. Where the final tax outcome of these matters is different from the amounts that were initially recorded, such differences will impact the current and deferred tax provisions in the period in which such determination is made.

Note 4 Revenue From continuing operations Up Front Uranium Agreement Fee Recoverable Project costs Interest income DARPA contract Services Other	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	26,878,000 - 26,878,000 - 7,343,892 - 7,343,892 - 1,342,171 616,213 2,246,907 1,327,167 159,340 487,174 - - - - 1,831 40,357 20,798 8,723 12,878 5,537
	35,744,201 1,112,110 36,483,508 1,373,061

Notes to the financial statements 30 June 2007 (continued)

Translucent has a contract with the US Defence Department – Defence Advanced Projects Agency (DARPA) Program. Revenue comes from the Microsystems Technology Office – Electronic and Photonic Integrated Circuits (EPIC) program.

Note 5 Other income Foreign currency exchange gains (net) Government Grants Net gain on sale of property, plant and equipment	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	- 132,801 - 444,827 390,776 400,329 - - - 11,424 - 12,727
	390,776 544,554 - 457,554

(i) Government grants

Commercial Ready grants of $390,776 (2006: $400,329) were recognised as other income by the Group during the financial year. There are no unfulfilled conditions attaching to these grants. The grant was received by Fiberbyte Pty Ltd and part of it may be repayable in certain circumstances. These include if a change in control of Fiberbyte occurs without Ausindustry’s consent; Fiberbyte wishes to commercialise the project other than as represented in its grant application; significantly additional aspects of the project would be commercialised in a country other than Australia, or overseas commercialisation would deliver significantly reduced national benefit when compared to the proposed commercialisation arrangements set out in the application; Fiberbyte becomes insolvent; or Fiberbyte breaches any warranty contained in the Agreement conditions.

Note 6 Expenses: Profit/(loss) before income tax includes the following expenses: Depreciation of plant and equipment Amortisation of leasehold improvements Amortisation of intellectual property Total depreciation and amortisation Finance costs Interest and finance charges paid/payable Finance costs expensed Rental expenses relating to operating leases Minimum lease payments Provision for employee entitlements Write down of investments to recoverable amount Defined contribution superannuation expense Provision for warranties Research and development costs Foreign exchange losses Loss on disposal of property, plant and equipment	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	1,129,425 1,370,328 76,403 71,192 63,641 161,178 - - 395,496 394,380 - -
	1,588,562 1,925,886 76,403 71,192
	9,997 949 9,997 949
	9,997 949 9,997 949
	417,519 370,563 257,634 222,771 150,077 100,743 139,803 93,171 - - 4,700,000 4,450,000 319,096 237,734 278,843 196,621 79 90 - - 11,253,050 5,861,236 11,212,776 3,226,381 2,642,122 - 4,358,137 - 555 - 555 -

Notes to the financial statements 30 June 2007 (continued)

Note 7 Income tax (a) Income tax expense Current tax Deferred tax Under provided in prior years Income tax expense is attributable to: Profit from continuing operations Profit from discontinued operations Aggregate income tax expense Deferred income tax expense included in income tax expense comprises: (Increase) in deferred tax assets Increase in deferred tax liabilities (b) Numerical reconciliation of income tax expense to prima facie tax payable Profit/(loss) before income tax expense Income tax calculated @ 30% Tax effect of amounts which are not deductible (taxable) in calculating taxable income Amortisation of intangibles Share based payments Write down of investments to recoverable amount Research and development concession Sundry items Deferred tax asset and deferred tax liability not recognised Effect of higher rates on overseas income Under provided tax paid for previous year Income tax expense (c) Amounts recognised directly in equity Aggregate current and deferred tax arising in the reporting period and not recognised in net profit or loss but directly debited or credited to equity Net deferred tax - debited (credited) directly to equity	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	- - - - (2,210) - (2,210) - 3,228,360 - 3,228,360 -
	3,226,150 - 3,226,150 -
	3,226,150 - 3,226,150 - - - - -
	3,226,150 - 3,226,150 -
	(2,210) - (2,210) - - - - -
	(2,210) - (2,210) -
	11,967,069 (10,260,336) 13,004,990 (8,287,789) 3,590,121 (3,078,101) 3,901,497 (2,486,337) 118,649 118,314 - - 1,031,454 133,272 1,015,080 133,272 - - 1,410,000 1,335,000 (90,000) (174,750) (90,000) (174,750) 17,252 23,986 15,162 16,486 4,667,476 (2,977,279) 6,251,739 (1,176,329) (3,782,136) 3,436,168 (6,253,949) 1,176,329 (887,550) (458,889) - - 3,228,360 - 3,228,360 - 3,226,150 - 3,226,150 -
	(1,823) (3,899) (1,823) (3,899)

Notes to the financial statements 30 June 2007 (continued)

(d) Tax losses Unused tax losses for which no deferred tax asset has been recognised Potential tax benefit at tax rate	25,828,067 34,365,512 2,133,024 13,999,925 10,385,516 12,559,812 639,907 4,199,978

A deferred tax asset has not been recognised as the consolidated entity has a history of tax losses. The benefit of a deferred tax asset will only be obtained if:

(i) the consolidated entity derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised,

(ii) the consolidated entity continues to comply with the conditions for deductibility imposed by tax legislation, and

(iii) no changes in tax legislation adversely affect the consolidated entity in realising the benefit from the deductions for the losses.

Note 8 Current assets - Cash and cash equivalents Cash at bank and on hand Deposits at call Short term bank deposits	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	4,131,729 1,410,404 2,617,387 567,600 800,000 7,600,000 800,000 7,600,000 17,691,788 6,030,345 17,648,384 4,477,389
	22,623,517 15,040,749 21,065,771 12,644,989

(a) Cash at bank and on hand

These bear interest between 0% and 5.5% (2006: between 0% and 5.0%).

(b) Deposits at call

These bear interest at 6.2% (2006: 5.7%).

(c) Short term bank deposits

The deposits bear interest between 5.2% and 6.39% (2006: between 3.2% and 5..98%). These deposits have an average maturity of 31 days.

Note 9 Current assets - Held to maturity investments

Bank deposits

- 1,390,040 - -

In the prior year, the bank deposits earned interest at 4.11%. In the prior year, the deposits had an average maturity of 365 days.

Note 10 Current assets - Trade and other receivables

Trade debtors Less: Provision for doubtful debts Other receivables Loans to controlled entities Loans to other related parties Accrued income	910,269 95,214 909,212 - - - - -
	910,269 95,214 909,212 - 65,652 42,880 51,955 27,239 - - 560,625 - 149,641 134,535 - - 666,279 46,196 666,279 9,230
	1,791,841 318,825 2,188,071 36,469

Notes to the financial statements 30 June 2007 (continued)

(a) Other receivables

These amounts generally arise from transactions outside the usual operating activities of the consolidated entity. Collateral is not normally obtained.

(b) Effective interest rate and credit risk

Information concerning the effective interest rate and credit risk of both current and non-current receivables is set out in the non-current receivables note (note 13).

Note 11 Current assets - Inventories Raw materials and stores - at cost Finished goods - at cost Less: Provision for obsolescence	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	159,037 113,876 - - 134,746 138,172 - -
	293,783 252,048 - - (202,617) (124,668) - -
	91,166 127,380 - -

(a) Inventory expense

Write-downs of inventories to net realisable value recognised as an expense during the year ended 30 June 2007 amounted to $77,949 (2006: $31,293). The expense has been included in “Other expenses from ordinary activities” in the income statement.

Note 12 Current assets - Other Assets

Note 12 Current assets - Other Assets
Prepayments Note 13 Non-current assets - Receivables Loans to controlled entities Loans to other related parties	81,322 156,332 53,880 132,620
	- - 13,915,414 12,252,559 191,116 269,070 - -
	191,116 269,070 13,915,414 12,252,559

Further information relating to loans to controlled entities and other related parties is set out in note 29.

(a) Fair values

The fair values and carrying values of non-current receivables of the Group are as follows:

Loans to other related parties	2007 2006 Carrying Fair Carrying Fair amount value amount value $ $ $ $
	191,116 191,116 269,070 269,070

The fair values are based on cash flows discounted using a current lending rate of 6% (2006: 6%).

(b) Interest rate risk

The Group’s exposure to interest rate risk and the effective weighted average interest rate by maturity periods is set out in the following tables.

Notes to the financial statements 30 June 2007 (continued)

2007 Floating interest rate 1 year or less Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Non- interest bearing Total $ $ $ $ $ $ $ Trade receivables - - - - 910,269 910,269 Loans to other related parties - 149,641 142,256 24,430 24,430 - 340,757 Other receivables - - - - 65,652 65,652 Accrued income - 41,031 - - 625,248 666,279 - 190,672 142,256 24,430 24,430 1,601,169 1,982,957 Weighted average interest rate - 5.90% 6.00% 6.00% 6.00% - 2006 Floating interest rate 1 year or less Over 1 to 2 years Over 2 to 3 years Non- interest bearing Total $ $ $ $ $ $ Trade receivables - - - - 95,214 95,214 Loans to other related parties - 134,535 134,535 134,535 - 403,605 Other receivables - - - - 42,880 42,880 Accrued income - 46,196 - - - 46,196 - 180,731 134,535 134,535 138,094 587,895 Weighted average interest rate - 5.49% 6.00% 6.00% -	Floating interest rate 1 year or less Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Non- interest bearing Total $ $ $ $ $ $ $	Floating interest rate 1 year or less Over 1 to 2 years Over 2 to 3 years Over 3 to 4 years Non- interest bearing Total $ $ $ $ $ $ $
	- - - -	- - - 910,269 910,269 149,641 142,256 24,430 24,430 - 340,757 - - - 65,652 65,652 41,031 - - 625,248 666,279
	-	190,672 142,256 24,430 24,430 1,601,169 1,982,957
	-	5.90% 6.00% 6.00% 6.00% - Floating interest rate 1 year or less Over 1 to 2 years Over 2 to 3 years Non- interest bearing Total $ $ $ $ $ $
		- - - - 95,214 95,214 - 134,535 134,535 134,535 - 403,605 - - - - 42,880 42,880 - 46,196 - - - 46,196
		- 180,731 134,535 134,535 138,094 587,895
		- 5.49% 6.00% 6.00% -

(c) Credit risk

The balance of trade receivables represents the balance owing from General Electric. The loan to related parties represents loans to employees of Translucent Inc.

Notes to the financial statements 30 June 2007 (continued)

Note 14 Non- current assets - Property, plant and equipment

Consolidated

At 1 July 2005 Cost Accumulated depreciation Net book amount Year ended 30 June 2006 Opening net book amount Exchange differences Additions Disposals Depreciation charge Closing net book value At 30 June 2006 Cost Accumulated depreciation Net book amount Year ended 30 June 2007 Opening net book amount Exchange differences Additions Disposals Depreciation charge Closing net book value At 30 June 2007 Cost Accumulated depreciation Net book amount	Plant and equipment Leasehold improvements Motor vehicles Total $ $ $ $
	6,794,387 781,369 170,775 7,746,531 (3,106,778) (583,672) (138,366) (3,828,816)
	3,687,609 197,697 32,409 3,917,715
	3,687,609 197,697 32,409 3,917,715 87,472 3,922 - 91,394 512,974 22,643 19,541 555,158 (2,603) - - (2,603) (1,350,034) (161,178) (20,294) (1,531,506)
	2,935,418 63,084 31,656 3,030,158
	7,442,079 825,663 126,623 8,394,365 (4,506,661) (762,579) (94,967) (5,364,207)
	2,935,418 63,084 31,656 3,030,158
	2,935,418 63,084 31,656 3,030,158 (311,848) (6,141) - (317,989) 525,194 40,005 138,290 703,489 - - (10,191) (10,191) (1,093,396) (63,641) (36,029) (1,193,066)
	2,055,368 33,307 123,726 2,212,401
	7,022,482 759,941 248,665 8,031,088 (4,967,114) (726,634) (124,939) (5,818,687)
	2,055,368 33,307 123,726 2,212,401

Notes to the financial statements 30 June 2007 (continued)

Parent entity At 1 July 2005 Cost Accumulated depreciation Net book amount Year ended 30 June 2006 Opening net book amount Additions Disposals Depreciation charge Closing net book value At 30 June 2006 Cost Accumulated depreciation Net book amount Year ended 30 June 2007 Opening net book amount Additions Disposals Depreciation charge Closing net book value At 30 June 2007 Cost Accumulated depreciation Net book amount	Plant and equipment Leasehold improvements Motor vehicles Total $ $ $ $
	567,041 - 170,775 737,816 (444,880) - (138,366) (583,246)
	122,161 - 32,409 154,570
	122,161 - 32,409 154,570 3,506 - 19,540 23,046 - - - - (50,898) - (20,294) (71,192)
	74,769 - 31,655 106,424
	548,789 - 126,623 675,412 (474,020) - (94,968) (568,988)
	74,769 - 31,655 106,424
	74,769 - 31,655 106,424 10,723 - 138,290 149,013 - - (10,191) (10,191) (40,374) - (36,029) (76,403)
	45,118 - 123,725 168,843
	559,513 - 248,664 808,177 (514,395) - (124,939) (639,334)
	45,118 - 123,725 168,843

Notes to the financial statements 30 June 2007 (continued)

Note 15 Non-current assets - Deferred tax assets The balance comprises temporary differences attributable to : Amounts recognised in profit or loss Provision for employee entitlements and warranties Provisions for stock obsolescence Depreciation Payables not deductible Investment in subsidiary Loans to related parties Foreign currency cash balances Amortisation of share issue expenses Tax losses Amounts recognised directly in equity Share issue expenses Set-off deferred tax liabilities of parent entity pursuant to set-off provisions Net deferred assets not recognised Net deferred tax assets Movements: Opening at 1 July Credited/(charged) to the income statement Credited/(charged) to equity Closing balance at 30 June Deferred tax assets to be recovered after more than 12 months Deferred tax assets to be recovered within 12 months	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	163,530 118,651 155,330 113,389 60,785 37,400 - - 93,205 180,194 90,496 176,845 242,097 391,065 192,485 343,105 - - 7,661,987 6,492,588 - - 413,226 - 772,384 - 772,384 - 7,932 3,899 7,932 3,899 10,385,516 12,553,309 639,907 4,199,978
	11,725,449 13,284,518 9,933,747 11,329,804 1,823 3,899 1,823 3,899
	11,727,272 13,288,417 9,935,570 11,333,703 (134,048) (218,939) (12,309) (141,403) (11,585,292) (13,065,579) (9,915,329) (11,188,401)
	7,932 3,899 7,932 3,899
	3,899 - 3,899 - - - - - 4,033 3,899 4,033 3,899
	7,932 3,899 7,932 3,899
	7,932 3,899 7,932 3,899 - - - -
	7,932 3,899 7,932 3,899

Notes to the financial statements 30 June 2007 (continued)

Consolidated Note 16 Non-current assets - Intangible assets At 1 July 2005 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2006 Opening net book value Amortisation charge Closing net book value At 30 June 2006 Cost Accumulated amortisation and impairment Net book amount Year ended 30 June 2007 Opening net book value Additions - increased shareholding in subsidiary Amortisation charge Closing net book value At 30 June 2007 Cost Accumulated amortisation and impairment Net book amount	Intellectual property on consolidation Goodwill Total $ $ $
	1,971,008 9,191,896 11,162,904 (1,117,043) (868,496) (1,985,539)
	853,965 8,323,400 9,177,365
	853,965 8,323,400 9,177,365 (394,380) - (394,380)
	459,585 8,323,400 8,782,985
	1,971,008 9,191,896 11,162,904 (1,511,423) (868,496) (2,379,919)
	459,585 8,323,400 8,782,985
	459,585 8,323,400 8,782,985 9,565 - 9,565 (395,496) - (395,496)
	73,654 8,323,400 8,397,054
	1,980,573 9,191,896 11,172,469 (1,906,919) (868,496) (2,775,415)
	73,654 8,323,400 8,397,054

Amortisation of $395,496 (2006: $394,380) is included in depreciation and amortisation expense in the income statement.

(a) Impairment tests for goodwill

Goodwill is allocated to the Group’s cash-generating units (CGU’s) identified according to business segment and country of operation.

A segment-level summary of the goodwill allocated is presented below.

2007 Research and development 2006 Research and development	United States of America Total $ $
	8,323,400 8,323,400
	United States of America Total $ $
	8,323,400 8,323,400

Notes to the financial statements 30 June 2007 (continued)

The recoverable amount of a CGU is determined based on value-in-use calculations. These calculations use cash flow projections based on financial budgets approved by management covering a five-year period. Cash flows beyond the five-year period are extrapolated using estimated growth rates of 15%.

(b) Key assumptions used for value-in-use calculations

Research and development United States of America Australia	Discount rate 2007 2006 % % 40 40 40 40

The discount rates used are pre-tax and reflect specific risks relating to the relevant segments, the stage of development of the technologies and the countries in which they operate.

Note 17 Non-current assets - Other financial assets Shares in controlled entities at cost - (note 33) Less: Provision for write down to recoverable amount	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	- - 24,630,427 24,403,263 - - (24,516,902) (19,816,902)
	- - 113,525 4,586,361

The provision for write down to recoverable amount has been calculated based on discounted cash flow calculations for the controlled entities. These calculations are updated at least annually. The controlled entities have continued their research and development activities and as such remain in loss making positions, hence due to the nature of these businesses, a provision against the value of the investment has been raised.

Note 18 Current Liabilities - Trade and other payables Trade creditors Other creditors Note 19 Current liabilities - Borrowings Secured Hire purchase liabilities Unsecured Convertible note Total current borrowings	743,447 1,197,410 372,124 949,982 655,785 544,912 526,399 422,813
	1,399,232 1,742,322 898,523 1,372,795
	23,804 - 23,804 -
	- 6,726,759 - 6,726,759
	23,804 6,726,759 23,804 6,726,759

(a) Hire purchase liabilities and assets pledged as security

Hire purchase liabilities are effectively secured as the right to the asset reverts to the bank in the event of default. The interest rate on the hire purchase liability was 7.64 % in 2007. Refer note 21 for details of assets pledged as security.

Notes to the financial statements 30 June 2007 (continued)

(b) Convertible note

Silex signed a Technology Commercialisation and License Agreement with General Electric Company in 2006. Under the Agreement, a convertible note was set up. After full US Government approval for the project was given, part of the Advance payment due was satisfied by surrender of the convertible note. The note did not bear interest.

Note 20 Current liabilities - Provisions Employee Benefits - long service leave Warranties	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	444,470 247,943 425,802 247,943 558 479 - -
	445,028 248,422 425,802 247,943

(a) Warranties

Provision is made for the estimated warranty claims in respect of products sold. These claims are expected to be settled in the next financial year but this may be extended into the following year.

Note 21 Non Current liabilities - Borrowings Secured

Hire purchase liabilities 98,211 - 98,211 -

(a) Hire purchase liabilities and assets pledged as security

Hire purchase liabilities are effectively secured as the right to the asset reverts to the bank in the event of default. The interest rate on the hire purchase liability was 7.64 % in 2007. The carrying amount of assets pledged as security are:

Plant and equipment under hire purchase (b) Fair value The carrying amount and fair value of borrowings at balance date are: Hire purchase liabilities Convertible promissory note	112,316 - 112,316 -
	2007 2006 Carrying amount Fair value Carrying amount Fair value $ $ $ $ 122,015 122,015 - - - - 6,726,759 6,726,759 122,015 122,015 6,726,759 6,726,759

(c) Interest rate exposure

The following table sets out the Group’s exposure to interest rate risk, including the contractual repricing dates and the effective weighted average interest rate by maturity periods.

2007 Hire purchase liabilities Weighted average interest rate 2006 Convertible promissory note Weighted average interest rate	Floating interest rate 1 year or less Over 1 to 2 years Over 2 to 3 years Non- interest bearing Total $ $ $ $ $ $
	- 23,804 25,713 72,498 - 122,015
	7.64% 7.64% 7.64% - - - - 6,726,759 6,726,759
	0%

Notes to the financial statements 30 June 2007 (continued)

(d) Financing arrangements

Unrestricted access was available at balance date to the following lines of credit:

Unrestricted access was available at balance date to the following lines of credit: Credit standby arrangements Total facilities Documentary credit facility (overseas) Visa facility Used at balance date Documentary credit facility (overseas) Visa facility Unused at balance date Documentary credit facility (overseas) Visa facility Bank loan facilities Total facilities Used at balance date Unused at balance date Note 22 Non-current liabilities -Deferred tax liabilities The balance comprising temporary differences attributable to : Amounts recognised in profit or loss Prepayments and accrued interest Exchange gains Depreciation Set off deferred tax liabilities pursuant to set-off provisions Net deferred tax liabilities Movements: Opening at 1 July Credited/(charged) to the income statement Credited/(charged) to equity Closing balance at 30 June	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $ 100,000 100,000 100,000 100,000 90,000 90,000 90,000 90,000 190,000 190,000 190,000 190,000 - - - - - - - - - - - - 100,000 100,000 100,000 100,000 90,000 90,000 90,000 90,000 190,000 190,000 190,000 190,000 ` 190,000 190,000 190,000 190,000 - - - - 190,000 190,000 190,000 190,000 Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	12,309 2,769 12,309 2,769 - 36,822 - 138,634 134,048 179,348 - -
	146,357 218,939 12,309 141,403
	(146,357) (218,939) (12,309) (141,403)
	- - - -
	- - - - - - - - - - - -
	- - - -

Notes to the financial statements 30 June 2007 (continued)

Deferred tax liabilities to be recovered after more than 12 months Deferred tax liabilities to be recovered within 12 months Note 23 Non-current liabilities - Provisions Employee benefits - long service leave Note 24 Contributed equity (a) Share capital Ordinary shares Fully paid (b) Movements in ordinary share capital Date Details			- - - - - - - - - - - - Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $ 100,631 147,081 91,965 130,021 Parent entity Parent entity 2007 2006 2007 2006 Shares Shares $ $ 137,479,129 136,004,629 49,224,639 47,531,679 Number of shares Issue Price$ $




30 June 2005 Balance 134,995,629 46,694,342 15 September 2005 Exercise of options Proceeds received 65,000 0.65 42,250 Transfer from share-based payments reserve 16,159 4 October 2005 Exercise of options Proceeds received 45,000 0.65 29,250 Transfer from share-based payments reserve 11,187 27 October 2005 Exercise of options Proceeds received 200,000 0.55 110,000 Proceeds received 120,000 0.65 78,000 Transfer from share-based payments reserve 29,832 16 November 2005 Exercise of options Proceeds received 35,000 0.65 22,750 Transfer from share-based payments reserve 8,701 30 November 2005 Exercise of options Proceeds received 5,000 0.65 3,250 Transfer from share-based payments reserve 1,243 20 December 2005 Exercise of options Proceeds received 20,000 0.65 13,000 Transfer from share-based payments reserve 4,972 10 January 2006 Exercise of options Proceeds received 30,000 0.55 16,500 7 February 2006 Exercise of options Proceeds received 100,000 0.65 65,000

Notes to the financial statements 30 June 2007

(continued)

Proceeds received Transfer from share-based payments reserve 27 February 2006 Exercise of options Proceeds received Proceeds received Proceeds received Transfer from share-based payments reserve 21 March 2006 Exercise of options Proceeds received 6 April 2006 Exercise of options Proceeds received Transfer from share-based payments reserve 16 May 2006 Exercise of options Proceeds received Transfer from share-based payments reserve 27 June 2006 Exercise of options Proceeds received Proceeds received Proceeds received Transfer from share-based payments reserve Less transaction costs arising on share issue Deferred tax credit recognised directly in equity 11 July 2006 Exercise of options Proceeds received Proceeds received Proceeds received Proceeds received Transfer from share based payments reserve 11 August 2006 Exercise of options Proceeds received Proceeds received Transfer from share based payments reserve 30 August 2006 Exercise of options Proceeds received Proceeds received Proceeds received Transfer from share based payments reserve 13 September 2006 Exercise of options Proceeds received Proceeds received Proceeds received	20,000 0.73 10,000 0.55 16,000 0.73 15,000 0.65 28,000 0.73 5,000 0.65 115,000 0.95 90,000 0.73 50,000 0.65 40,000 0.95 136,004,629 32,000 0.73 30,000 0.65 85,000 0.95 12,500 0.88 35,000 0.65 2,000 0.73 35,000 0.73 10,000 0.65 75,000 0.95 33,000 0.73 10,000 0.65 10,000 0.95	14,600 24,860 5,500 11,680 9,750 3,729 20,440 3,250 1,243 109,250 33,132 65,700 32,500 38,000 23,954
		47,544,024 (16,244) 3,899
		47,531,679 23,360 19,500 80,750 11,000 37,043 22,750 1,460 8,701 25,550 6,500 71,250 24,094 24,090 6,500 9,500

Notes to the financial statements 30 June 2007 (continued)

Transfer from share based payments
reserve
27 October 2006
Exercise of options
Proceeds received
45,000
0.95
Proceeds received
5,000
0.73
Transfer from share based payments
reserve
30 November 2006
Exercise of options
Proceeds received
5,000
0.73
Proceeds received
35,000
0.65
Transfer from share based payments
reserve
12 December 2006
Exercise of options
Proceeds received
90,000
0.65
Proceeds received
115,000
0.73
Transfer from share based payments
reserve
1 February 2007
Exercise of options
Proceeds received
80,000
0.65
Proceeds received
10,000
0.95
Transfer from share based payments
reserve
14 March 2007
Issue of shares
27,000
7.03
29 March 2007
Exercise of options
Proceeds received
115,000
0.65
Proceeds received
10,000
0.95
Transfer from share based payments
reserve
19 April 2007
Exercise of options
Proceeds received
20,000
0.88
Transfer from share based payments
reserve
9 May 2007
Exercise of options
Proceeds received
338,000
0.85
Transfer from share based payments
reserve
23 May 2007
Exercise of options
Proceeds received
92,000
0.85
Transfer from share based payments
reserve
6 June 2007
Exercise of options
Proceeds received
13,000
0.85
Proceeds received
40,000
0.95
Transfer from share based payments
reserve
21 June 2007
Exercise of options
Proceeds received
65,000
0.65
Transfer from share based payments
reserve
Less transaction costs arising on share issue
Deferred tax credit recognised directly in equity
137,479,129

5,367
42,750
3,650
12,965
3,650
22,750
8,701
58,500
83,950
22,374
52,000
9,500
31,797
189,810
74,750
9,500
43,319
17,600
8,154
287,300
111,168
78,200
30,259
11,050
38,000
15,800
42,250
23,494

49,242,335
(19,519)
1,823

49,224,639

Notes to the financial statements 30 June 2007 (continued)

(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) Options

Information relating to the Silex Systems Limited Employee Share Option Plan, including details of options issued, exercised and lapsed during the financial year and options outstanding at the end of the financial year, is set out in note 36.

	Consolidated	Consolidated	Parent	Parent	entity
	2007	2006	2007		2006
	$	$		$	$
Note 25 Reserves and accumulated losses
(a) Reserves
Foreign currency translation reserve	(689,403)	(58,441)		-	-
Share based payments reserve	4,638,334	1,336,849	4,484,947		1,267,419
	3,948,931	1,278,408	4,484,947		1,267,419
Movements
Foreign currency translation reserve
Balance at the beginning of the financial year	(58,441)	(283,366)		-	-
Net exchange differences on translation of
foreign controlled entity	(630,962)	224,925		-	-
Balance at the end of the financial year	(689,403)	(58,441)		-	-
Options reserve
Balance at the beginning of the financial year	1,336,849	711,316	1,267,419		657,432
Options and share based payment expense	3,655,343	791,123	3,383,601		444,239
Share based payments expense in controlled
entity	-	-	217,163		324,760
Minority interest in options expense	29,378	(6,578)		-	-
Transfer to share capital (options exercised)	(383,236)	(159,012)	(383,236)		(159,012)
Balance at the end of the financial year	4,638,334	1,336,849	4,484,947		1,267,419
(b) (Accumulated losses)
(Accumulated losses) at the beginning of
the financial year	(28,611,548) (18,338,291) (27,513,295)			(19,225,506)
Net profit/(loss) attributable to members of
Silex Systems Limited	8,767,421 (10,273,257)		9,778,840		(8,287,789)
(Accumulated losses) at the end of the
financial year	(19,844,127) (28,611,548) (17,734,455)			(27,513,295)

(c) Nature and purpose of reserves

(i) Share-based payments reserve

The share-based payments reserve is used to recognise the fair value of options issued but not exercised.

(ii) Foreign currency translation reserve

Exchange differences arising on translation of the foreign controlled entity are taken to the foreign currency translation reserve, as described in note 1(d). The reserve is recognised in profit and loss when the net investment is disposed of.

Notes to the financial statements 30 June 2007 (continued)

Note 26 Franking account balance Franking credits available for the subsequent financial year at 30%	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	8,140,251 4,911,891 8,127,750 4,899,390

The above amount represents the balance of the franking accounts at the end of the financial year, adjusted for:

(a) franking credits that will arise from the payment of the current tax liability
(b) franking debits that will arise from the payment of dividends recognised as a liability at the reporting date
(c) franking credits that will arise from the receipt of dividends recognised as receivables at the reporting date, and
(d) franking credits that may be prevented from being distributed in subsequent financial years.

The consolidated amounts include franking credits that would be available to the parent entity if distributable profits of controlled entities were paid as dividends.

Note 27 Commitments for expenditure

(a) Hire Purchase liabilities

(a) Hire Purchase liabilities
Commitments in relation to hire purchases payable are as follows: Not later than one year Later than one year but not later than five years Minimum hire purchase payments Deduct future finance charges not provided for in the financial statements: Total hire purchase liability Consisting of : Current (note 19) Consisting of : Non -Current (note 21)	32,328 - 32,328 - 104,826 - 104,826 -
	137,154 - 137,154 - (15,139) - (15,139) -
	122,015 - 122,015 -
	23,804 - 23,804 - 98,211 - 98,211 -
	122,015 - 122,015 -

The weighted average interest rate is 7.64%.

(b) Capital commitments

(b) Capital commitments
Commitments for the acquisition of plant and equipment contracted for at the reporting date but not recognised as liabilities, payable: Not later than one year (c) Operating leases Commitments for minimum lease payments in relation to non-cancellable operating leases are payable as follows: Not later than one year Later than one year but not later than five years	139,203 145,000 - 145,000
	63,757 83,961 10,735 31,829 30,415 13,977 30,415 13,977
	94,172 97,938 41,150 45,806

Notes to the financial statements 30 June 2007 (continued)

(d) Other commitments

The parent entity is required to issue 750,000 fully paid shares to Translucent upon the commercialisation of Translucents’s technology. These shares will then be distributed to Translucent’s employees.

Note 28 Key management personnel disclosures (a) Directors

The following persons were directors of Silex Systems Limited during the financial year:

Chairman – non executive

B S Patterson

Executive directors

M P Goldsworthy, Managing Director, CEO C D Wilks

Non-executive directors

R P Campbell C S Goldschmidt

(b) Other key management personnel

The following person was the only other executive with authority and responsibility for planning, directing and controlling the activities of the Group, directly or indirectly, during the financial year:

Name Position Employer B J Spillane Company Secretary and Financial Controller Silex Systems Limited

B J Spillane was also a key management person during the year ended 30 June 2006. There are no officers, other than the Executive Directors and Executive named above, involved in, concerned in, or taking part in, the management of the commercial affairs of Silex Systems Limited.

(c) Key management personnel compensation

Details of the remuneration of each director of Silex Systems Limited and the specified executive of the consolidated entity, including their personally-related entities, are set out in the following tables.

Short-term employee benefits Post-employment benefits Long-term benefits Share-based payments	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	1,420,220 945,683 1,420,220 945,683 107,260 38,401 107,260 38,401 12,105 53,005 12,105 53,005 1,760,910 74,182 1,760,910 74,182
	3,300,495 1,111,271 3,300,495 1,111,271

The company has taken advantage of the relief provided by Corporations Regulations CR2M.6.04 and has transferred the detailed remuneration disclosures to the directors’ report. The relevant information can be found in sections A-C of the remuneration report on pages 4 to 8.

(d) Equity instrument disclosures relating to key management personnel

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

Details of options provided as remuneration and shares issued on the exercise of such options, together with terms and conditions of the options, can be found in section C of the remuneration report on pages 6 to 8.

(ii) Options holdings

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

Notes to the financial statements 30 June 2007 (continued)

2007 Name	Balance at the start of theyear	Granted during the year as compensation	Lapsed during the year	Exercised during the year	Balance at the end of theyear	Vested and exercisable at the end of theyear
Directors of Silex Systems Limited Dr M P Goldsworthy Mr C D Wilks	1,200,000 600,000	- -	- -	- -	1,200,000 600,000	- -
Other key management personnel of the Group
Mr B J Spillane	297,000	-	-	(87,000)	210,000	160,000
No options are vested and unexercisable at the end of theyear.
2006 Name	Balance at the start of theyear	Granted during the year as compensation	Lapsed during the year	Exercised during the year	Balance at the end of theyear	Vested and exercisable at the end of theyear
Directors of Silex Systems Limited Dr M P Goldsworthy Mr C D Wilks	900,000 600,000	1,200,000 600,000	(900,000) (600,000)	- -	1,200,000 600,000	- -
Other key management personnel of the Group
Mr B J Spillane	269,000	50,000	-	(22,000)	297,000	77,000

2006
						Vested and
	Balance at	Granted during	Lapsed	Exercised	Balance at	exercisable
Name	the start of theyear	the year as compensation	during the year	during the year	the end of theyear	at the end of theyear
Directors of Silex
Systems Limited
Dr M P Goldsworthy	900,000	1,200,000*	(900,000)	-	1,200,000	-
Mr C D Wilks	600,000	600,000*	(600,000)	-	600,000	-
Other key management
personnel of the Group
Mr B J Spillane	269,000	50,000	-	(22,000)	297,000	77,000

These options were approved by shareholders at the 2006 Annual General Meeting.

(iii) Share holdings

The numbers of shares in the company held during the financial year by each director of Silex Systems Limited and other key management personnel of the Group, including their personally related parties, are set out below. There were no shares granted during the reporting period as compensation.

2007 Name	Balance at the start of theyear	Received during the year on the exercise of options	Other changes during the year	Balance at the end of theyear
Directors of Silex Systems Limited Dr M P Goldsworthy Mr C D Wilks Dr C S Goldschmidt Mr B S Patterson Mr R P Campbell	6,399,533 3,094,021 2,825,937 4,073,863 1,354,823	- - - - -	(350,000) (200,000) (200,000) - -	6,049,533 2,894,021 2,625,937 4,073,863 1,354,823
Other key management personnel of the Group
Mr B J Spillane	5,500	87,000	(49,000)	43,500

Notes to the financial statements 30 June 2007 (continued)

2006 Name	Balance at the start of theyear	Received during the year on the exercise of options	Other changes during the year	Balance at the end of theyear
Directors of Silex Systems Limited Ordinary shares Dr M P Goldsworthy Mr C D Wilks Dr C S Goldschmidt Mr B S Patterson Mr R P Campbell	6,399,533 3,094,021 2,825,937 4,073,863 1,354,823	- - - - -	- - - - -	6,399,533 3,094,021 2,825,937 4,073,863 1,354,823
Other key management personnel of the Group Ordinaryshares
Mr B J Spillane	3,000	22,000	(19,500)	5,500

Note 29 Related party transactions

(a) Subsidiaries

Interests in subsidiaries are set out in note 33.

(b) Key management personnel

Disclosures relating to key management personnel are set out in note 28.

(c) Transactions with related parties

The following transactions occurred with related parties:

Interest received/receivable from controlled entity (Translucent Inc) on loan Fee paid/payable to controlled entity (Translucent Inc) for labour recharge and associated costs Consulting fees charged to controlled entity (Fiberbyte Pty Ltd) in relation to development of products (d) Loans to related parties Interest bearing loans to subsidiaries Beginning of the year Exchange rate movements Loans advanced Interest charged End of year		Parent entity 2007 2006 $ $
		1,006,088 887,641 1,920,329 - 1,831 40,357
		12,252,559 11,052,712 (1,685,975) 312,206 2,342,742 - 1,006,088 887,641
		13,915,414 12,252,559

The above loan advanced by Silex Systems Limited is not payable until December 2014. The average interest rate on the loan during the year was 9.25% (2006: 8.13%).

Notes to the financial statements 30 June 2007 (continued)

Loans to other related parties Beginning of the year Exchange rate movements Loans advanced Loan repayments received Interest charged End of year	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	403,605 523,765 - - (61,890) 14,376 - - 140,717 - - - (171,928) (166,824) - - 30,253 32,288 - -
	340,757 403,605 - -

The average interest rate on the loan during the year was 6% (2006:6%). The loans were provided to employees of Translucent Inc. The loans are to be forgiven in lieu of bonuses, subject to performance criteria, over the next three years.

Interest free loans to subsidiaries Beginning of the year Exchange rate movements Loans advanced End of year	Parent entity 2007 2006 $ $
	- - (30,817) - 591,442 -
	560,625 -

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

Notes to the financial statements 30 June 2007 (continued)

Note 30 Remuneration of auditors During the year the following fees were paid or payable for services provided by the auditor of the parent entity, its related practices and non- audit firms: (a) Assurance services Audit services PricewaterhouseCoopers Australian firm Audit and review of financial reports and other audit work under the Corporations Act 2001 Total remuneration for audit services Other assurance services PricewaterhouseCoopers Australian firm IFRS accounting services Audit of government grants Total remuneration for other assurance services Total remuneration for assurance services (b) Taxation services PricewaterhouseCoopers Australian firm Training course fees Total remuneration for taxation services (c) Advisory services PricewaterhouseCoopers Australian firm Corporate finance advice Total remuneration for advisory services Total remuneration	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	105,812 78,383 105,812 78,383
	105,812 78,383 105,812 78,383
	- 6,000 - 6,000 3,000 2,500 - -
	3,000 8,500 - 6,000
	108,812 86,883 105,812 84,383
	718 - 718 -
	718 - 718 -
	- - - -
	- - - -
	109,530 86,883 106,530 84,383

It is Silex’s policy to employ PricewaterhouseCoopers on assignments additional to their statutory audit duties where PricewaterhouseCoopers’ expertise and experience with Silex are important; these assignments are principally tax advice and assurance related, or where PricewaterhouseCoopers is awarded assignments on a competitive basis. It is Silex’s policy to seek competitive quotes for all major consulting projects.

Note 31 Segment information

Primary reporting-geographical segments

The consolidated entity is organised into the following divisions by geographical location.

Australia

This includes the operations of the parent entity and the operations of Fiberbyte.

United States of America

This relates to the activities of Translucent Inc.

Notes to the financial statements 30 June 2007 (continued)

Note 31 Segment information (continued)

2007 Up Front Agreement Fee Recoverable Project costs DARPA contract Other Total segment revenue Unallocated - Interest income Total revenue Segment result Unallocated revenue and income less unallocated expenses Profit before tax Income tax expense Net profit Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Acquisition of property, plant and equipment, intangibles and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses	Australia United States of America Inter segment eliminations/ unallocated $ $ $	Consolidated $
	26,878,000 - - 7,343,892 1,882,336 (1,882,336) - 159,340 - 20,798 - -	26,878,000 7,343,892 159,340 20,798
	34,242,690 2,041,676 (1,882,336)	34,402,030 1,342,171
	18,831,498 (5,564,478) -
		35,744,201
		13,267,020 (1,299,951)
	2,038,406 10,726,494 -
		11,967,069 (3,226,150)
		8,740,919
		12,764,900 22,631,449
	1,650,760 416,146 -
		35,396,349
		2,066,906 -
	162,330 550,724 -
		2,066,906
		713,054
	493,358 1,095,204 -	1,588,562
	228,105 - -	228,105

Notes to the financial statements 30 June 2007 (continued)

Note 31 Segment information (continued)

2006 DARPA contract Other revenue Total segment revenue Unallocated - Interest income Total revenue Segment result Unallocated revenue and income - interest income and exchange gain (Loss) before tax Income tax expense Net (loss) Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Acquisition of property, plant and equipment, intangibles and other non-current segment assets Depreciation and amortisation expense Other non-cash expenses	Australia United States of America Inter segment eliminations/ unallocated $ $ $	Consolidated $
	- 487,174 - 8,723 - -	487,174 8,723
	8,723 487,174 -	495,897 616,213
	(6,681,079) (4,328,271) -
		1,112,110
		(11,009,350) 749,014
	902,545 11,782,205 -
		(10,260,336) -
		(10,260,336)
		12,684,750 16,434,688
	8,603,938 260,646 -
		29,119,438
		8,864,584 -
	44,700 510,458 -
		8,864,584
		555,158
	491,511 1,434,375 -	1,925,886
	132,126 - -	132,126

Secondary reporting – business segments Research and development

This includes research and development of the SILEX process in New South Wales, the operations of Fiberbyte in South Australia and the operations of Translucent in the United States of America.

Research and development	Segment revenues from external customers Segment assets Acquisitions of property, plant and equipment, intangibles and other non current assets 2007 2006 2007 2006 2007 2006 $ $ $ $ $ $
	34,402,030 495,897 12,764,900 12,684,750 713,054 555,158

Notes to the financial statements 30 June 2007 (continued)

Note 32 Earnings per share Basic earnings per share (cents per share) Diluted earnings per share (cents per share) Weighted average number of ordinary shares on issue used in the calculation of basic earning per share: Weighted average number of ordinary shares on issue used in the calculation of diluted earning per share: Reconciliation of earnings used in calculating earnings per share Basic and diluted earnings per share Net profit/(loss) Net (profit)/loss attributable to minority interest Earnings used in calculating basic and diluted earnings per share Reconciliation of denominator used in calculating basic earnings per share Adjustment for options Shares used in calculating diluted earnings per share Note 33 Investments in controlled entities Country of Class of Name of entity incorporation shares		Consolidated 2007 2006
		6.4 (7.6)
		6.3 (7.6)
		136,606,722 135,435,234
		139,461,672 135,435,234
		Consolidated 2007 2006 $ $
		8,740,919 (10,260,336) 26,502 (12,921)
		8,767,421 (10,273,257)
		Consolidated 2007 2006 Shares Shares
		136,606,722 135,435,234 2,854,950 -
		139,461,672 135,435,234
		Equity holding 2007 2006 % % 79.6% 77.6% 100.0% 100.0% 90.0% 89.0% 7.7% 7.7% 100.0% 100.0% 70.3% 70.3% 100.0% N/A 100.0% N/A
Fiberbyte Pty Ltd Australia Ordinary Preference Total Translucent Inc United States of America Ordinary Preference Total Enertex Pty Ltd Australia Ordinary Total

Notes to the financial statements 30 June 2007 (continued)

Outflow of cash to controlled entities, net of cash acquired Cash consideration Less cash acquired Outflow of cash Note 34 Reconciliation of profit/(loss) after income tax to net cash inflow/(outflow) from operating activities Operating profit/(loss) after income tax Depreciation (Profit)/loss on sale of plant and equipment Amortisation of intangibles Amortisation of leasehold improvements Non cash employee benefits expense - share based payments Net exchange differences Write down of investments Decrease/(increase) in prepayments and other current assets Decrease/(increase) in trade and other debtors Decrease/(increase) in accrued income Decrease/(increase) in inventories Increase/(decrease) in trade and other creditors Increase in provision for employee entitlements and warranties Net cash inflow/(outflow) from operating activities Note 35 Non-cash Financing and Investing activities Acquisition of plant and equipment by means of hire purchase	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	10,001 - 10,001 790,000 (1) - - -
	10,000 - 10,001 790,000
	8,740,919 (10,260,336) 9,778,840 (8,287,789) 1,129,425 1,370,328 76,403 71,192 555 (11,424) 555 (12,727) 395,496 394,380 - - 63,641 161,178 - - 3,845,153 791,123 3,383,601 444,239 2,388,730 (122,741) 4,302,377 (434,947) - - 4,700,000 4,450,000 75,010 (68,466) 78,740 (54,192) (837,667) (101,290) (933,928) (896,798) (620,243) 3,059 (1,663,137) 2,916 36,214 (59,297) - - (343,090) 472,229 (474,272) 586,847 150,156 100,833 139,803 93,171
	15,024,299 (7,330,424) 19,388,982 (4,038,088)
	131,818 - 131,818 -
	131,818 - 131,818 -

Note 36 Share-based payments

(a) Silex Systems Limited Employee Option Plan

All full time and part time staff of the consolidated entity and executive directors of the consolidated entity are eligible to participate in the plan.

Options are granted under the plan for no consideration. Options are granted for a five year period and become exercisable after two years of the date of the grant. The options lapse if the holder ceases to be an eligible employee other than by reason of death or permanent disablement, unless the Board determines otherwise in its absolute discretion. Options granted under the plan carry no dividend or voting rights.

When exercisable, each option is convertible into one ordinary share. The exercise price of options is based on the weighted average price at which the Company’s shares are traded on the Australian Stock Exchange during the five trading days before the options are granted plus five cents. Amounts received on the exercise of options are recognised as share capital.

Set out below are summaries of options granted under the plan.

Notes to the financial statements 30 June 2007

(continued)

Grant date Expiry date Exercise price cents	Balance at start of year No. Issued during the year No. Lapsed during the year No. Exercised during the year No. Balance at end of the year No. Exercisable at the end of the year No.
Consolidated and parent entity - 2007 14/8/2002 13/8/2007 73 12/11/2002 11/11/2007 55 9/9/2003 8/9/2008 65 11/11/2003 10/11/2008 65 3/5/2004 2/5/2009 95 8/7/2004 7/7/2009 88 4/5/2005 3/5/2010 85 22/11/2005 21/11/2010 177 22/6/2006 21/6/2011 360 9/3/2007 8/3/2012 701 Weighted average exercise price Grant date Expirydate Exercise price cents	240,000 - - (227,000) 13,000 13,000 115,000 - - - 115,000 115,000 445,000 - - (220,000) 225,000 225,000 350,000 - - (250,000) 100,000 100,000 415,000 - - (275,000) 140,000 140,000 50,000 - - (32,500) 17,500 17,500 1,180,000 - - (443,000) 737,000 737,000 100,000 - - - 100,000 - 1,600,000 - - - 1,600,000 - - 350,000 - - 350,000 -
	4,495,000 350,000 - (1,447,500) 3,397,500 1,347,500
	$1.81 $7.01 - $0.79 $2.78 $0.79 Balance at start of year No. Issued during the year No. Lapsed during the year No. Exercised during the year No. Balance at end of the year No. Exercisable at the end of the year No.
Consolidated and parent entity – 2006 17/7/2000 16/7/2005 321 28/8/2000 27/8/2005 322 20/4/2001 19/4/2006 402 14/8/2002 13/8/2007 73 12/11/2002 11/11/2007 55 9/9/2003 8/9/2008 65 11/11/2003 10/11/2008 65 3/5/2004 2/5/2009 95 8/7/2004 7/7/2009 88 4/5/2005 3/5/2010 85 22/11/2005 21/11/2010 177 22/6/2006 21/6/2011 360 Weighted average exercise price	50,000 - (50,000) - - - 50,000 - (50,000) - - - 1,635,000 - (1,635,000) - - - 394,000 - - (154,000) 240,000 240,000 155,000 - - (40,000) 115,000 115,000 905,000 - - (460,000) 445,000 445,000 350,000 - - - 350,000 350,000 570,000 - - (155,000) 415,000 415,000 50,000 - - - 50,000 - 1,180,000 - - - 1,180,000 - - 100,000 - - 100,000 - - 1,600,000 - - 1,600,000 -
	5,339,000 1,700,000 (1,735,000) (809,000) 4,495,000 1,565,000
	$1.81 $3.49 $3.97 $0.72 $1.81 $0.73

The market price of shares under option at 30 June 2007 was $12.49 (2006: 4.08).

The weighted average share price at the date of exercise of options exercised regularly during the year ended 30 June was $7.79 (2006: $2.90).

The weighted average remaining contractual life of share options outstanding at the end of the period was 3.3 years (2006: 3.7 years).

Fair value of options granted

Notes to the financial statements 30 June 2007 (continued)

The assessed fair value at grant date of options granted during the year ended 30 June 2007 was 325.94 cents for the options issued 9 March 2007 (2006: 95.39 cents for the options issued 22 November 2005 and 187.81 cents for the options issued 22 June 2006). The fair value at grant date is independently determined using a Binomial option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk free interest rate for the term of the option.

The model inputs for options granted during the year ended 30 June 2007 included:

(a) options are granted for no consideration. 100% vests and is exerciseable after two years of the date of grant
(b) exercise price $7.01 (2006: $1.77 and $3.60)
(c) Grant date: 9 March 2007 (2006: 22 November 2005 and 22 June 2006)
(d) Expiry date: 8 March 2012 (2006: 21 November 2010 and 21 June 2011)
(e) Share price at grant date: $7.36 (2006: $1.79 and $3.80)
(f) Expected volatility of the Company’s shares: 45% (2006: 60% and 55%)
(g) Expected dividend yield: nil (2006: nil)
(h) Risk-free interest rate: 6.5% (2006: 6%)

(b) Options to executive directors

On 22 June 2006, 1,200,000 share options were granted to Dr M P Goldsworthy and 600,000 share options to Mr C D Wilks. These received shareholder approval at the Annual General Meeting. The terms (and model inputs) are the same as for the employee share options granted on 22 June 2006.

(c) Translucent Inc Stock Incentive Plan

All full time and part time staff of Translucent Inc are eligible to participate in the plan. In addition consultants are eligible to participate in the plan.

Options are granted under the plan for no consideration. Options are granted for a ten year period and become exercisable at various stages over the five years from the date of the grant. The options lapse if the holder ceases to be an eligible employee other than by reason of death or permanent disablement, unless the Board determines otherwise in its absolute discretion. Options granted under the plan carry no dividend or voting rights.

When exercisable, each option is convertible into one ordinary share. The exercise price of options is based on the fair value of the shares. Amounts received on the exercise of options are recognised as share capital.

Set out below are summaries of options granted under the plan.

Grant date Expiry date Exercise price US cents	Balance at start of year No. Issued during the year No. Lapsed/ expired during the year No. Exercised during the year No. Balance at end of the year No. Exercisable at the end of the year No.
Translucent Inc - 2007 25/6/2001 25/6/2011 25 10/9/2001 10/9/2011 25 2/11/2001 2/11/2011 25 13/2/2002 13/2/2012 25 4/5/2002 4/5/2012 25 13/9/2002 13/9/2012 5 29/9/2003 29/9/2013 1 22/12/2004 22/12/2014 2.657 13/4/2006 13/4/2016 6.4 4/10/2006 4/10/2016 6.4 Weighted average exercise price -US cents	10,000 - - - 10,000 10,000 135,000 - - - 135,000 135,000 10,000 - - - 10,000 10,000 5,000 - - - 5,000 5,000 5,000 - - - 5,000 5,000 15,000 - - - 15,000 15,000 11,475,290 - (4,000) - 11,471,290 10,897,526 9,511,411 - (177,321) - 9,334,090 9,015,586 809,404 - (9,375) - 800,029 341,545 - 966,606 - - 966,606 322,202
	21,976,105 966,606 (190,696) - 22,752,015 20,756,859
	2.099 6.400 2.806 - 2.276 2.086

Notes to the financial statements 30 June 2007 (continued)

Grant date Expirydate Exercise price US cents	Balance at start of year No. Issued during the year No. Lapsed/ expired during the year No. Exercised during the year No. Balance at end of the year No. Exercisable at the end of the year No.
Translucent Inc - 2006 25/6/2001 25/6/2011 25 10/9/2001 10/9/2011 25 2/11/2001 2/11/2011 25 13/2/2002 13/2/2012 25 4/5/2002 4/5/2012 25 13/9/2002 13/9/2012 5 29/9/2003 29/9/2013 1 22/12/2004 22/12/2014 2.657 10/1/2005 10/1/2015 2.657 13/4/2006 13/4/2016 6.4 Weighted average exercise price - US cents	10,000 - - - 10,000 10,000 135,000 - - - 135,000 128,673 10,000 - - - 10,000 10,000 5,000 - - - 5,000 5,000 5,000 - - - 5,000 5,000 15,000 - - - 15,000 11,484 11,475,290 - - - 11,475,290 8,606,468 9,511,411 - - - 9,511,411 8,784,427 3,866,418 - (3,866,418) - - - - 809,404 - - 809,404 171,414
	25,033,119 809,404 (3,866,418) - 21,976,105 17,732,466
	2.046 6.400 2.657 - 2.099 2.090

The model inputs for options granted during the year ended 30 June 2007 included:

(a) options are granted for no consideration, vests and are exerciseable over the 48 months after grant date.
(b) exercise price US 6.4 cents (2006: US 6.4 cents)
(c) Grant date: 4 October 2006 (2006: 13 April 2006)
(d) Expiry date: 4 October 2016 (2006: 13 April 2016)
(e) Share price at grant date: US6.4 cents (2006: US 6.4 cents)
(f) Expected volatility of the Company’s shares: 45% (2006: 55%)
(g) Expected dividend yield: nil (2006: nil)
(h) Risk-free interest rate: 6% (2006: 6%)

(d) Shares to Translucent employees

Silex Systems Limited is required to provide Translucent employees with 750,000 fully paid ordinary shares following commercialisation of the Company’s technology.

(e) Expenses arising from share based transactions

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

Options issued Shares issued Shares to be issued	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $
	3,438,180 466,363 3,383,601 444,239 189,810 - - - 217,163 324,760 - -
	3,845,153 791,123 3,383,601 444,239

Note 37 Events occurring after reporting date

The directors are not aware of matters or circumstances which are not otherwise dealt with in the financial statements that have significantly or may significantly affect the operations of the consolidated entity, the results of its operations or the state of the consolidated entity in subsequent years.

Directors’ declaration

In the directors’ opinion:

(a) the financial statements and notes set out on pages 25 to 69 are in accordance with the Corporations Act 2001 , including:
(i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
(ii) 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 financial year ended on that date; and
(b) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable; and
(c) the audited remuneration disclosures set out on pages 4 to 8 of the directors’ report comply with Accounting Standards AASB 124 Related Party Disclosures and the Corporations Regulations 2001.

The directors have been given the declaration by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001 .

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

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Dr M P Goldsworthy Managing Director

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C D Wilks Director

Sydney

27 September 2007

PricewaterhouseCoopers ABN 52 780 433 757

Independent audit report to the members of Silex Systems Limited

Report on the financial report and the AASB 124 Remuneration disclosures contained in the directors’ report

Darling Park Tower 2 201 Sussex Street GPO BOX 2650 SYDNEY NSW 1171 DX 77 Sydney Australia www.pwcglobal.com/au Telephone +61 2 8266 0000 Facsimile +61 2 8266 9999

We have audited the accompanying financial report of Silex Systems Limited (the company), which comprises the balance sheet as at 30 June 2007, and the income statement, statement of recognised income and expense and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration for both Silex Systems Limited and the Silex Systems Limited Group (the consolidated entity). The consolidated entity comprises 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 4 to 10 of the directors’ report and not in the financial report.

Directors’ responsibility for the financial report and the AASB 124 Remuneration disclosures contained in the directors' report

The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001 . This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the financial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1, the directors also state, in accordance with Accounting Standard AASB 101 Presentation of Financial Statements , that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the financial statements and notes, complies with International Financial Reporting Standards.

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.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors’ 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 and the remuneration disclosures contained in the directors’ 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.

Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

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

In our opinion:

(a) the financial report of Silex Systems 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 1.

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 4 to 10 of the directors’ report comply with Accounting Standard AASB 124.

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PricewaterhouseCoopers

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Andrew Sneddon Partner

Sydney 27 September 2007

Shareholders’ information

1. Information relating to shareholders as at 20 September 2007 a. Distribution schedule

1-1,000 1,001-5,000 5,001-10,000 10,001-100,000 100,001 and over Total number of holders of each class of security Voting rights - on a show of hands - on a poll Percentage of total holding held by the largest 20 holders Number of total holding less than a marketable parcel of shares Substantial shareholders	2,423 2,689 714 730 104
	6,660
	65.83% 61 Ordinaryshares
National Australia Trustees Limited ANZ Nominees Limited	33,674,095 8,054,798

b. Names of Twenty Largest Holders of each Security as at 20 September 2007

Name

Number of securities
Percentage held

National Australia Trustees Limited
ANZ Nominees Limited
Majenta Holdings Pty Ltd
National Nominees Limited
J P Morgan Nominees Australia Limited
Polly Pty Ltd
HSBC Custody Nominees (Australia) Limited
Throvena Pty Ltd
Citicorp Nominees Pty Limited
Hamlac Pty Ltd
Quadrangle Nominees Limited
Mr Christopher David Wilks
Invia Custodian Pty Limited
Quintal Pty Ltd
Merrill Lynch (Australia) Nominees Pty Limited
Mithena Holdings Pty Limited
Mr Horst Struve
UBS Nominees Pty Ltd
LYC Corporation Pty Ltd
Dr Andrew Tan

33,674,095
24.40%
8,054,798
5.84%
5,903,923
4.28%
5,719,295
4.14%
5,070,550
3.67%
4,073,863
2.95%
3,797,181
2.75%
2,981,203
2.16%
2,971,612
2.15%
2,625,937
1.90%
2,562,150
1.86%
2,505,070
1.81%
2,022,962
1.47%
2,000,000
1.45%
1,478,318
1.07%
1,354,823
0.98%
1,286,887
0.93%
1,152,499
0.83%
966,233
0.70%
656,788
0.48%

90,858,187
65.83%

2. Vendor securities as at 20 September 2007

There are no vendor securities.

Shareholders’ information (continued)

3. Interest of directors in securities as at 20 September 2007
	Ordinary shares	Interest held
Mr B S Patterson	4,073,863	Beneficially
Dr M P Goldsworthy	6,049,533	Personally/Beneficially
Mr C D Wilks	2,894,021	Personally/Beneficially
Dr C S Goldschmidt	2,625,937	Beneficially
Mr R P Campbell	1,354,823	Beneficially
4. Securities subject to voluntary escrow as at 20 September 2007
	Number on	Date escrow period
	issue	ends
As at 20 September 2007 the following securities were subject to
voluntary escrow:
Ordinary shares	27,000	14 March 2008
5. Unquoted equity securities as at 20 September 2007
	Number on
	issue	Number of holders
Options issued under the Silex Systems Limited
Employee Share Option Plan to take up ordinary shares	3,099,000	41
Other options issued to take up ordinary shares *	1,800,000	2

These options are for directors Dr M P Goldsworthy and Mr C D Wilks.

AI assistant

SILEX SYSTEMS LIMITED — Annual Report 2007

65815_rns_2007-09-26_175e772a-e670-463e-bf4d-823c4d9a1546.pdf

Silex Systems Limited & its controlled entities ABN 69 003 372 067

Registered office and principal place of business

Website address: www.silex.com.au

Share Registry

Stock Exchange

Solicitors

Bankers

American Depository Receipts (ADR) Information

IMPORTANT NOTICE:

Forward Looking Statements and Business Risks:

DIRECTORS’ REPORT

1. Directors

2. Principal Activities

3. Dividend

4. Review of operations and activities Trading Results

5. Earnings per share

8. Likely developments and expected results of operations

Uranium Enrichment Program

Stable Isotope Program

Translucent Inc

Fiberbyte

9. Share options

Shares under option

Shares issued on the exercise of options

10. Remuneration report

A Principles used to determine the nature and amount of remuneration(audited)

Directors’ fees

Executive pay

Base pay

Benefits

Retirement benefits

Short-term incentives

Long-term incentives

Silex Systems Limited Employee Option Plan

B Details of remuneration (audited)

Key management personnel of Silex Systems Limited and the Silex Group

C Share-based compensation (audited)

D Additional information - unaudited

Share options granted to directors and the most highly remunerated officers

Other executives of the consolidated entity

Performance of Silex Systems Limited

11. Information on Directors

a) Directors' profiles

Experience and expertise

Other current directorships

Former directorships in last 3 years

Special responsibilities

Dr Michael Goldsworthy

Experience and expertise

Other current directorships

Mr Christopher Wilks

Other current directorships

Former directorships in last 3 years

Special responsibilities

Dr Colin Goldschmidt

Experience and expertise

Other current directorships

Former directorships in last 3 years

Special responsibilities

Mr Peter Campbell

Other current directorships

Former directorships in last 3 years

Special responsibilities

b) Directors’ interests in shares and options as at the date of this report

12. Company secretaries

13. Meetings

14. Indemnification and Insurance of Directors

15. Environmental regulation

16. Non-audit services

Remuneration of auditors

17. Auditors

18. Auditors’ independence declaration

Auditors’ Independence Declaration

CORPORATE GOVERNANCE STATEMENT

1. Role of the board of directors

2. Composition of the board

3. Board members

SILEX SYSTEMS LIMITED Annual Report 2007