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

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.

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.

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.

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 the Directors’ report. 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.

Concise financial report – 30 June 2007

Contents
	Page
Concise financial report
Consolidated income statement	26
Consolidated balance sheet	27
Consolidated statement of recognised income and expense 28
Consolidated cash flows statement	29
Notes to the consolidated financial statements	30
Directors’ declaration	33
Independent audit report to the members	34

Relationship of the concise financial report to the full financial report

The concise financial report is an extract from the full financial report for the year ended 30 June 2007. The financial statements and specific disclosures included in the concise financial report have been derived from the full financial report.

The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of Silex Systems Limited and its subsidiaries as the full financial report. Further financial information can be obtained from the full financial report.

The full financial report and auditor’s report will be sent to members on request, free of charge. Please call 61 2 9532 1331 and request a copy of the full financial report (or email [email protected]). Alternatively, you can access both the full financial report and the concise report via the internet on our website: www.silex.com.au.

Consolidated income statement For the year ended 30 June 2007

Notes Revenue from continuing operations 3 Other income 4 Research and development materials Finance costs Depreciation and amortisation expense Employee benefits expense Professional fees Printing, postage and stationery Rent Travelling expenses Changes in inventories Raw materials and stores used Net foreign exchange losses Other expenses from ordinary activities Profit/(loss) before income tax expense Income tax expense 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	2007 2006 $ $
	35,744,201 1,112,110 390,776 544,554 (3,763,844) (908,051) (9,997) (949) (1,588,562) (1,925,886) (12,644,450) (6,225,615) (1,488,053) (1,331,232) (85,664) (79,266) (417,519) (370,563) (651,535) (299,596) 41,735 90,590 (45,875) (91,970) (2,642,122) - (872,022) (774,462)
	11,967,069 (10,260,336) (3,226,150) -
	8,740,919 (10,260,336)
	8,767,421 (10,273,257) (26,502) 12,921
	8,740,919 (10,260,336)
	Cents Cents
	6.4 (7.6) 6.3 (7.6)

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

Consolidated balance sheet As at 30 June 2007

ASSETS Current assets Cash and cash equivalents Held to maturity investments Trade and other receivables Inventories Other Total current assets Non-current assets Receivables Property, plant and equipment Deferred tax assets Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity Reserves (Accumulated losses) Parent equity interest Minority interest Total equity	2007 2006 $ $
	22,623,517 15,040,749 - 1,390,040 1,791,841 318,825 91,166 127,380 81,322 156,332
	24,587,846 17,033,326
	191,116 269,070 2,212,401 3,030,158 7,932 3,899 8,397,054 8,782,985
	10,808,503 12,086,112
	35,396,349 29,119,438
	1,399,232 1,742,322 23,804 6,726,759 445,028 248,422
	1,868,064 8,717,503
	98,211 - 100,631 147,081
	198,842 147,081
	2,066,906 8,864,584
	33,329,443 20,254,854
	49,224,639 47,531,679 3,948,931 1,278,408 (19,844,127) (28,611,548)
	33,329,443 20,198,539 - 56,315
	33,329,443 20,254,854

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

Consolidated statement 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	2007 2006 $ $
	(630,962) 236,159
	(630,962) 236,159 8,740,919 (10,260,336)
	8,109,957 (10,024,177)
	8,136,459 (10,037,098) (26,502) 12,921
	8,109,957 (10,024,177)

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

Consolidated cash flow statement For the year ended 30 June 2007

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 Cash flows from investing activities Payment for additional interest in controlled entities 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 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	2007 2006 $ $
	33,331,202 844,010 (16,415,882) (8,792,757) 1,347,336 619,272 (9,997) (949) (3,228,360) -
	15,024,299 (7,330,424)
	(10,000) - (140,717) - (571,671) (555,158) 9,636 14,027 1,390,040 1,736,842 171,928 120,160
	849,216 1,315,871
	1,118,091 674,426 - 6,849,500 (6,726,759) - (22,985) (29,681)
	(5,631,653) 7,494,245
	10,241,862 1,479,692 15,040,749 13,416,292 (2,659,094) 144,765
	22,623,517 15,040,749

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

Notes to the financial statements 30 June 2007

This concise financial report relates to the consolidated entity consisting of Silex Systems Limited and the entities it controlled at the end of, or during, the year ended 30 June 2007. The accounting policies have been consistently applied to all years presented, unless otherwise stated.

Note 1 Presentation currency

The presentation currency used in this concise financial report is Australian dollars.

Note 2 Change in accounting policy

(i) Financial instruments – adoption of AASB132/AASB 139

The Group took the exemption available under AASB1 First time adoption of Australian Equivalents to International Financial Reporting Standards to apply AASB 132 Financial Instruments: Recognition and Measurement from 1 July 2005. This change was recognised in the previous financial year and appropriate disclosures have been made in the financial report and concise financial report for the year ending 30 June 2006.

Note 3 Revenue From continuing operations Up Front Uranium Agreement Fee Recoverable Project costs Interest income DARPA contract Other	2007 2006 $ $
	26,878,000 - 7,343,892 - 1,342,171 616,213 159,340 487,174 20,798 8,723
	35,744,201 1,112,110

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 4 Other income Foreign currency exchange gains (net) Government Grants Net gain on sale of property, plant and equipment	2007 2006 $ $
	- 132,801 390,776 400,329 - 11,424
	390,776 544,554

(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 5 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.

Notes to the financial statements 30 June 2007 (continued)

Note 5 Segment information (continued)

United States of America

This relates to the activities of Translucent Inc.

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 5 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

Note 6 Dividends

No dividends were declared or paid during the year or in the prior year.

Note 7 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

The directors declare that in their opinion, the concise financial report of the consolidated entity for the year ended 30 June 2007 as set out on pages 25 to 32 complies with Accounting Standard AASB 1039: Concise Financial Reports.

The concise financial report cannot be expected to provide as full an understanding of the financial performance, financial position and financing and investing activities of the consolidated entity as the full financial report, which is available on request.

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

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

Report on the Concise Financial Report

The accompanying concise financial report of Silex Systems Limited comprises the balance sheet as at 30 June 2007, the income statement, statement of recognised income and expense and cash flow statement for the year then ended and related notes, derived from the audited financial report of Silex Systems Limited for the year ended 30 June 2007. The concise financial report does not contain all the disclosures required by the Australian Accounting Standards.

Directors’ Responsibility for the Concise Financial Report

The Directors are responsible for the preparation and presentation of the concise financial report in accordance with Accounting Standard AASB 1039 Concise Financial Reports, and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation of the concise financial report; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

Auditor’s Responsibility

Our responsibility is to express an opinion on the concise financial report based on our audit procedures. We have conducted an independent audit, in accordance with Australian Auditing Standards, of the financial report of Silex Systems Limited for the year ended 30 June 2007. Our audit report on the financial report for the year was signed on 27 September 2007 and was not subject to any modification. The Australian 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 for the year is free from material misstatement.

Our procedures in respect of the concise financial report included testing that the information in the concise financial report is derived from, and is consistent with, the financial report for the year, and examination on a test basis, of evidence supporting the amounts and other disclosures which were not directly derived from the financial report for the year. These procedures have been undertaken to form an opinion whether, in all material respects, the concise financial report complies with Accounting Standard AASB 1039 Concise Financial Reports.

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

Independence

In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001 , provided to the directors of Silex Systems Limited on 27 September 2007, would be in the same terms if provided to the directors as at the date of this auditor’s report.

Auditor’s opinion

In our opinion, the concise financial report of Silex Systems Limited for the year ended 30 June 2007 complies with Australian Accounting Standard AASB 1039: Concise Financial Reports .

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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%

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_a54f9116-fbed-4a59-9993-d07083d45de5.pdf