##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 20-F
 (Mark one)
 o
    
    REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT
OF 1934
 OR
 þ
    
    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2009
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 OR
 o
    
    SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 Commission file number: 000-31212
 METAL STORM LIMITED
 (Exact Name of Registrant as Specified in its Charter)
 Australia
(Jurisdiction of Incorporation or Organization)
 Building 4
848 Boundary Road
Richlands, Queensland 4077
Australia
(Address of principal executive offices)
 Peter Wetzig
Company Secretary
Telephone: +61 7 3123 4700
Facsimile: +61 7 3217 0811
Building 4
848 Boundary Road
Richlands, Queensland 4077
Australia
(Name, telephone, e-mail and/or facsimile number and address of company contact person)
 Securities registered or to be registered pursuant to Section 12(b) of the Act:
None
 Securities registered or to be registered pursuant to Section 12(g) of the Act:
 Ordinary Shares in the form of American Depositary Shares, evidenced by American Depositary Receipts
(Title of Class)
 Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
    o þ
  o þ
  þ o
  o þ
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ
  U.S. GAAP o
    
    International Financial Reporting Standards as issued
by the International Accounting Standards Board
    
    þ
    
    Other o
  o o
  o þ




---



##### 



Table of Contents
 PageItem 1.
    
    Identity of Directors, Senior Management and Advisors
    
    
    2Item 2.
    
    Offer Statistics and Expected Timetable
    
    
    2Item 3.
    
    Key Information
    
    
    2Item 4.
    
    Information on Metal Storm
    
    
    10Item 4A.
    
    Unresolved Staff Comments
    
    
    19Item 5.
    
    Operating and Financial Review and Prospects
    
    
    19Item 6.
    
    Directors, Senior Management and Employees
    
    
    25Item 7.
    
    Major Shareholders and Related Party Transactions
    
    
    29Item 8.
    
    Financial Information
    
    
    30Item 9.
    
    The Offer and Listing
    
    
    31Item 10.
    
    Additional Information
    
    
    32Item 11.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    44Item 12.
    
    Description of Securities Other than Equity Securities
    
    
    45Item 13.
    
    Defaults, Dividend Arrearages and Delinquencies
    
    
    46Item 14.
    
    Material Modifications to the Rights of Security Holders and the Use of Proceeds
    
    
    46Item 15T.
    
    Controls and Procedures
    
    
    46Item 16A.
    
    Audit Committee Financial Expert
    
    
    47Item 16B.
    
    Code of Ethics
    
    
    47Item 16C.
    
    Principal Accountant Fees and Services
    
    
    47Item 16D.
    
    Exemptions from the Listing Standards for Audit Committees
    
    
    48Item 16E.
    
    Purchases of Equity Securities by the Issuer and Affiliated Purchasers
    
    
    48Item 16F.
    
    Change in Registrants Certifying Accountant
    
    
    48Item 16G.
    
    Corporate Governance
    
    
    48Item 17.
    
    Financial Statements
    
    
    49Item 18.
    
    Financial Statements
    
    
    49Item 19.
    
    Exhibits
    
    
    49EX-4.1EX-4.2EX-4.3EX-4.10EX-8EX-12.1EX-12.2EX-13.1EX-13.2
  i




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##### Table of Contents



CURRENCY OF PRESENTATION AND EXCHANGE RATES
    AtPeriod
    
    AverageEnd
    
    Rate(1)
    
    High
    
    LowYear ended December 31,2005
    
    
    0.7342
    
    
    
    0.7620
    
    
    
    0.7974
    
    
    
    0.72612006
    
    
    0.7884
    
    
    
    0.7582
    
    
    
    0.7914
    
    
    
    0.70562007
    
    
    0.8776
    
    
    
    0.8444
    
    
    
    0.9369
    
    
    
    0.77242008
    
    
    0.6983
    
    
    
    0.8499
    
    
    
    0.9797
    
    
    
    0.60732009
    
    
    0.8979
    
    
    
    0.7988
    
    
    
    0.9293
    
    
    
    0.6301MonthJanuary 2010
    
    
    0.8873
    
    
    
    0.9127
    
    
    
    0.9306
    
    
    
    0.8873February 2010
    
    
    0.8961
    
    
    
    0.8857
    
    
    
    0.8994
    
    
    
    0.8617March 2010
    
    
    0.9169
    
    
    
    0.9123
    
    
    
    0.9225
    
    
    
    0.8997April 2010
    
    
    0.9306
    
    
    
    0.9262
    
    
    
    0.9359
    
    
    
    0.9170May 2010
    
    
    0.8491
    
    
    
    0.8713
    
    
    
    0.9255
    
    
    
    0.8172June 2010
    
    
    0.8480
    
    
    
    0.8539
    
    
    
    0.8818
    
    
    
    0.8192
 
 (1)
    
    Determined by averaging noon buying rates on the last day of each full month during
the period. FORWARD-LOOKING STATEMENTS
  1




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##### Table of Contents



PART I
 
 Item 1. Identity of Directors, Senior Management and Advisers
  
 Item 2. Offer Statistics and Expected Timetable
  
 Item 3. Key Information
 A. Selected Financial Data
     As of and for the year ended December 31,2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005A$
    
    
    A$
    
    
    A$
    
    
    A$
    
    
    A$Income Statement data in accordance with IFRS:Revenue
    
    
    1,112,481
    
    
    
    2,201,331
    
    
    
    3,205,381
    
    
    
    2,339,310
    
    
    
    830,645Expenses
    
    
    (6,670,590
    )
    
    
    (6,488,196
    )
    
    
    (8,269,116
    )
    
    
    (15,454,051
    )
    
    
    (10,107,359
    )Loss before finance costs and tax from
continuing operations
    
    
    (5,558,109
    )
    
    
    (4,286,865
    )
    
    
    (5,063,735
    )
    
    
    (13,114,741
    )
    
    
    (9,276,714
    )Finance costs
    
    
    (5,749,555
    )
    
    
    (6,369,138
    )
    
    
    (4,934,415
    )
    
    
    (2,183,013
    )
    
    
    (35,496
    )Income tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Loss after tax from continuing operations
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )
    
    
    (15,297,754
    )
    
    
    (9,312,210
    )Loss after tax from discontinued operation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (39,256
    )
    
    
    (1,602,390
    )Loss attributable to members of the parent
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )
    
    
    (15,337,010
    )
    
    
    (10,914,600
    )Basic and diluted loss per share(1)
    
    
    (0.0161
    )
    
    
    (0.0162
    )
    
    
    (0.0156
    )
    
    
    (0.0242
    )
    
    
    (0.0191
    )Weighted average ordinary number of shares
outstanding
    
    
    701,839,327
    
    
    
    658,320,401
    
    
    
    641,329,047
    
    
    
    588,403180
    
    
    
    572,578,091Balance Sheet data in accordance with IFRS:Total current assets
    
    
    376,634
    
    
    
    8,701,884
    
    
    
    17,069,966
    
    
    
    26,605,477
    
    
    
    7,115,554Total assets
    
    
    829,640
    
    
    
    9,267,524
    
    
    
    18,788,277
    
    
    
    27,856,081
    
    
    
    7,429,721Total current liabilities
    
    
    20,006,958
    
    
    
    22,397,651
    
    
    
    21,812,546
    
    
    
    26,424,955
    
    
    
    1,564,696Long term obligations (including finance leases)
    
    
    23,686
    
    
    
    63,168
    
    
    
    283,301
    
    
    
    333,794
    
    
    
    85,163Total liabilities
    
    
    20,030,644
    
    
    
    22,460,789
    
    
    
    22,095,847
    
    
    
    26,758,749
    
    
    
    1,649,859Contributed equity
    
    
    70,075,033
    
    
    
    66,209,718
    
    
    
    65,428,400
    
    
    
    59,985,634
    
    
    
    56,559,039Total equity
    
    
    (19,201,004
    )
    
    
    (13,193,265
    )
    
    
    (3,307,570
    )
    
    
    1,097,332
    
    
    
    5,779,862Other financial data:Dividends per share
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 
 (1)
    
    Net loss per ordinary share  basic and diluted is calculated as net loss for the period
divided by adjusted weighted average number of ordinary shares outstanding for the same period.
The number of ordinary shares outstanding is adjusted to include ordinary shares subsequently
issued for no consideration. 2




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##### Table of Contents



B. Capitalization and Indebtedness
  C. Reasons for Offer and Use of Proceeds
  D. Risk Factors
 There is substantial doubt regarding Metal Storms ability to continue as a going concern.
     We may be required to redeem convertible notes before maturity, which redemption could cause us to
become insolvent.
   We may need additional capital and may not be able to raise additional capital on favorable terms,
if at all.
 3




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We are in the product engineering phase and do not yet have any product for sale based on our core
technology.
  We cannot be certain of market acceptance of our technology or the rate of any market acceptance.
  We are dependent on retaining key personnel.
  Any catastrophic event involving our technology could adversely affect Metal Storms reputation.
  We work on research and development programs.
  4




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There are some limitations relating to our technology.
  We may not have adequate protection for our intellectual property.
     
    
    any of the pending or future patent applications filed by us or on our behalf will be
approved;
    
    we will develop any additional proprietary products or processes that are patentable; or
    
    third parties will not independently develop similar products or processes, duplicate any
of the products or processes we have or are developing relating to our technology, or design
around the patents we own with competitive advantages.
  Protecting our proprietary technology from infringement by others may affect our business.
   We may be subject to patent infringement claims from our competitors and other third parties.
 5




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The Australian and U.S. governments may take action on patent applications and patents.
       There are potential adverse effects from competition and technological changes.
  6




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There may be reductions or changes in military expenditures.
  We are subject to government regulation.
     There are risks inherent in U.S. government contracts.
  
    
    Contract Termination
  7




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##### Table of Contents




    
    Loss of Appropriations
  
    
    Procurement and Other Related Laws and Regulations
  
    
    Protection of Proprietary Technology
  
    
    Changes and Adjustments
  
    
    Competitive Bidding and Domestic Preferences
   We may have product liability exposure in the future.
  8




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##### Table of Contents



We may be dependent on third party manufacturers, suppliers and teaming partners.
    Our share price has been and will likely continue to be volatile.
  
    
    variations in our anticipated or actual operating results;
    
    sales of substantial amounts of our shares;
    
    announcements about us or about our competitors, including new products;
    
    litigation and other developments relating to our patents or other proprietary rights or
those of our competitors;
    
    governmental regulation and legislation;
    
    our available cash resources or the need to seek additional funding through public or
private equity or debt financings; and
    
    changes in securities analysts estimates of our performance, or our failure to meet
analysts expectations.
   We are not currently paying dividends and we may not pay dividends in the future.
  We have been, and likely will be again, classified as a passive foreign investment company for U.S.
federal income tax purposes.
 9




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Our ADS holders are not shareholders and do not have shareholder rights.
    
 Item 4. Information on Metal Storm
 A. History and Development of Metal Storm
    10




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B. Business Overview
  Strategy
       11




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Engineering
     Business Development
       Technology
    12




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##### Table of Contents




    
    electronically programmable rates of fire from single shots to ultra-rapid rates;
    
    no moving parts, resulting in increased reliability and availability because there is
less maintenance required and decreased possibility of malfunction;
    
    increased firepower to weight ratio resulting in a lighter weapon system with greater
firepower compared to conventional systems;
    
    modular pods that could operate as a complete weapons system in one container;
    
    digital electronic operation;
    
    ideally suited to mounting on robotic and remotely operated platforms
    
    the potential of grouping multiple calibres and multiple lethalities in one gun
system allowing the user to vary the use to a specific situation; and
    
    numerous hybrid configurations and Special Forces applications.
 Joint Collaboration Agreement with Singapore Technologies Kinetics
    Internal Product Development
  
    
    3GL  semi-automatic three shot 40mm modular underbarrel grenade launcher;
    
    FireStorm  four barrel 16 shot 40mm remotely operated weapon system;
    
    MAUL  semi automatic 18mm (12 gauge) multi-shot accessory under-barrel launcher;
and
    
    A range of 40mm and 18mm lethal and less-lethal ammunition.
  3GL
  13




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
    
    successfully certifying the weapon for shoulder firing with non-explosive
rounds;
    
    conducting shoulder fired, rapid-fire demonstrations to over 400 U.S.
military and related U.S. arms industry representatives at Nellis Air Force Base,
Nevada;
    
    conducting shoulder fire demonstrations of the 3GL under-slung on an M16
assault rifle;
    
    design and fabrication of a new compact 3GL variant for close quarter
urban combat that can be fitted to a broader range of assault rifles;
    
    successfully completing a substantial number of pre-qualification tests,
including endurance fire testing where 200 rounds were fired without cleaning the
weapon.
 Redback
   FireStorm
      14




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##### Table of Contents




    
    participation in the Modern Day Marine Exposition Robot Rodeo integrated
on an iRobot Warrior platform;
    
    expansion of the weapons pod to 12 barrels for increased volume of fire;
    
    development of an enhanced less lethal capability;
    
    Conceptual development of a FireStorm system specifically for the Marine
Corps Transparent Armor Gun Shield; and
    
    participation in the 2009 Empire Challenge at China Lake Naval Base.
 MAUL
 TM
     Systems for Unmanned Vehicles
      Ammunition
 15




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40mm lethal ammunition
  40mm less-lethal ammunition
  18mm (12 gauge) ammunition
  Fireworks
  Handgun
  External Development Programs
  U.S. Marine Corps  Mission Payload Module  Non-lethal Weapon System
   Commercial Contract  Design Support Services
  16




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U.S. Navy  Multi-Shot Accessory Underbarrel Launcher
  United States Army Joint Munitions and Lethality Contracting Center  Directional
Fragmentation and Advanced Fuzing project
  Competition
   Regulation
  Australia
    United States
   17




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Intellectual Property
   
    
    stacked projectile delivery systems and stacked projectile weapon systems, in particular
the sealing, reload and ignition thereof;
    
    technology related to encoding weapons to permit authorized access only;
    
    ammunition and projectiles;
    
    electronic firing technology;
    
    area denial;
    
    fire fighting;
    
    seismic testing;
    
    multi-barrel systems;
    
    fireworks;
    
    missile defense and target interception;
    
    directional control of missiles;
    
    unmanned aerial vehicle weaponization;
    
    adapting conventional munitions to Metal Storm configuration; and
    
    selectable kinetic energy systems.
  
    
    31 granted U.S. patents and 14 pending U.S. patents including two allowed application;
    
    26 granted Australian patents and 19 pending Australian patent applications; and
    
    108 other patents granted outside the United States and Australia and 55 pending
applications outside the United States and Australia, including 5 allowed applications
(including 11 pending European Patent Convention applications).
  Raw Materials
  Seasonality
  C. Organizational Structure
  D. Property, Plant and Equipment
  18




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##### Table of Contents



Item 4A. Unresolved Staff Comments
  
 Item 5. Operating and Financial Review and Prospects
  A. Operating Results
 Overview
     Where We Derive Our Revenue
  Critical Accounting Policies
 19




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Revenue Recognition
  Sale of goods
  Rendering of services
  Construction contracts
    Share-based payment transactions
   20




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Comparison of Annual Results of Operations
 2009 compared with 2008
 Revenue.
 Expenses.
 
    
    In 2009 we made substantial changes to the terms of the convertible notes issued in 2006,
including extending the maturity date of our convertible notes from September 1, 2009 to
September 1, 2011 and in some instances granting options and providing security in lieu of
cash coupon payments. These changes called for an extinguishment of the original liability
and recognition of a new liability, resulting in a gain on extinguishment of debt of
A$2,467,609.
    
    In 2009 we had a fair value movement loss of A$224,611 on the embedded derivative that
reflects the movement in the fair value of the conversion option embedded in the convertible
notes issued in 2006. In 2008, we had a fair value gain of A$3,620,682.
    
    In 2008 we had an impairment expense of A$769,200 representing the decrease in fair value
of floating rate notes that were held by Metal Storm. In 2009 these notes were sold at
A$75,000 above their fair value recorded, which resulted in the reversal of impairment
expenses of A$75,000.
    
    Research and development expenses decreased by A$592,588 to A$976,994 in 2009 from
A$1,569,582 in 2008. Reduced fees to external contractors is the predominate cause for the
reduction in R&D expenses.
 Net Loss. .
 2008 compared with 2007
 Revenue.
  Expenses.
 
    
    In 2008 we had a fair value movement gain of A$3,620,682 on the embedded derivative that
reflects the movement in the fair value of the conversion option embedded in the convertible
notes issued in 2006. In 2007, we had a fair value gain of A$2,421,338.
    
    Foreign exchange differences changed from a loss of (A$68,197) in 2007 to a gain of
A$444,598 in 2008. This is due to the movement in the U.S. dollars to Australian dollars
exchange rate over the year compared to the corresponding movement in the prior year.
    
    Finance expenses increased A$1,434,723 in 2008. Finance expenses primarily relate to the
convertible notes that we issued in September 2006. This increase predominately relates to
the accretion expense on the convertible notes issued in 2006 which were A$1,884,443 in 2007
and A$3,238,228 in 2008. The accretion expense is calculated using the effective interest
rate method which increases the relative dollar value of the expense over time.
    
    Impairment expense increased A$548,400 in 2008. This expense is related to the impairment
of floating rate notes where the fair value decreased from A$779,200 to A$10,000.
 21




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Net Loss.
 Effects of Currency Fluctuations
    B. Liquidity and Capital Resources
 Overview
   Year ended December 312009
    
    2008
    
    2007A$
    
    A$
    
    A$Net cash used in operating activities
    
    
    (8,704,228
    )
    
    
    (10,180,514
    )
    
    
    (11,255,896
    )Net cash provided by investing activities
    
    
    197,606
    
    
    
    965,807
    
    
    
    2,214,431Net cash provided by financing activities
    
    
    1,048,665
    
    
    
    1,964,543
    
    
    
    (59,772
    )Effect of exchange rate changes on cash
    
    
    (45,985
    )
    
    
    93,908
    
    
    
    (1,482
    )Net movement in cash and cash equivalents
    
    
    (7,503,942
    )
    
    
    (7,156,256
    )
    
    
    (9,102,719
    )
     Borrowings
   22




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Equity Line Facility Agreements
   Other Material Commitments
  Future Cash Needs
   23




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C. Research and Development: Patents and Licenses
  D. Trend Information
  E. Off-Balance sheet arrangements
  F. Tabular disclosure of contractual obligations
  Payments due by periodTotal
    
    Less Than
    
    1  3
    
    3  5
    
    More thanA$
    
    1 Year
    
    Years
    
    Years
    
    5 YearsCapital (finance) lease obligations
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Operating lease obligations
    
    
    138,494
    
    
    
    138,494
    
    
    
    
    
    
    
    
    
    
    
    Loans
    
    
    326,714
    
    
    
    326,714
    
    
    
    
    
    
    
    
    
    
    
    Convertible Notes
    
    
    19,239,143
    
    
    
    
    
    
    
    19,239,143
    
    
    
    
    
    
    
    Total
    
    
    19,704,351
    
    
    
    465,208
    
    
    
    19,239,143
    
    
    
    
    
    
    
    
 24




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Item 6. Directors, Senior Management and Employees
 A. Directors and Senior Management
  Name
    
    PositionTerence J. ODwyer
    
    ChairmanJohn R. Nicholls
    
    DirectorTrevor W. Tappenden
    
    DirectorDr. Lee J. Finniear
    
    Chief Executive Officer and Managing DirectorBrett I. Farmer
    
    Chief Financial OfficerPeter D. Faulkner
    
    General Manager  Metal Storm Inc.David M. Pashen
    
    Development ManagerArthur Schatz
    
    Vice President  Business DevelopmentPeter R. Wetzig
    
    Company Secretary
 Terence J. ODwyer.
 John R. Nicholls.
 Trevor Tappenden.
 Dr. Lee J. Finniear.
 Brett I. Farmer.
 Peter D. Faulkner.
 David M. Pashen.
 Arthur Schatz.
 25




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Peter R. Wetzig.
 B. Compensation
   Short Term Employee Benefits
    
    
    
    
    
    PostSalary &
    
    Cash
    
    Non Monetary
    
    
    
    
    
    Employment
    
    Share Based
    
    
    
    
    
    Total
    
    PerformanceName and
    
    Fees
    
    Bonus
    
    Benefit
    
    Other
    
    Benefits
    
    Payments
    
    Termination
    
    Remuneration
    
    RelatedPosition
    
    A$
    
    A$
    
    A$
    
    A$
    
    A$
    
    A$
    
    A$
    
    A$
    
    %T.J. ODwyer
Chairman (Non-Executive)
    
    
    80,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    80,000
    
    
    
    P.D. Jonson
Director (Non-Executive)
resigned Feb 2009
    
    
    7,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,500
    
    
    
    J.R. Nicholls
Director (Non-Executive)
    
    
    50,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    50,000
    
    
    
    T.W. Tappenden
Director (Non-Executive)
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    60,000
    
    
    
    Total Non Executive Directors
    
    
    197,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    197,500L.J. Finniear
Managing Director &
Chief Executive Officer
    
    
    320,000
    
    
    
    186,400
    
    
    
    
    
    
    
    
    
    
    
    45,576
    
    
    
    
    
    
    
    
    
    
    
    551,976
    
    
    
    33.8Total Executive Directors
    
    
    320,000
    
    
    
    186,400
    
    
    
    
    
    
    
    
    
    
    
    45,576
    
    
    
    
    
    
    
    
    
    
    
    551,976
    
    
    
    33.8P.R. Wetzig
Company Secretary
    
    
    83,300
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    83,300
    
    
    
    B.I. Farmer
Chief Financial Officer
    
    
    150,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    13,500
    
    
    
    2,340
    
    
    
    
    
    
    
    165,840
    
    
    
    P.D. Faulkner
Senior Vice President
 Director of U.S. Operations
    
    
    272,838
    
    
    
    
    
    
    
    15,622
    
    
    
    
    
    
    
    8,138
    
    
    
    
    
    
    
    
    
    
    
    296,598
    
    
    
    D.M. Pashen
Development Manager
    
    
    135,840
    
    
    
    
    
    
    
    14,160
    
    
    
    
    
    
    
    13,500
    
    
    
    2,340
    
    
    
    
    
    
    
    165,840
    
    
    
    A.D. Schatz
Vice President
 Business Development
    
    
    180,836
    
    
    
    
    
    
    
    7,601
    
    
    
    
    
    
    
    5,425
    
    
    
    
    
    
    
    
    
    
    
    193,862
    
    
    
    Total Other Key Management
    
    
    822,814
    
    
    
    
    
    
    
    37,383
    
    
    
    
    
    
    
    40,563
    
    
    
    4,680
    
    
    
    
    
    
    
    905,440
    
    
    
    Total Remuneration of Key
Management Personnel
    
    
    1,340,314
    
    
    
    186,400
    
    
    
    37,383
    
    
    
    
    
    
    
    86,139
    
    
    
    4,680
    
    
    
    
    
    
    
    1,654,916
    
    
    
    
  26




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##### Table of Contents



Value of shares
    
    Number of sharesgranted
    
    grantedduring the year
    
    during the yearA$
    
    NumberB I Farmer
    
    
    3,900
    
    
    
    100,000D M Pashen
    
    
    3,900
    
    
    
    100,000
  C. Board Practices
     
    
    retains independent auditors and reviews and discusses the independence of the auditors;
    
    sets the engagement policies for the independent auditors;
    
    reviews and discusses the audit plan, the conduct of the audit and the audit results;
    
    reviews and discusses financial statements and disclosures;
    
    determines and administers internal audit procedures;
    
    reviews and discusses the systems of internal accounting controls;
    
    reviews and discusses the recommendations of independent auditors;
    
    approves related party transactions; and
    
    establishes procedures for complaints regarding financial statements or accounting policies.
      
    
    salary/fees;
    
    benefits  including the provision of retirement and health benefits; and
    
    incentive schemes  including performance-related bonuses and share options under the
discretionary share option plan.
 27




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##### Table of Contents



D. Employees
  Queensland
    
    VirginiaAustralia
    
    USAAdministration
    
    
    5
    
    
    
    4Engineering
    
    
    13
    
    
    
    5
 At December 31, 2008, we had 32 staff. At December 31, 2007, we had 30 staff.
 E. Share Ownership
   Number of
    
    Number ofShares Held
    
    Options ExercisableT.J ODwyer
    
    
    1,054,979
    (1)
    
    
    J.R. Nicholls(2)
    
    
    
    
    
    
    L.J. Finniear
    
    
    447,062
    
    
    
    1,000,000
    (3)T.W. Tappenden
    
    
    100,000
    
    
    
    B.I. Farmer
    
    
    318,531
    
    
    
    P.D. Faulkner
    
    
    
    
    
    
    200,000
    (4)D.M. Pashen
    
    
    209,265
    
    
    
    A.D. Schatz
    
    
    
    
    
    
    P. R. Wetzig
    
    
    44,106
    
    
    
    
 
 (1)
    
    538,295 shares are owned by Mr. Terence J. ODwyer and Mrs. P.M. ODwyer, 516,684 shares
are owned by Louclaben Pty Ltd in trust for the ODwyer Family Account.(2)
    
    John Nicholls is a director of Metal Storm and a director and investment manager of
Harmony Capital Partners Pte Limited (Harmony). Harmony Investment Fund Limited is an entity that
is managed by Harmony Capital Partners and which owns securities in Metal Storm. As of July 9,
2010, Harmony Investment Fund Limited held 24,870,644 ordinary shares, 97,902,659 quoted secured
convertible notes and 25,930,470 unquoted options. Mr. Nicholls disclaims beneficial ownership of
securities owned by Harmony. 28




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##### Table of Contents



(3)
    
    Options held by Mr. Finniear have an exercise price of A$0.19 per share and expire in
March 2012.(4)
    
    Options held by Mr. Faulkner have an exercise price of A$0.40 per share and expire between
December 2010 and September 2012.  
 Item 7. Major Shareholders and Related Party Transactions
 A. Major Shareholders
    Number of
    
    PercentageName of Shareholder
    
    Ordinary Shares
    
    of ClassJames Michael ODwyer(1)
    
    
    80,699,059
    
    
    
    7.5
    %
 
 (1)
    
    57,011,770 shares are owned by Mr. J.M. ODwyer, 23,687,184 shares are owned by ODwyer
Investments Pty Ltd as trustee for the ODwyer Family Discretionary Trust and 105 shares owned by
Rhonda Clare ODwyer in trust for Mr. J.M. ODwyer. In April 2009, James ODwyer beneficially
owned 160,375,776 ordinary shares or 25.5% of all our ordinary shares. In June 2008, James ODwyer
beneficially owned 187,423,610 ordinary shares or 30.8% of all our ordinary shares.     29




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##### Table of Contents



B. Related Party Transactions
  C. Interest of Experts and Counsel
  
 Item 8. Financial Information
 A. Consolidated Financial Statements and Other Financial Information
  Legal Proceedings
  Dividends
  B. Significant Changes
  30




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##### Table of Contents



Item 9. The Offer and Listing
 A. Listing Details  Price History
 Australian Securities Exchange
  Price PerOrdinary ShareHigh
    
    LowYear Ended
    
    A$
    
    A$December 31, 2009First Quarter
    
    $
    0.06
    
    
    $
    0.03Second Quarter
    
    $
    0.04
    
    
    $
    0.02Third Quarter
    
    $
    0.03
    
    
    $
    0.02Fourth Quarter
    
    $
    0.08
    
    
    $
    0.02December 31, 2008First Quarter
    
    $
    0.09
    
    
    $
    0.06Second Quarter
    
    $
    0.08
    
    
    $
    0.04Third Quarter
    
    $
    0.05
    
    
    $
    0.04Fourth Quarter
    
    $
    0.07
    
    
    $
    0.03December 31, 2007Annual
    
    $
    0.21
    
    
    $
    0.08December 31, 2006Annual
    
    $
    0.28
    
    
    $
    0.10December 31, 2005Annual
    
    $
    0.31
    
    
    $
    0.10
 Price PerOrdinary ShareHigh
    
    LowMonth Ended
    
    A$
    
    A$June 2010
    
    $
    0.01
    
    
    $
    0.01May 2010
    
    $
    0.01
    
    
    $
    0.01April 2010
    
    $
    0.01
    
    
    $
    0.01March 2010
    
    $
    0.02
    
    
    $
    0.01February 2010
    
    $
    0.02
    
    
    $
    0.02January 2010
    
    $
    0.03
    
    
    $
    0.02
 American Depositary Shares
  Price PerOrdinary ShareHigh
    
    LowYear Ended
    
    US$
    
    US$December 31, 2009First Quarter
    
    $
    0.73
    
    
    $
    0.37Second Quarter
    
    $
    0.63
    
    
    $
    0.37Third Quarter
    
    $
    0.52
    
    
    $
    0.38Fourth Quarter
    
    $
    0.90
    
    
    $
    0.28December 31, 2008First Quarter
    
    $
    1.57
    
    
    $
    0.91Second Quarter
    
    $
    1.25
    
    
    $
    0.70Third Quarter
    
    $
    1.10
    
    
    $
    0.35Fourth Quarter
    
    $
    0.91
    
    
    $
    0.31
 31




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##### Table of Contents



Price PerOrdinary ShareHigh
    
    LowYear Ended
    
    US$
    
    US$December 31, 2007Annual
    
    $
    3.38
    
    
    $
    1.15December 31, 2006Annual
    
    $
    4.04
    
    
    $
    1.75December 31, 2005Annual
    
    $
    4.84
    
    
    $
    1.75
 Price PerOrdinary ShareHigh
    
    LowMonth Ended
    
    US$
    
    US$June 2010
    
    $
    0.22
    
    
    $
    0.20May 2010
    
    $
    0.28
    
    
    $
    0.15April 2010
    
    $
    0.31
    
    
    $
    0.23March 2010
    
    $
    0.35
    
    
    $
    0.25February 2010
    
    $
    0.37
    
    
    $
    0.31January 2010
    
    $
    0.52
    
    
    $
    0.35
 B. Plan of Distribution
  C. Markets
  D. Selling Shareholders
  E. Dilution
  F. Expenses of the Issue
  
 Item 10. Additional Information
 A. Share Capital
  B. Our Constitution
   32




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##### Table of Contents



Directors
 Interested Directors
   Directors Compensation
     Borrowing Powers Exercisable by Directors
  Retirement of directors
  Share Qualifications
  Rights and Restrictions on Classes of Shares
  33




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##### Table of Contents



Dividend Rights
  Voting Rights
  Right to Share in our Profits
  Rights to Share in the Surplus in the Event of Liquidation
  Redemption Provisions
  Sinking Fund Provisions
  Liability for Further Capital Calls
  Provisions Discriminating Against Holders of a Substantial Number of Shares
  34




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##### Table of Contents



Variation of Share Rights
  General Meetings of Shareholders
   Foreign Ownership Regulation
     Merger, Acquisition or Restructure
  Ownership Threshold
  35




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##### Table of Contents



Conditions for Change of Capital
  Stock Issues and Takeover Attempts
  
    
    that the acquisition of control over voting shares takes place in a efficient, competitive
and informed market;
    
    that shareholders have enough information to assess the merits of a proposal; and
    
    that shareholders all have a reasonable and equal opportunity to participate in any
benefits accruing to the shareholders through any proposal under which a person would
acquire a substantial interest.
   
    
    an issuance or agreement to issue which we have notified the Australian Securities
Exchange of before we are told a person is making or proposes to make a takeover offer for
our shares;
    
    an issuance to our ordinary shareholders on a pro-rata basis;
    
    an issuance made due to an exercise of rights of conversion already in existence;
    
    an issuance by us as consideration for an off-market takeover bid made by us where we are
required to comply with the provisions of the Corporations Act;
    
    an issuance under a dividend stock distribution plan that is in operation before we are
told a person is making or proposes to make a takeover for our shares; and
    
    if there is an agreement to issue shares and such agreement is conditional on ordinary
shareholders approving the issuance before the issuance is made.
 Access to and Inspection of Documents
  CHESS
  C. Material Contracts
 Terms of convertible notes
 36




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##### Table of Contents



Trust Deed in connection with the Rights Offer
   Equity Line Facility Agreements
      37




---



##### Table of Contents



D. Exchange Controls
  E. Taxation
  U.S. Federal Income Tax Considerations
 To ensure compliance with U.S. Treasury Department Circular 230, investors are hereby notified
that: (a) any discussion of U.S. Federal tax issues in this document is not intended or written by
Metal Storm to be relied upon, and cannot be relied upon by investors in the ADSs or ordinary
shares, for the purpose of avoiding penalties that may be imposed on investors in the ADSs or
ordinary shares under the U.S. Internal Revenue Code of 1986, as amended (the Code), (b) such
discussion is written in connection with the promotion or marketing of the transactions or matters
addressed herein by Metal Storm, and (c) investors in the ADSs or ordinary shares should seek
advice based on their particular circumstances from their own independent tax advisors. U.S.
counsel does not intend to be, and is not, engaged in the promotion or marketing of the
transactions or matters described in this offering memorandum, and no inference to the contrary
shall be implied by reason of the U.S. tax discussion set forth herein.
  38




---



##### Table of Contents




    
    an individual who is a citizen or resident of the United States for U.S. federal income
tax purposes;
    
    a corporation, or other entity treated as a corporation for U.S. federal income tax
purposes, created or organized in or under the laws of the United States or any state
thereof or the District of Columbia;
    
    an estate the income of which is subject to U.S. federal income taxation regardless of
its source; or
    
    a trust the administration of which is subject to the primary supervision of a court in
the United States and for which one or more U.S. persons have the authority to control all
substantial decisions.
  You should consult your tax advisor with respect to the U.S. federal, as well as state, local
and non-U.S., tax consequences to you of an investment in ADSs or ordinary shares.
 Ownership of ADSs in General
  Dividends
 pro rata
  39




---



##### Table of Contents



Sale or Exchange of ADSs or Ordinary Shares
   Medicare Tax on Unearned Income
  Passive Foreign Investment Company Status
   40




---



##### Table of Contents



pro rata
    41




---



##### Table of Contents



U.S. holders are urged to consult their tax advisors as to the effect on them of the PFIC
rules and the desirability of making, and the availability of, either a QEF election or a
mark-to-market election with respect to our ADSs or ordinary shares. Metal Storm provides no advice
on your taxation matters. The above should not be taken as advice by the reader of this document.
 Backup Withholding Tax and Information Reporting Requirements
   The discussion above is not intended to constitute a complete analysis of all tax
considerations applicable to an investment in ADSs or ordinary shares. You should consult with your
tax advisor concerning the tax consequences to you in your particular situation.
 Australian Tax Considerations
  Nature of ADRs for Australian Taxation Purposes
  Taxation of Dividends
 42




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##### Table of Contents



Tax on Sales or other Dispositions of SharesCapital gains tax
   Tax on Sales or other Dispositions of SharesShareholders Holding Shares on Revenue Account
    Dual Residency
  Stamp Duty
  Australian Death Duty
  Goods and Services Tax
 43




---



##### Table of Contents



F. Dividends and Paying Agents
  G. Statements by Experts
  H. Documents on Display
 www.sec.gov
 I. Subsidiary Information
  
 Item 11. Quantitative and Qualitative Disclosure about Market Risk
     44




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##### Table of Contents



Item 12. Description of Securities Other than Equity Securities
 A. Debt Securities
  B. Warrants and Rights
  C. Other Securities
  D. American Depositary Shares
   Associated Fee
    
    Depositary Action$5.00 or less per 100 ADSs (or portion thereof)
    
       Issuance of ADSs,
including issuances
resulting from a
distribution of shares
or rights or other
property.   Cancellation of ADSs
for the purpose of
withdrawal, including
in case of termination
of the Deposit
Agreement.$.02 or less per ADS
    
       Any cash
distribution to ADS
registered holders
made pursuant to the
Deposit Agreement.A fee equivalent to the fee that would be payable
if securities distributed to you had been shares
and the shares had been deposited for issuance of
ADSs
    
       Distribution of
securities distributed
to holders of
deposited securities
which are distributed
by the depositary to
ADS registered
holders.Taxes and other governmental charges
    
    As necessaryRegistration and transfer fees
    
       Transfer and
registration of shares
on our share register
to or from the name of
the depositary or its
agent when you deposit
or withdraw sharesA fee equivalent to the fee that would be payable
for execution and delivery of ADSs as a result of
the deposit of such securities, but which
securities are instead distributed
    
       Issuance of ADS or
shares received in
exercise of rights
distributed, but whose
securities or rights
are instead sold by
the depositary and the
net proceeds
distributedAny charges incurred by the depositary or its 
agents for servicing the deposited securities
    
    As necessaryExpenses of the depositary
    
       Cable, telex and
facsimile
transmissions (when
expressly provided in
the deposit agreement)   Expenses incurred
converting foreign
currency to U.S.
dollars
 45




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##### Table of Contents



PART II
 
 Item 13. Defaults, Dividend Arrearages and Delinquencies
  
 Item 14. Material Modifications to the Rights of Security Holders and the Use of Proceeds
  
 Item 15T. Controls and Procedures
        
    
    pertain to the maintenance of records that in reasonable detail accurately and fairly
reflect the transactions and dispositions of its assets and its consolidated entities;
    
    provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting
principles, and that receipts and expenditures of Metal Storm are being made only in
accordance with authorizations of management and directors of Metal Storm and its
consolidated entities; and
    
    provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use or disposition of the assets of Metal Storm and its consolidated
entities that could have a material effect on the financial statements.
 46




---



##### Table of Contents



Item 16A. Audit Committee Financial Expert
  
 Item 16B. Code of Ethics
  
    
    responsibilities to shareholders;
    
    compliance with laws and regulations;
    
    relations with customers and suppliers;
    
    ethical responsibilities;
    
    employment practices; and
    
    responsibilities to the environment and the community.
   
 Item 16C. Principal Accountant Fees and Services
  December 31,2009
    
    2008A$
    
    A$Audit fees
    
    
    341,500
    
    
    
    445,330Audit-related fees
    
    
    
    
    
    
    Tax fees
    
    
    
    
    
    
    All other fees
    
    
    69,000
    
    
    
    70,750Total
    
    
    410,500
    
    
    
    516,080
  47




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##### Table of Contents



Item 16D. Exemptions from the Listing Standards for Audit Committees.
  
 Item 16E. Purchases of Equity Securities by the Issuer and Affiliated Purchasers
  
 Item 16F. Changes in Registrants Certifying Accountant
  
 Item 16G. Corporate Governance
  48




---



##### Table of Contents



PART III
 
 Item 17. Financial Statements
  
 Item 18. Financial Statements
  
 Item 19. Exhibits
 ExhibitNumber
    
    Description of Exhibit1.1
    
    Constitution of Metal Storm*4.1
    
    Convertible Notes Trust Deed, dated July 30, 20094.2
    
    GEM Equity Line Facility Agreement, dated December 30, 2009, among GEM Global Yield Fund Ltd, GEM
Investment Advisors, Inc. and Metal Storm Limited4.3
    
    Line Agreement, dated June 22, 2010, between Dutchess Opportunity Fund II LP and Metal Storm Limited4.4
    
    DSTO Technology License Agreement dated April 20, 2001, as amended (portions omitted pursuant to a
request for confidential treatment; non-public information has been filed with the SEC)*4.5
    
    Employment Agreement of Dr. Lee Finniear**4.6
    
    Letter of Offer to Peter D. Faulkner**4.7
    
    Employment Agreement of Brett Farmer***4.8
    
    Employment Agreement of David Pashen***4.9
    
    Employment Agreement of Dr. Joe Cronin**4.10
    
    Employment Agreement of Arthur Schatz4.11
    
    Discretionary Share Option Scheme*8.0
    
    List of Subsidiaries of Metal Storm Limited12.1
    
    Certification by the Chief Executive Officer of Metal Storm Limited in accordance with Section 302
of the Sarbanes-Oxley Act12.2
    
    Certification by the Chief Financial Officer of Metal Storm Limited in accordance with Section 302
of the Sarbanes-Oxley Act13.1
    
    Certification by the Chief Executive Officer in accordance with Section 906 of the Sarbanes-Oxley Act13.2
    
    Certification by the Chief Financial Officer in accordance with Section 906 of the Sarbanes-Oxley Act
 
 *
    
    Incorporated by reference from our Registration Statement on Form 20-F filed on December 12,
2001, File No. 000-31212.**
    
    Incorporated by reference from our annual report on Form 20-F filed on May 18, 2007.***
    
    Incorporated by reference from our annual report on Form 20-F filed on July 15, 2009. 49




---



##### Table of Contents



SIGNATURES
  METAL STORM LIMITEDBy:
    /s/ LEE J. FINNIEARName:
    Lee J. FinniearTitle:
    Chief Executive Officer  50




---



##### Table of Contents



Index to Financial Statements
 Report of Independent Registered Public Accounting firm
    
    
    F-2Statements of Comprehensive Income for the years ended 31 December 2009, 2008 & 2007
    
    
    F-3Statements of Financial Position as at 31 December 2009, 2008 & 2007
    
    
    F-4Statements of Cash Flow for the years ended 31 December 2009, 2008 & 2007
    
    
    F-5Statements of Changes in Equity for the years ended 31 December 2009, 2008 & 2007
    
    
    F-6Notes to the Financial Statements
    
    
    F-7
 F-1




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##### Table of Contents



PricewaterhouseCoopers
ABN 52 780 433 757
Riverside Centre
123 Eagle Street
BRISBANE QLD 4000
GPO Box 150
BRISBANE QLD 4001
DX 77 Brisbane
Australia
Telephone +61 7 3257 5000
Facsimile +61 7 3257 5999
www.pwc.com/au
 
 Report of Independent Registered Public Accounting Firm
    
 F-2




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##### Table of Contents



Financial Statements
 
 Consolidated Statements of Comprehensive Income
 For the year ended 31 December 2009
 Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $Revenue
    
    
    6
    
    
    
    1,112,481
    
    
    
    2,201,331
    
    
    
    3,205,381Gain on extinguishment of debt
    
    
    18
    
    
    
    2,467,609
    
    
    
    Fair value movement in derivative
    
    
    16
    
    
    
    (224,611
    )
    
    
    3,620,682
    
    
    
    2,421,388Consumables used
    
    
    
    
    
    
    (154,960
    )
    
    
    (131,896
    )
    
    
    (469,579
    )Finance costs
    
    
    7
    
    
    
    (5,749,555
    )
    
    
    (6,369,138
    )
    
    
    (4,934,415
    )Employee expenses
    
    
    7
    
    
    
    (4,491,565
    )
    
    
    (4,229,674
    )
    
    
    (4,348,588
    )Professional fees
    
    
    
    
    
    
    (1,187,842
    )
    
    
    (1,449,621
    )
    
    
    (1,321,686
    )Research and development
    
    
    
    
    
    
    (976,994
    )
    
    
    (1,569,582
    )
    
    
    (1,671,057
    )Facilities and equipment
    
    
    
    
    
    
    (755,798
    )
    
    
    (713,699
    )
    
    
    (790,874
    )Administrative expenses
    
    
    
    
    
    
    (515,215
    )
    
    
    (623,687
    )
    
    
    (576,387
    )Public relations and compliance
    
    
    
    
    
    
    (403,830
    )
    
    
    (423,223
    )
    
    
    (393,967
    )Travel and entertainment
    
    
    
    
    
    
    (246,809
    )
    
    
    (346,412
    )
    
    
    (468,868
    )Communication and technology
    
    
    
    
    
    
    (234,022
    )
    
    
    (296,482
    )
    
    
    (360,501
    )Impairment reversal/(expense)
    
    
    7
    
    
    
    75,000
    
    
    
    (769,200
    )
    
    
    (220,800
    )Net foreign exchange differences
    
    
    
    
    
    
    (21,553
    )
    
    
    444,598
    
    
    
    (68,197
    )Loss before Income tax
    
    
    
    
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Income tax expenses
    
    
    8
    
    
    
    
    
    
    
    
    
    
    
    Loss for the year
    
    
    
    
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Other comprehensive income- Currency Translation difference
    
    
    
    
    
    
    41,523
    
    
    
    (38,242
    )
    
    
    13,933- Other comprehensive income for the
year
    
    
    
    
    
    
    41,523
    
    
    
    (38,242
    )
    
    
    13,933Total Comprehensive income for the year
    
    
    
    
    
    
    (11,266,141
    )
    
    
    (10,694,245
    )
    
    
    (9,984,217
    )Earnings per share (cents per share)- Basic and diluted loss for the year
attributable to ordinary owners of the
parent
    
    
    31
    
    
    
    (1.61
    )
    
    
    (1.62
    )
    
    
    (1.56
    )
  F-3




---



##### Table of Contents



Consolidated Statements of Financial Position
 As at 31 December 2009
 Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $AssetsCurrent assetsCash and cash equivalents
    
    
    9
    
    
    
    67,350
    
    
    
    7,571,292
    
    
    
    14,727,548Available-for-sale financial investments
    
    
    10
    
    
    
    
    
    
    
    10,000
    
    
    
    779,200Trade and other receivables
    
    
    11
    
    
    
    309,284
    
    
    
    1,120,592
    
    
    
    1,563,218Total current assets
    
    
    
    
    
    
    376,634
    
    
    
    8,701,884
    
    
    
    17,069,966Non-current assetsTrade and other receivables
    
    
    12
    
    
    
    28,679
    
    
    
    34,202
    
    
    
    987,902Other financial assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Property, plant and equipment
    
    
    13
    
    
    
    423,715
    
    
    
    508,354
    
    
    
    656,260Intangible assets and goodwill
    
    
    14
    
    
    
    612
    
    
    
    23,084
    
    
    
    74,149Total non-current assets
    
    
    
    
    
    
    453,006
    
    
    
    565,640
    
    
    
    1,718,311Total assets
    
    
    
    
    
    
    829,640
    
    
    
    9,267,524
    
    
    
    18,788,277LiabilitiesCurrent liabilitiesTrade and other payables
    
    
    15
    
    
    
    1,417,188
    
    
    
    1,129,438
    
    
    
    2,605,145Conversion derivative
    
    
    16
    
    
    
    2,337,200
    
    
    
    2,187,934
    
    
    
    5,963,793Non-interest bearing loans & borrowings
    
    
    17
    
    
    
    11,822,962
    
    
    
    
    
    
    
    Interest-bearing loans and borrowings
    
    
    18
    
    
    
    4,070,584
    
    
    
    18,703,697
    
    
    
    12,941,447Provisions
    
    
    19
    
    
    
    359,024
    
    
    
    376,582
    
    
    
    302,161Total current liabilities
    
    
    
    
    
    
    20,006,958
    
    
    
    22,397,651
    
    
    
    21,812,546Non-current liabilitiesInterest-bearing loans and borrowings
    
    
    20
    
    
    
    7,630
    
    
    
    16,783
    
    
    
    215,036Other
    
    
    
    
    
    
    16,056
    
    
    
    46,355
    
    
    
    68,265Total non-current liabilities
    
    
    
    
    
    
    23,686
    
    
    
    63,138
    
    
    
    283,301Total liabilities
    
    
    
    
    
    
    20,030,644
    
    
    
    22,460,789
    
    
    
    22,095,847Net assets (liabilities)
    
    
    
    
    
    
    (19,201,004
    )
    
    
    (13,193,265
    )
    
    
    (3,307,570
    )EquityContributed equity
    
    
    21
    
    
    
    70,075,033
    
    
    
    66,209,718
    
    
    
    65,428,400Reserves
    
    
    22
    
    
    
    10,470,024
    
    
    
    9,035,414
    
    
    
    9,046,424Accumulated losses
    
    
    23
    
    
    
    (99,746,061
    )
    
    
    (88,438,397
    )
    
    
    (77,782,394
    )Total equity (deficiency)
    
    
    
    
    
    
    (19,201,004
    )
    
    
    (13,193,265
    )
    
    
    (3,307,570
    )
  F-4




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##### Table of Contents



Consolidated Statements of Cash Flow
 For the year ended 31 December 2009
 Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $Cash Flows From Operating ActivitiesReceipts from customers (inclusive of GST)
    
    
    
    
    
    
    1,576,199
    
    
    
    926,582
    
    
    
    1,052,095Payments to suppliers and employees (inclusive of GST)
    
    
    
    
    
    
    (8,693,671
    )
    
    
    (9,573,667
    )
    
    
    (9,516,201
    )Interest and other costs of finance paid
    
    
    
    
    
    
    (1,586,756
    )
    
    
    (2,265,444
    )
    
    
    (2,791,790
    )Research & development tax concession
    
    
    
    
    
    
    
    
    
    
    732,015
    
    
    
    Net cash outflow from operating activities
    
    
    30
    
    
    
    (8,704,228
    )
    
    
    (10,180,514
    )
    
    
    (11,255,896
    )Cash Flows From Investing ActivitiesPurchase of property, plant and equipment
    
    
    
    
    
    
    (77,426
    )
    
    
    (23,774
    )
    
    
    (200,039
    )Proceeds from the disposal of property, plant and equipment
    
    
    
    
    
    
    
    
    
    
    681
    
    
    
    2,127Purchase of intangible assets
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (42,847
    )Interest received
    
    
    
    
    
    
    190,032
    
    
    
    988,900
    
    
    
    1,455,190Proceeds from sale of available-for-sale financial assets
    
    
    
    
    
    
    85,000
    
    
    
    
    
    
    
    1,000,000Net cash inflow from investing activities
    
    
    
    
    
    
    197,606
    
    
    
    965,807
    
    
    
    2,214,431Cash Flows From Financing ActivitiesProceeds from issues of shares
    
    
    
    
    
    
    3,326,194
    
    
    
    
    
    
    
    6,639Share issue costs
    
    
    
    
    
    
    (160,701
    )
    
    
    
    
    
    
    Proceeds from borrowings
    
    
    
    
    
    
    426,714
    
    
    
    4,464,459
    
    
    
    419,703Repayment of borrowings
    
    
    
    
    
    
    (2,543,542
    )
    
    
    (2,499,916
    )
    
    
    (486,114
    )Advances to subsidiary
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Net cash inflow (outflow) from financing activities
    
    
    
    
    
    
    1,048,665
    
    
    
    1,964,543
    
    
    
    (59,772
    )Net movement in cash and cash equivalents
    
    
    
    
    
    
    (7,457,957
    )
    
    
    (7,250,164
    )
    
    
    (9,101,237
    )Net foreign exchange differences
    
    
    
    
    
    
    (45,985
    )
    
    
    93,908
    
    
    
    (1,482
    )Cash and cash equivalents at beginning of period
    
    
    
    
    
    
    7,571,292
    
    
    
    14,727,548
    
    
    
    23,830,267Cash and cash equivalents at
year end
    
    
    9
    
    
    
    67,350
    
    
    
    7,571,292
    
    
    
    14,727,548
  F-5




---



##### Table of Contents



Consolidated Statements of Changes in Equity
 For the year ended 31 December 2009
 Issued capital
    
    Reserves
    
    Accumulated losses
    
    Total equityConsolidated
    
    $
    
    $
    
    $
    
    $At 1 January 2007
    
    
    59,985,634
    
    
    
    8,895,942
    
    
    
    (67,784,244
    )
    
    
    1,097,332Total comprehensive income for the year
    
    
    
    
    
    
    13,933
    
    
    
    (9,998,150
    )
    
    
    (9,984,217
    )Transactions with the owners in their
capacity as ownersNet increase in option and share reserves
    
    
    
    
    
    
    136,549
    
    
    
    
    
    
    
    136,549Conversion of notes
    
    
    5,436,128
    
    
    
    
    
    
    
    
    
    
    
    5,436,128Exercise of Options
    
    
    6,638
    
    
    
    
    
    
    
    
    
    
    
    6,638At 1 January 2008
    
    
    65,428,400
    
    
    
    9,046,424
    
    
    
    (77,782,394
    )
    
    
    (3,307,570
    )Total comprehensive income for the year
    
    
    
    
    
    
    (38,242
    )
    
    
    (10,656,003
    )
    
    
    (10,694,245
    )Transactions with the owners in their
capacity as ownersNet increase in option and share reserves
    
    
    
    
    
    
    27,232
    
    
    
    
    
    
    
    27,232Conversion of notes
    
    
    657,204
    
    
    
    
    
    
    
    
    
    
    
    657,204Issue of share capital
    
    
    124,114
    
    
    
    
    
    
    
    
    
    
    
    124,114At 1 January 2009
    
    
    66,209,718
    
    
    
    9,035,414
    
    
    
    (88,438,397
    )
    
    
    (13,193,265
    )Total comprehensive income for the year
    
    
    
    
    
    
    41,523
    
    
    
    (11,307,664
    )
    
    
    (11,266,141
    )Transactions with the owners in their
capacity as ownersNet increase in option and share reserves
    
    
    
    
    
    
    1,393,087
    
    
    
    
    
    
    
    1,393,087Exercise of options
    
    
    1,294
    
    
    
    
    
    
    
    
    
    
    
    1,294Conversion of notes
    
    
    662,772
    
    
    
    
    
    
    
    
    
    
    
    662,772Issue of share capital
    
    
    3,361,950
    
    
    
    
    
    
    
    
    
    
    
    3,361,950Share issue costs
    
    
    (160,701
    )
    
    
    
    
    
    
    
    
    
    
    (160,701
    )At 31 December 2009
    
    
    70,075,033
    
    
    
    10,470,024
    
    
    
    (99,746,061
    )
    
    
    (19,201,004
    )
  F-6




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##### Table of Contents



Notes to the financial statements
 For the year ended 31 December 2009
 Contents
 1.
    
    Going Concern
    
    F-82.
    
    Summary of Significant Accounting Policies
    
    F-93.
    
    Financial Risk Management
    
    F-164.
    
    Critical Accounting Estimates and Judgements
    
    F-205.
    
    Segment Information
    
    F-206.
    
    Revenue
    
    F-227.
    
    Expenses
    
    F-228.
    
    Income Tax
    
    F-229.
    
    Current Assets  Cash and Cash Equivalents
    
    F-2410.
    
    Current Assets  Available-For-Sale Financial Investments
    
    F-2411.
    
    Current Assets  Trade and Other Receivables
    
    F-2412.
    
    Non-Current Assets  Trade and Other Receivables
    
    F-2513.
    
    Non-Current Assets  Property, Plant and Equipment
    
    F-2614.
    
    Non-Current Assets  Intangible Assets and Goodwill
    
    F-2715.
    
    Current Liabilities  Trade and Other Payables
    
    F-2816.
    
    Current Liabilities  Conversion Derivative
    
    F-2817.
    
    Current Liabilities  Non-Interest Bearing Loans and Borrowings
    
    F-2818.
    
    Current Liabilities  Interest Bearing Loans and Borrowings
    
    F-2919.
    
    Current Liabilities  Provisions
    
    F-3020.
    
    Non-Current Liabilities  Interest Bearing Loans and Borrowings
    
    F-3121.
    
    Contributed Equity
    
    F-3222.
    
    Reserves
    
    F-3323.
    
    Accumulated Losses
    
    F-3424.
    
    Key Management Personnel Disclosures
    
    F-3425.
    
    Remuneration Of Auditors
    
    F-3726.
    
    Commitments
    
    F-3727.
    
    Related Party Transactions
    
    F-3828.
    
    Subsidiaries
    
    F-3829.
    
    Events Occurring After The End Of The Reporting Period
    
    F-3830.
    
    Reconciliation Of Loss After Income Tax To Net Cash Inflow From Operating Activities
    
    F-3931.
    
    Earnings Per Share
    
    F-4032.
    
    Share-Based Payments
    
    F-40
 F-7




---



##### Table of Contents



1. Going concern
   2009
    
    2008
    
    2007$
    
    $
    
    $Cash at Bank
    
    
    67,350
    
    
    
    7,571,292
    
    
    
    14,727,548Loss for the Year
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Net cash outflow from operating activities
    
    
    (8,704,228
    )
    
    
    (10,180,514
    )
    
    
    (11,255,896
    )Net liabilities
    
    
    (19,201,004
    )
    
    
    (13,193,265
    )
    
    
    (3,307,570
    )
         F-8




---



##### Table of Contents



2. Summary of significant accounting policies
  a. Basis of preparation
  Financial statement presentation.
  Compliance with IFRS
  Historical cost convention
  Critical accounting estimates
  b. Principles of consolidation
        c. Segment reporting
    F-9




---



##### Table of Contents



d. Foreign currency translation
 Functional and presentation currency
  Transactions and balances
   Group companies
  
    
    assets and liabilities for each statement of financial position presented are translated at
the closing rate at the date of that statement of financial position;
    
    income and expenses for each Statements of Comprehensive Income 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 in other comprehensive income.
 e. Revenue recognition
    Contract Revenue
     Interest income
  f. Government grants
    g. Income tax
  F-10




---



##### Table of Contents



h. Leases
   i. Business combinations
    j. Impairment of assets
  k. Cash and cash equivalents
  l. Trade receivables
  F-11




---



##### Table of Contents



m. Investments and other financial assets
 Classification
  
    
    Financial assets at fair value through profit or loss
  
    
    Loans and receivables
  
    
    Held-to-maturity investments
  
    
    Available-for- sale investments
  Recognition and derecognition
   Subsequent measurement
    F-12




---



##### Table of Contents



Fair value
  Impairment
  n. Derivatives
  o. Fair value estimation
     p. Property, plant and equipment
        Machinery
    
    5  10 years     Furniture, fittings and equipment
    
    2  5 years     Leasehold improvements
    
    3 years     Leased plant and equipment
    
    1  5 years
    q. Intangible assets
 Goodwill
   Research and development
  F-13




---



##### Table of Contents



Software
   r. Trade and other payables
  s. Borrowings
        t. Borrowing costs
   u. Provisions
    F-14




---



##### Table of Contents



v. Employee benefits
 Wages and salaries, annual leave and sick leave
  Long service leave
  Share-based payments
    Post employment benefits
  Bonus plans
  w. Share-based payments
   x. Contributed equity
   y. Goods and services tax (GST)
    z. Earnings per share
 Basic earnings per share
  Diluted earnings per shares
  aa. New accounting standards and interpretations
  Amendments to IFRS 2  Group Cash-Settled Sharebased Payment Transactions [IFRS 2] (effective from 1 January 2010)
 F-15




---



##### Table of Contents



Amendments to IAS 32  Classification of Rights Issues [IAS 32] (effective from 1 February 2010)
  IFRS 9 Financial Instruments (effective from 1 January 2013)
  IFRIC 19 Extinguishing financial liabilities with equity instruments (effective from 1 July 2010)
  
 3. Financial risk management
   a. Market risk
 Foreign exchange risk
     Fair value interest rate risk
     F-16




---



##### Table of Contents



Increase in
    
    Decrease inGroup Loss
    
    Group LossRisk Factor
    
    $
    
    $2009 actual loss
    
    
    (11,307,664
    )
    
    
    (11,307,664
    )(i) Australian Dollar (weaker)/stronger by 10% against the US
Dollar
    
    
    (10,172
    )
    
    
    10,172(ii) Interest rate increase/(decrease) by 10%
    
    
    (13,683
    )
    
    
    13,6832009 loss after adjusting for market risk sensitivity factors
    
    
    (11,331,519
    )
    
    
    (11,283,809
    )
  Increase in 
Group
    
    Decrease in 
GroupDeficiency
    
    DeficiencyRisk Factor
    
    $
    
    $2009 actual shareholders deficiency
    
    
    (19,201,004
    )
    
    
    (19,201,004
    )(i) Australian Dollar (weaker)/stronger by 10% against the US
Dollar
    
    
    (10,172
    )
    
    
    10,172(ii) Interest rate increase/(decrease) by 10%
    
    
    (13,683
    )
    
    
    13,6832009 total shareholder deficiency after adjusting for market risk
sensitivity factors
    
    
    (19,224,859
    )
    
    
    (19,177,149
    )
  Increase in
    
    Decrease inGroup Loss
    
    Group LossRisk Factor
    
    $
    
    $2008 actual loss
    
    
    (10,656,003
    )
    
    
    (10,656,003
    )(i) Australian Dollar (weaker)/stronger by 10% against the US
Dollar
    
    
    (20,905
    )
    
    
    20,905(ii) Interest rate increase/(decrease) by 10%
    
    
    (54,257
    )
    
    
    54,257(iii) Change in fair value of available-for-sale financial assets
(increased)/decreased by 10%
    
    
    (1,000
    )
    
    
    1,0002008 loss after adjusting for market risk sensitivity factors
    
    
    (10,732,165
    )
    
    
    (10,579,841
    )
  Increase in 
Group
    
    Decrease in 
GroupDeficiency
    
    DeficiencyRisk Factor
    
    $
    
    $2008 actual shareholders deficiency
    
    
    (13,193,265
    )
    
    
    (13,193,265
    )(i) Australian Dollar (weaker)/stronger by 10% against the US
Dollar
    
    
    (20,905
    )
    
    
    20,905(ii) Interest rate increase/(decrease) by 10%
    
    
    (54,257
    )
    
    
    54,257(iii) Change in fair value of available-for-sale financial assets
(increased)/decreased by 10%
    
    
    (1,000
    )
    
    
    1,0002008 total shareholder deficiency after adjusting for market risk
sensitivity factors
    
    
    (13,269,427
    )
    
    
    (13,117,103
    )
  Increase in
    
    Decrease inGroup Loss
    
    Group LossRisk Factor
    
    $
    
    $2007 actual loss
    
    
    (9,998,150
    )
    
    
    (9,998,150
    )(i) Australian Dollar (weaker)/stronger by 10% against the US
Dollar
    
    
    (130,998
    )
    
    
    130,998(ii) Interest rate increase/(decrease) by 10%
    
    
    (148,946
    )
    
    
    148,946(iii) Change in fair value of available-for-sale financial assets
(increased)/decreased by 10%
    
    
    (22,288
    )
    
    
    22,2882007 loss after adjusting for market risk sensitivity factors
    
    
    (10,300,382
    )
    
    
    (9,695,918
    )
  Increase in 
Group
    
    Decrease in 
GroupDeficiency
    
    DeficiencyRisk Factor
    
    $
    
    $2007 actual shareholders deficiency
    
    
    (3,307,570
    )
    
    
    (3,307,570
    )(i) Australian Dollar (weaker)/stronger by 10% against the US
Dollar
    
    
    (130,998
    )
    
    
    130,998(ii) Interest rate increase/(decrease) by 10%
    
    
    (148,946
    )
    
    
    148,946(iii) Change in fair value of available-for-sale financial assets
(increased)/decreased by 10%
    
    
    (22,288
    )
    
    
    22,2882007 total shareholder deficiency after adjusting for market risk
sensitivity factors
    
    
    (3,609,802
    )
    
    
    (3,005,338
    )
 F-17




---



##### Table of Contents



b. Credit risk
       c. Liquidity risk
    Later than one
    
    Later than
    
    Later than onemonth and not
    
    three months
    
    year and notNot later
    
    later than
    
    and not later
    
    later than fivethan one month
    
    three months
    
    than one year
    
    yearsFinancial liability
    
    $
    
    $
    
    $
    
    $Group  2009Payables
    
    
    379,555
    
    
    
    132,217
    
    
    
    
    
    
    
    Finance Leases
    
    
    664
    
    
    
    1,327
    
    
    
    4,599
    
    
    
    8,556Convertible Notes
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    19,239,143Loan
    
    
    
    
    
    
    326,714
    
    
    
    
    
    
    
    Total
    
    
    380,219
    
    
    
    460,258
    
    
    
    4,599
    
    
    
    19,247,699Group  2008Payables
    
    
    90,537
    
    
    
    
    
    
    
    
    
    
    
    Finance Leases
    
    
    7,208
    
    
    
    14,418
    
    
    
    64,880
    
    
    
    19,592Convertible Notes
    
    
    
    
    
    
    
    
    
    
    21,250,295
    
    
    
    Loan
    
    
    2,067,615
    
    
    
    80,983
    
    
    
    121,474
    
    
    
    Total
    
    
    2,165,360
    
    
    
    95,401
    
    
    
    21,436,649
    
    
    
    19,592Group  2007Payables
    
    
    390,737
    
    
    
    857,426
    
    
    
    
    
    
    
    Finance Leases
    
    
    17,052
    
    
    
    14,104
    
    
    
    63,470
    
    
    
    232,487Convertible Notes
    
    
    
    
    
    
    512,402
    
    
    
    1,548,466
    
    
    
    21,908,709Loan
    
    
    36,465
    
    
    
    72,931
    
    
    
    109,396
    
    
    
    Total
    
    
    434,254
    
    
    
    1,486,863
    
    
    
    1,721,332
    
    
    
    22,141,196
  d. Fair value estimation
  Financial Instruments:
Disclosures
 a)
    
    Quoted prices (unadjusted) in active markets for identical assets or liabilities (Level
1);b)
    
    Inputs other than quoted prices included within Level 1 that are observable for the
asset or liability, either directly (as prices) or indirectly (derived from prices) (Level
2); andc)
    
    Inputs for the asset or liability that are not based on observable market data
(unobservable inputs) (Level 3).
 F-18




---



##### Table of Contents



Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities
    
    $
    
    $
    
    $
    
    $Conversion derivative
    
    
    
    
    
    
    
    
    
    
    2,337,200
    
    
    
    2,337,200Total Liabilities
    
    
    
    
    
    
    
    
    
    
    2,337,200
    
    
    
    2,337,200
  Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities
    
    $
    
    $
    
    $
    
    $Conversion derivative
    
    
    
    
    
    
    
    
    
    
    2,187,934
    
    
    
    2,187,934Total Liabilities
    
    
    
    
    
    
    
    
    
    
    2,187,934
    
    
    
    2,187,934
  Level 1
    
    Level 2
    
    Level 3
    
    TotalLiabilities
    
    $
    
    $
    
    $
    
    $Conversion derivative
    
    
    
    
    
    
    
    
    
    
    5,963,793
    
    
    
    5,963,793Total Liabilities
    
    
    
    
    
    
    
    
    
    
    5,963,793
    
    
    
    5,963,793
   2009
    
    2008
    
    2007Conversion
    
    Conversion
    
    Conversionderivative
    
    derivative
    
    derivativeGroup
    
    $
    
    $
    
    $Opening balance
    
    
    2,187,934
    
    
    
    5,963,793
    
    
    
    10,811,057Transfer from interest bearing notes
    
    
    
    
    
    
    
    
    
    
    Other decreases
    
    
    (75,345
    )
    
    
    (155,177
    )
    
    
    (2,425,876
    )Gains/(losses) recognised in profit or loss
    
    
    224,611
    
    
    
    (3,620,682
    )
    
    
    (2,421,388
    )Closing Balance
    
    
    2,337,200
    
    
    
    2,187,934
    
    
    
    5,963,793
 e. Capital risk management
     F-19




---



##### Table of Contents



4. Critical accounting estimates and judgements
 a. Embedded derivatives, convertible notes and attached options
  Share price:
    
    $
    0.02
    (at 31 December 2009)Exercise Price:
    
    $
    0.15Share price Volatility:
    
    
    118.76
    %Risk free rate:
    
    
    4.4
    %
 b. Revenue recognition
  
 5. Segment information
 a. Description of segments
    b. Segment information provided to the Chief Executive Officer
 Inter-segmentAustralia
    
    United States
    
    eliminations
    
    Consolidated2009
    
    $
    
    $
    
    $
    
    $Segment loss
    
    
    (10,746,031
    )
    
    
    (1,997,058
    )
    
    
    1,435,425
    
    
    
    (11,307,664
    )Items included in segment lossRevenueRevenue from external customers
    
    
    
    
    
    
    975,648
    
    
    
    
    
    
    
    975,648Interest revenue
    
    
    136,708
    
    
    
    125
    
    
    
    
    
    
    
    136,833ExpensesInterest expense
    
    
    1,586,756
    
    
    
    
    
    
    
    
    
    
    
    1,586,756Accretion expense and
transaction cost amortisation
    
    
    4,061,085
    
    
    
    
    
    
    
    
    
    
    
    4,061,085Depreciation
    
    
    136,094
    
    
    
    25,971
    
    
    
    
    
    
    
    162,065Amortisation
    
    
    22,472
    
    
    
    
    
    
    
    
    
    
    
    22,472Non-current segment assets
    
    
    400,911
    
    
    
    55,015
    
    
    
    (2,920
    )
    
    
    453,006Total segment assets
    
    
    569,601
    
    
    
    262,959
    
    
    
    (2,920
    )
    
    
    829,640Segment liabilities
    
    
    19,344,629
    
    
    
    22,570,649
    
    
    
    (21,884,634
    )
    
    
    20,030,644
 F-20




---



##### Table of Contents



Inter-segmentAustralia
    
    United States
    
    eliminations
    
    Consolidated2008
    
    $
    
    $
    
    $
    
    $Segment loss
    
    
    (10,762,246
    )
    
    
    (1,358,067
    )
    
    
    1,464,310
    
    
    
    (10,656,003
    )Items included in segment lossRevenueRevenue from external customers
    
    
    49,675
    
    
    
    1,110,957
    
    
    
    
    
    
    
    1,160,632Interest revenue
    
    
    1,000,811
    
    
    
    39,888
    
    
    
    
    
    
    
    1,040,699ExpensesInterest expense
    
    
    2,262,003
    
    
    
    3,442
    
    
    
    
    
    
    
    2,265,445Accretion expense and
transaction cost amortisation
    
    
    4,103,693
    
    
    
    
    
    
    
    
    
    
    
    4,103,693Depreciation
    
    
    146,355
    
    
    
    23,486
    
    
    
    
    
    
    
    169,841Amortisation
    
    
    28,775
    
    
    
    22,290
    
    
    
    
    
    
    
    51,065Non-current segment assets
    
    
    498,973
    
    
    
    69,587
    
    
    
    (2,920
    )
    
    
    565,640Total segment assets
    
    
    8,806,828
    
    
    
    463,616
    
    
    
    (2,920
    )
    
    
    9,267,524Segment liabilities
    
    
    22,094,227
    
    
    
    21,367,716
    
    
    
    (21,001,154
    )
    
    
    22,460,789
 Inter-segmentAustralia
    
    United States
    
    eliminations
    
    Consolidated2007
    
    $
    
    $
    
    $
    
    $Segment loss
    
    
    (10,806,695
    )
    
    
    (1,383,714
    )
    
    
    2,192,259
    
    
    
    (9,998,150
    )Items included in segment lossRevenueRevenue from external customers
    
    
    1,192
    
    
    
    1,850,141
    
    
    
    
    
    
    
    1,851,333Interest revenue
    
    
    1,329,387
    
    
    
    24,661
    
    
    
    
    
    
    
    1,354,048ExpensesInterest expense
    
    
    2,184,507
    
    
    
    
    
    
    
    
    
    
    
    2,184,507Accretion expense and
transaction cost amortisation
    
    
    2,749,908
    
    
    
    
    
    
    
    
    
    
    
    2,749,908Depreciation
    
    
    137,372
    
    
    
    31,602
    
    
    
    
    
    
    
    168,974Amortisation
    
    
    32,017
    
    
    
    48,505
    
    
    
    
    
    
    
    80,522Non-current segment assets
    
    
    15,935,993
    
    
    
    1,133,973
    
    
    
    
    
    
    
    17,069,966Total segment assets
    
    
    17,070,834
    
    
    
    1,720,363
    
    
    
    (2,920
    )
    
    
    18,788,277Segment liabilities
    
    
    20,404,537
    
    
    
    20,454,240
    
    
    
    (18,762,930
    )
    
    
    22,095,847
 c. Notes to and forming part of the segment information
 Accounting policies
   Inter-segment transfers
  F-21




---



##### Table of Contents



6. Revenue
 2009
    
    2008
    
    2007$
    
    $
    
    $Contract Revenue
    
    
    964,272
    
    
    
    1,109,411
    
    
    
    1,847,399Interest Revenue
    
    
    136,833
    
    
    
    1,040,699
    
    
    
    1,354,048Other
    
    
    11,376
    
    
    
    51,221
    
    
    
    3,9341,112,481
    
    
    
    2,201,331
    
    
    
    3,205,381
 
 7. Expenses
  Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $Employee expensesWages and salaries
    
    
    
    
    
    
    (3,901,523
    )
    
    
    (3,566,615
    )
    
    
    (3,531,444
    )Termination benefits
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (47,581
    )Post employment
    
    
    
    
    
    
    (229,408
    )
    
    
    (192,698
    )
    
    
    (161,904
    )Share-based payments
    
    
    32
    (d)
    
    
    (22,230
    )
    
    
    (36,832
    )
    
    
    (136,549
    )Directors fees
    
    
    
    
    
    
    (197,499
    )
    
    
    (250,215
    )
    
    
    (297,608
    )Other
    
    
    
    
    
    
    (140,905
    )
    
    
    (183,314
    )
    
    
    (173,502
    )Total employee expenses
    
    
    
    
    
    
    (4,491,565
    )
    
    
    (4,229,674
    )
    
    
    (4,348,588
    )Finance costsInterest expense
    
    
    
    
    
    
    (1,586,756
    )
    
    
    (2,265,445
    )
    
    
    (2,184,507
    )Accretion expense
    
    
    
    
    
    
    (3,184,692
    )
    
    
    (3,238,228
    )
    
    
    (1,884,443
    )Transaction cost amortisation
    
    
    
    
    
    
    (876,393
    )
    
    
    (865,465
    )
    
    
    (865,465
    )Transaction costs expensed
    
    
    
    
    
    
    (101,714
    )
    
    
    
    
    
    
    Total finance costs
    
    
    
    
    
    
    (5,749,555
    )
    
    
    (6,369,138
    )
    
    
    (4,934,415
    )Depreciation and AmortisationDepreciation
    
    
    
    
    
    
    (162,065
    )
    
    
    (169,841
    )
    
    
    (168,974
    )Amortisation
    
    
    
    
    
    
    (22,472
    )
    
    
    (51,065
    )
    
    
    (80,522
    )Total depreciation and amortisation
    
    
    
    
    
    
    (184,537
    )
    
    
    (220,906
    )
    
    
    (249,496
    )Rental expense relating to operating leasesOperating lease payments
    
    
    
    
    
    
    (589,793
    )
    
    
    (464,163
    )
    
    
    (449,439
    )Total lease payments
    
    
    
    
    
    
    (589,793
    )
    
    
    (464,163
    )
    
    
    (449,439
    )Impairment expenseImpairment reversal/(expense) of floating rate notes
    
    
    10
    
    
    
    75,000
    
    
    
    (769,200
    )
    
    
    (220,800
    )Impairment of intercompany receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    (769,200
    )
    
    
    (220,800
    )
 
 8. Income tax
 a. Income tax expense
 2009
    
    2008
    
    2007$
    
    $
    
    $Current tax (benefit)
    
    
    (2,724,940
    )
    
    
    (2,640,250
    )
    
    
    (2,976,306
    )Deferred tax (benefit)
    
    
    (218,219
    )
    
    
    (334,330
    )
    
    
    81,032Adjustment for prior years
    
    
    68,233
    
    
    
    (235,758
    )
    
    
    Deferred tax assets not recognised
    
    
    2,874,926
    
    
    
    3,210,338
    
    
    
    2,895,274
    
    
    
    
    
    
    
    
 F-22




---



##### Table of Contents



b. Numerical reconciliation of income tax expense to prima facie tax payable
 2009
    
    2008
    
    2007$
    
    $
    
    $Loss before income tax
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Tax at the Australia tax rate of 30% (2008:30%)
    
    
    (3,392,299
    )
    
    
    (3,196,801
    )
    
    
    (2,999,445
    )Tax effect of amounts which are not deductible
(taxable) in calculating taxable income:Research and development accounting costs
    
    
    
    
    
    
    273,383
    
    
    
    297,809Research and development tax concession received
    
    
    
    
    
    
    (102,519
    )
    
    
    (117,086
    )Entertainment
    
    
    1,530
    
    
    
    1,007
    
    
    
    873Fair value movement in embedded derivative
    
    
    67,383
    
    
    
    (1,086,205
    )
    
    
    (726,416
    )Gain on extinguishment
    
    
    (733,614
    )
    
    
    Non-deductible interest expense
    
    
    80,492
    
    
    
    148,571
    
    
    
    51,664Option costs expensed  employees
    
    
    
    
    
    
    11,050
    
    
    
    40,965Borrowing costs accretion
    
    
    1,044,872
    
    
    
    970,805
    
    
    
    564,738Other
    
    
    (11,523
    )
    
    
    6,129
    
    
    
    (8,376
    )(2,943,159
    )
    
    
    (2,974,580
    )
    
    
    2,895,274Adjustment for prior years
    
    
    68,233
    
    
    
    (235,758
    )
    
    
    (2,895,274
    )Deferred tax assets not recognised
    
    
    2,874,926
    
    
    
    3,210,338
    
    
    
    Income tax expense
    
    
    
    
    
    
    
    
    
    
    
 c. Unrecognised temporary differences
 Temporary differences for which deferred tax assets or deferred tax liabilities have not been
recognised.
 2009
    
    2008
    
    2007$
    
    $
    
    $Sundry creditors and accruals
    
    
    48,797
    
    
    
    45,642
    
    
    
    46,300General accruals
    
    
    626,083
    
    
    
    687,885
    
    
    
    Provision for doubtful debts
    
    
    958,885
    
    
    
    1,223,838
    
    
    
    Employee entitlements
    
    
    175,905
    
    
    
    147,499
    
    
    
    118,080Asset retirement obligation
    
    
    31,932
    
    
    
    33,508
    
    
    
    29,207Lease make good
    
    
    16,165
    
    
    
    13,470
    
    
    
    8,802Deferred rent
    
    
    16,056
    
    
    
    46,355
    
    
    
    68,267S40-880 costs
    
    
    234,095
    
    
    
    460,845
    
    
    
    866,140Patent costs
    
    
    3,796,804
    
    
    
    3,986,834
    
    
    
    3,870,873Borrowing costs
    
    
    
    
    
    
    311,111
    
    
    
    777,778Unrealised foreign exchange difference
    
    
    829,410
    
    
    
    
    
    
    
    Losses available for offset against future income
    
    
    76,519,638
    
    
    
    67,436,505
    
    
    
    58,635,673Capital losses available for offset against future income
    
    
    915,000
    
    
    
    
    
    
    
    Gross deferred income tax assets
    
    
    84,168,770
    
    
    
    74,393,492
    
    
    
    64,421,120Deferred tax liabilities
    
    
    
    
    
    
    
    
    
    
    Unrealised foreign exchange differences
    
    
    
    
    
    
    (744,610
    )
    
    
    29,903Interest receivable on available-for-sale financial assets
    
    
    
    
    
    
    (53,200
    )
    
    
    (1,400
    )84,168,770
    
    
    
    73,595,682
    
    
    
    64,449,623Potential tax benefit @ 30%
    
    
    25,250,631
    
    
    
    22,078,705
    
    
    
    19,334,887
 Temporary differences for which deferred tax assets or deferred tax liabilities have not been
recognised in relation to potential capital loss items.
 2009
    
    
    2008
    
    
    2007$
    
    
    $
    
    
    $Provision  investment in ProCam Machine LLC
    
    
    1,917,387
    
    
    
    1,917,387
    
    
    
    1,917,387Intercompany receivables
    
    
    
    
    
    
    
    
    
    
    Impairment  Available-for-sale financial investments
    
    
    
    
    
    
    990,000
    
    
    
    220,8001,917,387
    
    
    
    2,907,387
    
    
    
    2,138,187Potential tax benefit @ 30%
    
    
    575,516
    
    
    
    872,216
    
    
    
    641,456
 F-23




---



##### Table of Contents



d. Tax losses
  2009
    
    2008
    
    2007$
    
    $
    
    $Australian tax losses
    
    
    56,836,046
    
    
    
    49,244,958
    
    
    
    40,579,789United States federal net operating loss carry-forwards
    
    
    18,286,837
    
    
    
    19,284,262
    
    
    
    14,651,197United States state net operating loss carry-forwards
    
    
    12,482,278
    
    
    
    14,693,549
    
    
    
    11,031,293
   
 9. Current assets  Cash and cash equivalents
 2009
    
    2008
    
    2007$
    
    $
    
    $Cash at bank and on hand
    
    
    67,350
    
    
    
    1,571,292
    
    
    
    1,727,548Short term deposits
    
    
    
    
    
    
    6,000,000
    
    
    
    13,000,00067,350
    
    
    
    7,571,292
    
    
    
    14,727,548
 Cash at bank and on hand
  
 10. Current assets  Available-for-sale financial investments
 2009
    
    2008
    
    2007$
    
    $
    
    $Floating rate notes:Opening fair value
    
    
    10,000
    
    
    
    779,200
    
    
    
    2,002,080Disposal of investments
    
    
    (85,000
    )
    
    
    
    
    
    
    (1,001,040
    )Net movement in equity on revaluation
    
    
    
    
    
    
    
    
    
    
    (1,040
    )Impairment (loss) gain
    
    
    75,000
    
    
    
    (769,200
    )
    
    
    (220,800
    )Closing Fair Value
    
    
    
    
    
    
    10,000
    
    
    
    779,200
 
 11. Current assets  Trade and other receivables
 Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $Trade receivables
    
    
    
    
    
    
    1,152,115
    
    
    
    1,402,883
    
    
    
    762,625Other receivables
    
    
    
    
    
    
    9,147
    
    
    
    18,988
    
    
    
    4,144Security deposits
    
    
    (i
    )
    
    
    44,910
    
    
    
    480,798
    
    
    
    Goods and services tax recoverable
    
    
    
    
    
    
    27,613
    
    
    
    51,898
    
    
    
    65,576Interest receivable
    
    
    
    
    
    
    
    
    
    
    53,200
    
    
    
    1,400Research and development tax concession received
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    390,286Prepayments
    
    
    
    
    
    
    34,384
    
    
    
    336,663
    
    
    
    339,187Provision for doubtful debts
    
    
    
    
    
    
    (958,885
    )
    
    
    (1,223,838
    )
    
    
    309,284
    
    
    
    1,120,592
    
    
    
    1,563,218
 
 (i)
    
    Represents restricted cash deposits held as security for operating and finance lease
commitments. F-24




---



##### Table of Contents



2009
    
    2008
    
    2007$
    
    $
    
    $Opening balance
    
    
    (1,223,838
    )
    
    
    
    
    
    
    Provision created
    
    
    
    
    
    
    (1,223,838
    )
    
    
    Foreign exchange movement
    
    
    264,953
    
    
    
    
    
    
    
    Closing balance
    
    
    (958,885
    )
    
    
    (1,223,838
    )
    
    
    
   
 12. Non-current assets  Trade and other receivables
 Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $Trade receivables
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    480,145Security deposits
    
    
    (i
    )
    
    
    28,679
    
    
    
    34,202
    
    
    
    507,75728,679
    
    
    
    34,202
    
    
    
    987,902
 
 (i)
    
    Represents restricted cash deposits held as security for operating and finance lease
commitments. F-25




---



##### Table of Contents



13. Non-current assets  Property, plant and equipment
  Leasehold
    
    Plant and
    
    Leased plantimprovements
    
    equipment
    
    and equipment
    
    Total$
    
    $
    
    $
    
    $At 1 January 2007Cost
    
    
    113,903
    
    
    
    467,786
    
    
    
    306,180
    
    
    
    887,869Accumulated depreciation
    
    
    (13,836
    )
    
    
    (246,048
    )
    
    
    
    
    
    
    (259,884
    )Net book amount
    
    
    100,067
    
    
    
    221,738
    
    
    
    306,180
    
    
    
    627,985Year ended 31 December 2007Opening net book amount
    
    
    100,067
    
    
    
    221,738
    
    
    
    306,180
    
    
    
    627,985Additions
    
    
    81,588
    
    
    
    91,058
    
    
    
    27,393
    
    
    
    200,039Disposals
    
    
    (117
    )
    
    
    (2,673
    )
    
    
    
    
    
    
    (2,790
    )Depreciation charge
    
    
    (49,830
    )
    
    
    (85,932
    )
    
    
    (33,212
    )
    
    
    (168,974
    )Closing net book amount
    
    
    131,708
    
    
    
    224,191
    
    
    
    300,361
    
    
    
    656,260At 1 January 2008Cost
    
    
    188,536
    
    
    
    517,510
    
    
    
    333,573
    
    
    
    1,039,619Accumulated depreciation
    
    
    (56,828
    )
    
    
    (293,319
    )
    
    
    (33,212
    )
    
    
    (383,359
    )Net book amount
    
    
    131,708
    
    
    
    224,191
    
    
    
    300,361
    
    
    
    656,260Year ended 31 December 2008Opening net book amount
    
    
    131,708
    
    
    
    224,191
    
    
    
    300,361
    
    
    
    656,260Additions
    
    
    
    
    
    
    23,774
    
    
    
    
    
    
    
    23,774Disposals
    
    
    
    
    
    
    (1,839
    )
    
    
    
    
    
    
    (1,839
    )Depreciation charge
    
    
    (57,955
    )
    
    
    (72,796
    )
    
    
    (39,090
    )
    
    
    (169,841
    )Closing net book amount
    
    
    73,753
    
    
    
    173,330
    
    
    
    261,271
    
    
    
    508,354At 1 January 2009Cost
    
    
    188,536
    
    
    
    534,595
    
    
    
    333,573
    
    
    
    1,056,704Accumulated depreciation
    
    
    (114,783
    )
    
    
    (361,265
    )
    
    
    (72,302
    )
    
    
    (548,350
    )Net book amount
    
    
    73,753
    
    
    
    173,330
    
    
    
    261,271
    
    
    
    508,354Year ended 31 December 2009Opening net book amount
    
    
    73,753
    
    
    
    173,330
    
    
    
    261,271
    
    
    
    508,354Additions
    
    
    
    
    
    
    77,426
    
    
    
    
    
    
    
    77,426Transfers in / (out)
    
    
    
    
    
    
    234,724
    
    
    
    (234,724
    )
    
    
    Disposals
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Depreciation charge
    
    
    (45,496
    )
    
    
    (95,404
    )
    
    
    (21,165
    )
    
    
    (162,065
    )Closing net book amount
    
    
    28,257
    
    
    
    390,076
    
    
    
    5,382
    
    
    
    423,715At 31 December 2009Cost
    
    
    188,536
    
    
    
    889,437
    
    
    
    27,393
    
    
    
    1,105,366Accumulated depreciation
    
    
    (160,279
    )
    
    
    (499,361
    )
    
    
    (22,011
    )
    
    
    (681,651
    )Net book amount
    
    
    28,257
    
    
    
    390,076
    
    
    
    5,382
    
    
    
    423,715
 F-26




---



##### Table of Contents



14. Non-current assets  Intangible assets and goodwill
  Software
    
    Goodwill
    
    Total$
    
    $
    
    $At 1 January 2007Cost
    
    
    211,204
    
    
    
    1,861,726
    
    
    
    2,072,930Accumulated amortisation
    
    
    (99,380
    )
    
    
    (27,574
    )
    
    
    (126,954
    )Accumulated impairment losses
    
    
    
    
    
    
    (1,834,152
    )
    
    
    (1,834,152
    )Net book amount
    
    
    111,824
    
    
    
    
    
    
    
    111,824Year ended 31 December 2007Opening net book amount
    
    
    111,824
    
    
    
    
    
    
    
    111,824Additions
    
    
    42,847
    
    
    
    
    
    
    
    42,847Amortisation charge
    
    
    (80,522
    )
    
    
    
    
    
    
    (80,522
    )Closing net book amount
    
    
    74,149
    
    
    
    
    
    
    
    74,149At 1 January 2008Cost
    
    
    254,051
    
    
    
    1,861,726
    
    
    
    2,115,777Accumulated amortisation
    
    
    (179,902
    )
    
    
    (27,574
    )
    
    
    (207,476
    )Accumulated impairment losses
    
    
    
    
    
    
    (1,834,152
    )
    
    
    (1,834,152
    )Net book amount
    
    
    74,149
    
    
    
    
    
    
    
    74,149Year ended 31 December 2008
    
    
    74,149
    
    
    
    
    
    
    
    74,149Opening net book amount
    
    
    
    
    
    
    
    
    
    
    Additions
    
    
    
    
    
    
    
    
    
    
    Amortisation charge
    
    
    (51,065
    )
    
    
    
    
    
    
    (51,065
    )Closing net book amount
    
    
    23,084
    
    
    
    
    
    
    
    23,084At 1 January 2009Cost
    
    
    131,982
    
    
    
    1,861,726
    
    
    
    1,993,708Accumulated amortisation
    
    
    (108,898
    )
    
    
    (27,574
    )
    
    
    (136,472
    )Accumulated impairment losses
    
    
    
    
    
    
    (1,834,152
    )
    
    
    (1,834,152
    )Net book amount
    
    
    23,084
    
    
    
    
    
    
    
    23,084Year ended 31 December 2009Opening net book amount
    
    
    23,084
    
    
    
    
    
    
    
    23,084Additions
    
    
    
    
    
    
    
    
    
    
    Disposals
    
    
    
    
    
    
    
    
    
    
    Amortisation charge
    
    
    (22,472
    )
    
    
    
    
    
    
    (22,472
    )Closing net book amount
    
    
    612
    
    
    
    
    
    
    
    612At 31 December 2009Cost
    
    
    89,291
    
    
    
    1,861,726
    
    
    
    1,951,017Accumulated amortisation
    
    
    (88,679
    )
    
    
    (27,574
    )
    
    
    (116,253
    )Accumulated impairment loss
    
    
    
    
    
    
    (1,834,152
    )
    
    
    (1,834,152
    )Net book amount
    
    
    612
    
    
    
    
    
    
    
    612
   F-27




---



##### Table of Contents



15. Current liabilities  Trade and other payables
 2009
    
    2008
    
    2007$
    
    $
    
    $Trade payables
    
    
    411,329
    
    
    
    105,618
    
    
    
    228,679Deferred revenue
    
    
    168,807
    
    
    
    
    
    
    
    1,326,985Accrued payables
    
    
    796,233
    
    
    
    1,011,320
    
    
    
    1,013,6481,376,369
    
    
    
    1,116,938
    
    
    
    2,569,312Related party payables:Directors fees payable *
    
    
    40,819
    
    
    
    12,500
    
    
    
    35,8331,417,188
    
    
    
    1,129,438
    
    
    
    2,605,145
 
 *
    
    Refer note 24 (d) for further details. 
 16. Current liabilities  Conversion derivative
 2009
    
    2008
    
    2007$
    
    $
    
    $Balance at beginning of year
    
    
    2,187,934
    
    
    
    5,963,793
    
    
    
    10,811,057Conversion of convertible notes to shares
    
    
    (75,345
    )
    
    
    (155,177
    )
    
    
    (2,425,876
    )Fair value movement
    
    
    224,611
    
    
    
    (3,620,682
    )
    
    
    (2,421,388
    )Balance at end of year
    
    
    2,337,200
    
    
    
    2,187,934
    
    
    
    5,963,793
  
 17. Current liabilities  Non-interest bearing loans and borrowings
 Note
    
    2009
    
    2008
    
    2007$
    
    $
    
    $Convertible notes
    
    
    i
    
    
    
    11,496,248
    
    
    
    
    
    
    
    Short term loan
    
    
    
    
    
    
    326,714
    
    
    
    
    
    
    
    11,822,962
    
    
    
    
    
    
    
    
 
 (i)
    
    Secured by fixed and floating charge over the Companys assets, matures 2011.  2009
    
    2008
    
    2007$
    
    $
    
    $Balance at beginning of year
    
    
    
    
    
    
    
    
    
    
    Fair value of issue
    
    
    11,070,869
    
    
    
    
    
    
    
    Accretion expense
    
    
    428,692
    
    
    
    
    
    
    
    Transaction cost amortisation
    
    
    
    
    
    
    
    
    
    
    Conversion of convertible notes to shares
    
    
    (3,313
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    11,496,248
    
    
    
    
    
    
    
    
 2009
    
    2008
    
    2007Number
    
    Number
    
    NumberBalance at beginning of year
    
    
    
    
    
    
    
    
    
    
    Issued for interest bearing notes
    
    
    109,504,140
    
    
    
    
    
    
    
    Conversions
    
    
    (32,769
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    109,471,371
    
    
    
    
    
    
    
    
 F-28




---



##### Table of Contents



18. Current liabilities  Interest bearing loans and borrowings
 2009
    
    2008
    
    2007$
    
    $
    
    $Obligations under finance leases
    
    
    5,344
    
    
    
    203,699
    
    
    
    63,907Convertible notes
    
    
    4,065,240
    
    
    
    16,263,964
    
    
    
    12,664,510Other loan
    
    
    
    
    
    
    2,236,034
    
    
    
    213,0304,070,584
    
    
    
    18,703,697
    
    
    
    12,941,447
 Convertible Notes
       2009
    
    2008
    
    2007$
    
    $
    
    $Balance at beginning of year
    
    
    16,263,964
    
    
    
    12,664,510
    
    
    
    12,926,837Accretion expense
    
    
    2,754,798
    
    
    
    3,236,015
    
    
    
    1,882,440Transaction cost amortisation
    
    
    576,976
    
    
    
    865,465
    
    
    
    865,465Movement on extinguishment of debt
    
    
    (3,875,515
    )
    
    
    
    
    
    
    Exchanged for secured notes
    
    
    (11,070,869
    )
    
    
    
    
    
    
    Conversion of convertible notes to shares
    
    
    (584,114
    )
    
    
    (502,026
    )
    
    
    (3,010,232
    )Balance at end of year
    
    
    4,065,240
    
    
    
    16,263,964
    
    
    
    12,664,510
 2009
    
    2008
    
    2007Number
    
    Number
    
    NumberBalance at beginning of year
    
    
    147,584,129
    
    
    
    152,656,884
    
    
    
    197,282,070Conversions
    
    
    (5,039,190
    )
    
    
    (5,072,755
    )
    
    
    (44,625,186
    )Exchanged for secured notes
    
    
    (109,504,140
    )
    
    
    
    
    
    
    Balance at end of year
    
    
    33,040,799
    
    
    
    147,584,129
    
    
    
    152,656,884
 F-29




---



##### Table of Contents



Interest Bearing
    
    SecuredConvertible Notes
    
    Convertible Notes$
    
    $Balance at 1 January 2009
    
    
    16,263,964Accretion /Transaction Cost Amortisation 1 January to 31 July 2009
    
    
    3,108,110Conversions 1 January To 31 July 2009
    
    
    (544,578
    )Extinguishment of Notes Maturing 1 September 2009
    
    
    (18,827,496
    )Issuance of Notes Maturing 1 September 2011
    
    
    16,887,375Interest Bearing Notes Extinguished in Exchange for Secured Notes
    
    
    (13,006,264
    )
    
    
    11,070,869Accretion/Transaction Cost Amortisation 1 August to 31 December 2009
    
    
    223,665
    
    
    
    428,692Conversions 26 September to 31 December 2009
    
    
    (39,536
    )
    
    
    (3,313
    )Balance at 31 December 2009
    
    
    4,065,240
    
    
    
    11,496,248Fair Value of Consideration Given:New Debt
    
    
    16,887,375Options Issued
    
    
    1,407,907Gain on Election of Secured Notes
    
    
    (1,935,395
    )Total
    
    
    16,359,887Less: Carrying Value of Old Convertible Notes
    
    
    (18,827,496
    )Gain On Extinguishment Of Debt
    
    
    (2,467,609
    )
 $Carrying value of interest bearing notes elected to be converted to secured notes
    
    
    (13,006,264
    )Fair value of secured notes upon issue
    
    
    11,070,869Gain on election of secured notes
    
    
    (1,935,395
    )
  2009
    
    2008
    
    2007$
    
    $
    
    $Movement on extinguishment of debt
    
    
    
    
    
    
    3,875,516
    
    
    
    Fair value of options issued to holders of secured notes
    
    
    22
    
    
    
    (1,407,907
    )
    
    
    Gain on extinguishment of debt
    
    
    
    
    
    
    2,467,609
    
    
    
    
 
 19. Current liabilities  Provisions
 Onerous LeaseMake Good
    
    Contracts
    
    Payroll
    
    Total2009
 Consolidated
    
    $
    
    $
    
    $
    
    $Carrying amount at 1 January 2009
    
    
    33,508
    
    
    
    195,575
    
    
    
    147,499
    
    
    
    376,582Additional provisions recognised
    
    
    
    
    
    
    
    
    
    
    (22,025
    )
    
    
    (22,025
    )Amounts used during the year
    
    
    
    
    
    
    
    
    
    
    50,431
    
    
    
    50,431Foreign Exchange movements
    
    
    (2,777
    )
    
    
    (44,388
    )
    
    
    
    
    
    
    (47,165
    )Unwinding and discount rate adjustment
    
    
    1,201
    
    
    
    
    
    
    
    
    
    
    
    1,201Carrying amount at 31 December 2009
    
    
    31,932
    
    
    
    151,187
    
    
    
    175,905
    
    
    
    359,024
 Make good provision
  Onerous Lease Contract
  F-30




---



##### Table of Contents



Payroll
  Amounts not expected to be settled within 12 months
  Amounts expected to be settledWithin
    
    After12 Months
    
    12 Months$
    
    $Onerous lease contracts
    
    
    
    
    
    
    151,187
 
 20. Non-current liabilities  Interest bearing loans and borrowings
 2009
    
    2008
    
    2007$
    
    $
    
    $Obligations under finance leases
    
    
    7,630
    
    
    
    16,783
    
    
    
    215,0367,630
    
    
    
    16,783
    
    
    
    215,036
  F-31




---



##### Table of Contents



21. Contributed equity
 2009
    
    2008
    
    2007$
    
    $
    
    $Ordinary shares  issued and fully paid
    
    
    70,075,033
    
    
    
    66,209,718
    
    
    
    65,428,400
  Number of
    
    Issue
    
    ValueDetails
    
    Note
    
    Date
    
    shares
    
    price
    
    $Opening Balance at 1/01/2007
    
    
    
    
    
    
    01/01/2007
    
    
    
    552,641 394
    
    
    
    
    
    
    
    59,985,634Exercise listed options
    
    ii
    
    
    04/01/2007
    
    
    
    758
    
    
    $
    0.150
    
    
    
    119Conversion of notes
    
    iii
    
    
    04/01/2007
    
    
    
    1,706,709
    
    
    $
    0.135
    
    
    
    205,359Exercise listed options
    
    ii
    
    
    16/01/2007
    
    
    
    12,173
    
    
    $
    0.150
    
    
    
    1,826Conversion of notes
    
    iii
    
    
    16/01/2007
    
    
    
    14,518,842
    
    
    $
    0.135
    
    
    
    1,746,974Conversion of notes
    
    iii
    
    
    17/01/2007
    
    
    
    14,000,000
    
    
    $
    0.135
    
    
    
    1,684,545Exercise listed options
    
    ii
    
    
    19/01/2007
    
    
    
    10,983
    
    
    $
    0.150
    
    
    
    1,647Exercise listed options
    
    ii
    
    
    24/01/2007
    
    
    
    3,127
    
    
    $
    0.150
    
    
    
    469Exercise listed options
    
    ii
    
    
    08/03/2007
    
    
    
    4,684
    
    
    $
    0.150
    
    
    
    703Exercise listed options
    
    ii
    
    
    14/03/2007
    
    
    
    7,760
    
    
    $
    0.150
    
    
    
    1,164Conversion of notes
    
    iii
    
    
    01/04/2007
    
    
    
    4,807,843
    
    
    $
    0.135
    
    
    
    595,354Exercise listed options
    
    ii
    
    
    19/04/2007
    
    
    
    850
    
    
    $
    0.150
    
    
    
    128Exercise listed options
    
    ii
    
    
    29/05/2007
    
    
    
    603
    
    
    $
    0.150
    
    
    
    90Conversion of notes
    
    iii
    
    
    14/06/2007
    
    
    
    8,775,000
    
    
    $
    0.120
    
    
    
    986,406Exercise listed options
    
    ii
    
    
    26/06/2007
    
    
    
    3,188
    
    
    $
    0.150
    
    
    
    478Conversion of notes
    
    iii
    
    
    01/07/2007
    
    
    
    136,913
    
    
    $
    0.120
    
    
    
    14,246Exercise listed options
    
    ii
    
    
    25/07/2007
    
    
    
    94
    
    
    $
    0.150
    
    
    
    14Conversion of notes
    
    iii
    
    
    01/10/2007
    
    
    
    2,049,658
    
    
    $
    0.110
    
    
    
    203,244Closing Balance at 31/12/2007
    
    
    
    
    
    
    01/01/2008
    
    
    
    598,680,579
    
    
    
    
    
    
    
    65,428,400Conversion of notes
    
    
    i
    
    
    
    01/04/2008
    
    
    
    7,683,897
    
    
    $
    0.0600
    
    
    
    470,479Shares issued to employees
    
    
    
    
    
    
    04/04/2008
    
    
    
    160,000
    
    
    $
    0.0600
    
    
    
    9,600Shares issued to consultant
    
    
    
    
    
    
    04/04/2008
    
    
    
    1,908,573
    
    
    $
    0.0600
    
    
    
    114,514Conversion of notes
    
    
    i
    
    
    
    01/07/2008
    
    
    
    1,890,000
    
    
    $
    0.0500
    
    
    
    76,028Conversion of notes
    
    
    i
    
    
    
    01/10/2008
    
    
    
    3,232,203
    
    
    $
    0.0400
    
    
    
    110,697Closing balance at 31/12/2008
    
    
    
    
    
    
    31/12/2008
    
    
    
    613,555,252
    
    
    
    
    
    
    
    66,209,718Conversion of notes
    
    
    i
    
    
    
    01/01/2009
    
    
    
    7,287,985
    
    
    $
    0.0400
    
    
    
    269,982Conversion of notes
    
    
    i
    
    
    
    01/04/2009
    
    
    
    7,278,292
    
    
    $
    0.0400
    
    
    
    287,738Shares issued to employees
    
    
    
    
    
    
    08/04/2009
    
    
    
    950,000
    
    
    $
    0.0390
    
    
    
    37,050Conversion of notes
    
    
    i
    
    
    
    01/07/2009
    
    
    
    1,786,500
    
    
    $
    0.0400
    
    
    
    56,200Shares issued in accordance with SPP
    
    ii
    
    
    31/07/2009
    
    
    
    114,724,259
    
    
    $
    0.0229
    
    
    
    2,464,199Exercise Unquoted Options
    
    iii
    
    
    30/09/2009
    
    
    
    20,549
    
    
    $
    0.0010
    
    
    
    21Conversion of notes
    
    
    i
    
    
    
    01/10/2009
    
    
    
    2,423,417
    
    
    $
    0.0200
    
    
    
    48,851Exercise Unquoted Options
    
    iii
    
    
    02/10/2009
    
    
    
    26,632
    
    
    $
    0.0010
    
    
    
    27Exercise Unquoted Options
    
    iii
    
    
    05/10/2009
    
    
    
    156,500
    
    
    $
    0.0010
    
    
    
    157Exercise Unquoted Options
    
    iii
    
    
    07/10/2009
    
    
    
    494,679
    
    
    $
    0.0010
    
    
    
    495Exercise Unquoted Options
    
    iii
    
    
    12/10/2009
    
    
    
    44,008
    
    
    $
    0.0010
    
    
    
    44Exercise Unquoted Options
    
    iii
    
    
    14/10/2009
    
    
    
    159,102
    
    
    $
    0.0010
    
    
    
    159Exercise Unquoted Options
    
    iii
    
    
    16/10/2009
    
    
    
    68,859
    
    
    $
    0.0010
    
    
    
    69Exercise Unquoted Options
    
    iii
    
    
    21/10/2009
    
    
    
    44,699
    
    
    $
    0.0010
    
    
    
    45Exercise Unquoted Options
    
    iii
    
    
    28/10/2009
    
    
    
    191,478
    
    
    $
    0.0010
    
    
    
    191Exercise Unquoted Options
    
    iii
    
    
    30/10/2009
    
    
    
    430
    
    
    $
    0.0010
    
    
    
    0Exercise Unquoted Options
    
    iii
    
    
    04/11/2009
    
    
    
    30,263
    
    
    $
    0.0010
    
    
    
    30Exercise Unquoted Options
    
    iii
    
    
    27/11/2009
    
    
    
    1,870
    
    
    $
    0.0010
    
    
    
    2Shares placement
    
    iv
    
    
    10/12/2009
    
    
    
    17,142,857
    
    
    $
    0.0175
    
    
    
    300,000Shares placement
    
    iv
    
    
    10/12/2009
    
    
    
    6,666,666
    
    
    $
    0.0150
    
    
    
    100,000Exercise Unquoted Options
    
    iii
    
    
    15/12/2009
    
    
    
    28,625
    
    
    $
    0.0010
    
    
    
    29Exercise Unquoted Options
    
    iii
    
    
    18/12/2009
    
    
    
    26,064
    
    
    $
    0.0010
    
    
    
    26Shares placement
    
    iv
    
    
    18/12/2009
    
    
    
    18,750,000
    
    
    $
    0.0160
    
    
    
    300,000Closing Balance at 31/12/2009
    
    
    
    
    
    
    31/12/2009
    
    
    
    791,858,986
    
    
    
    
    
    
    
    70,075,033
 
 (i)
    
    Convertible notes issued under the 2006 Renounceable Rights Issue Prospectus converted at
the lesser of $0.135 or 90% of the volume weighted average price of shares during the 30
business days immediate preceding the conversion date.(ii)
    
    The Share Purchase Plan opened on 15 June 2009 and closed on 3 July 2009. Shares were issued
on 31 July 2009 upon the passing of resolutions at extraordinary Shareholder and Noteholder
meetings.(iii)
    
    Issued with the secured notes on 24 September 2009.(iv)
    
    Issued to non related private investors. F-32




---



##### Table of Contents



Number ofOptionsAt 31 December 2006
    
    
    176,800,824Exercise of options
    
    
    (44,220
    )At 1 January 2008
    
    
    176,756,604Exercise of options
    
    
    At 31 December 2008
    
    
    176,756,604Expiry of options (i)
    
    
    (176,756,604
    )At 31 December 2009
    
    
    
 
 (i)
    
    The listed options had an exercise price of $0.15 and an expiry date of 1 September
2009. 
 22. Reserves
 2009
    
    2008
    
    2007$
    
    $
    
    $Unlisted option reserve
    
    
    
    
    
    
    3,641,736
    
    
    
    2,233,829
    
    
    
    2,221,417Share reserves
    
    
    
    
    
    
    
    
    
    
    14,820Listed option reserve
    
    
    
    
    
    
    6,893,566
    
    
    
    6,893,566
    
    
    
    6,893,566Revaluation translation reserve
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Accumulated translation reserve
    
    
    
    
    
    
    (65,278
    )
    
    
    (106,801
    )
    
    
    (68,559
    )10,470,024
    
    
    
    9,035,414
    
    
    
    9,046,424Movements:Unlisted option reserveBalance at 1 January
    
    
    
    
    
    
    2,233,829
    
    
    
    2,221,417
    
    
    
    2,084,868New Issues
    
    
    
    
    
    
    
    
    
    
    Expenses recognised
    
    
    18
    
    
    
    1,407,907
    
    
    
    12,412
    
    
    
    136,549Balance at 31 December
    
    
    
    
    
    
    3,641,736
    
    
    
    2,233,829
    
    
    
    2,221,417Share reservesBalance at 1 January
    
    
    
    
    
    
    14,820
    
    
    
    
    
    
    
    New Issues
    
    
    
    
    
    
    (37,050
    )
    
    
    
    
    
    
    Expenses recognised
    
    
    
    
    
    
    22,230
    
    
    
    14,820
    
    
    
    Balance at 31 December
    
    
    
    
    
    
    
    
    
    
    14,820
    
    
    
    Listed option reserveBalance at 1 January
    
    
    
    
    
    
    6,893,566
    
    
    
    6,893,566
    
    
    
    6,893,566Option issue costs
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Balance at 31 December
    
    
    
    
    
    
    6,893,566
    
    
    
    6,893,566
    
    
    
    6,893,566Revaluation reserveBalance at 1 January
    
    
    
    
    
    
    2,080
    
    
    
    36,660
    
    
    
    Net gains on available-for-sale financial assets
    
    
    
    
    
    
    
    
    (34,580
    )
    
    
    36,660Realised gains
    
    
    
    
    
    
    (1,040
    )
    
    
    
    
    
    
    Net movement on revaluation
    
    
    
    
    
    
    (1,040
    )
    
    
    
    
    
    
    Balance at 31 December
    
    
    
    
    
    
    
    
    
    
    2,080
    
    
    
    36,660Accumulated translation reserveBalance at 1 January
    
    
    
    
    
    
    (106,801
    )
    
    
    (68,559
    )
    
    
    (84,572
    )Currency translation differences
    
    
    
    
    
    
    41,523
    
    
    
    (38,242
    )
    
    
    16,013Balance at 31 December
    
    
    
    
    
    
    (65,278
    )
    
    
    (106,801
    )
    
    
    (68,559
    )
 F-33




---



##### Table of Contents



Unlisted options reserve
  Share reserve
  Listed options reserve
  Accumulated translation reserve
  
 23. Accumulated losses
 2009
    
    2008
    
    2007$
    
    $
    
    $Balance at 1 January
    
    
    (88,438,397
    )
    
    
    (77,782,394
    )
    
    
    (67,784,244
    )Net loss
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Balance at 31 December
    
    
    (99,746,061
    )
    
    
    (88,438,397
    )
    
    
    (77,782,394
    )
 
 24. Key management personnel disclosures
 a. Key management personnel compensation
 2009
    
    2008
    
    2007$
    
    $
    
    $Short-term employee benefits
    
    
    1,564,097
    
    
    
    1,414,357
    
    
    
    1,649,029Post-employment benefits
    
    
    86,139
    
    
    
    68,494
    
    
    
    56,206Termination benefits
    
    
    
    
    
    
    
    
    
    
    Share-based payments
    
    
    4,680
    
    
    
    10,595
    
    
    
    92,4481,654,916
    
    
    
    1,493,446
    
    
    
    1,797,683
 F-34




---



##### Table of Contents



b. Equity instrument disclosures relating to key management personnel
 Option holdings
   Balance at
    
    Granted as
    
    On election
    
    
    
    
    
    
    
    
    
    Balance atstart of the
    
    compen-
    
    of secured
    
    
    
    
    
    
    
    
    
    end of the
    
    Vested andName
    
    year
    
    sation
    
    notes
    
    Exercised
    
    Expired
    
    year
    
    exercisable
    
    UnvestedDirectorsTJ ODwyer
    
    
    33,819
    
    
    
    
    
    
    
    48,311
    
    
    
    
    
    
    
    (33,819
    )
    
    
    48,311
    
    
    
    48,311
    
    
    
    L J Finniear
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    J R Nicholls
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    T W Tappenden
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other key
management
personnel of
the groupP R Wetzig
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    B I Farmer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    P D Faulkner
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    D M Pashen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,233,819
    
    
    
    
    
    
    
    48,311
    
    
    
    
    
    
    
    (33,819
    )
    
    
    1,248,311
    
    
    
    1,248,311
    
    
    
    
  Balance atBalance at start
    
    Granted as
    
    
    
    
    
    end of the
    
    Vested andName
    
    of the year
    
    compensation
    
    Exercised
    
    year
    
    exercisable
    
    UnvestedDirectorsTJ ODwyer
    
    
    33,819
    
    
    
    
    
    
    
    
    
    
    
    33,819
    
    
    
    33,819
    
    
    
    L J Finniear
    
    
    1,000,000
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    P D Jonson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J R Nicholls
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    T W Tappenden
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other key
management
personnel of the
groupP R Wetzig
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    B I Farmer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    P D Faulkner
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    D M Pashen
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J Cronin
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    1,433,819
    
    
    
    
    
    
    
    
    
    
    
    1,433,819
    
    
    
    1,433,819
    
    
    
    
   Balance at start
    
    Granted as
    
    
    
    
    
    Balance at end
    
    Vested andName
    
    of the year
    
    compensation
    
    Exercised
    
    of the year
    
    exercisable
    
    UnvestedDirectorsTJ ODwyer
    
    
    33,819
    
    
    
    
    
    
    
    
    
    
    
    33,819
    
    
    
    33,819
    
    
    
    L J Finniear
    
    
    
    
    
    
    1,000,000
    
    
    
    
    
    
    
    1,000,000
    
    
    
    500,000
    
    
    
    500,000J M Crunk
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    P D Jonson
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    J R Nicholls
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    B S McComish
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Other key
management
personnel of
the groupP R Wetzig
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    B I Farmer
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    P D Faulkner
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    J Cronin
    
    
    200,000
    
    
    
    
    
    
    
    
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    J D MacDonald
    
    
    500,000
    
    
    
    
    
    
    
    
    
    
    
    500,000
    
    
    
    500,000
    
    
    
    G L Bergeron III
    
    
    250,000
    
    
    
    
    
    
    
    
    
    
    
    250,000
    
    
    
    250,000
    
    
    
    1,183,819
    
    
    
    1,000,000
    
    
    
    
    
    
    
    2,183,819
    
    
    
    1,683,819
    
    
    
    500,000
 F-35




---



##### Table of Contents



Share holdings
  Balance atstart of the
    
    Changes
    
    Balance at endyear
    
    during the year
    
    of the year2009DirectorsT J ODwyer
    
    
    180,855
    
    
    
    874,124
    
    
    
    1,054,979L J Finniear
    
    
    
    
    
    
    447,062
    
    
    
    447,062J R Nicholls
    
    
    
    
    
    
    
    
    
    
    T W Tappenden
    
    
    
    
    
    
    
    
    
    
    Other key management personnel of the groupP R Wetzig
    
    
    400
    
    
    
    43,706
    
    
    
    44,106B I Farmer
    
    
    100,000
    
    
    
    218,531
    
    
    
    318,531P D Faulkner
    
    
    
    
    
    
    
    
    
    
    D M Pashen
    
    
    100,000
    
    
    
    109,265
    
    
    
    209,265381,255
    
    
    
    1,692,688
    
    
    
    2,073,9432008DirectorsT J ODwyer
    
    
    180,855
    
    
    
    
    
    
    
    180,855L J Finniear
    
    
    
    
    
    
    
    
    
    
    P D Jonson
    
    
    340,000
    
    
    
    340,000
    
    
    
    680,000J R Nicholls
    
    
    
    
    
    
    
    
    
    
    T W Tappenden
    
    
    
    
    
    
    
    
    
    
    Other key management personnel of the groupP R Wetzig
    
    
    400
    
    
    
    
    
    
    
    400B I Farmer
    
    
    
    
    
    
    100,000
    
    
    
    100,000P D Faulkner
    
    
    
    
    
    
    
    
    
    
    D M Pashen
    
    
    
    
    
    
    100,000
    
    
    
    100,000J Cronin
    
    
    
    
    
    
    
    
    
    
    521,255
    
    
    
    540,000
    
    
    
    1,061,2552007DirectorsT J ODwyer
    
    
    180,855
    
    
    
    
    
    
    
    180,855L Finniear
    
    
    
    
    
    
    
    
    
    
    J M Crunk
    
    
    
    
    
    
    
    
    
    
    P D Jonson
    
    
    340,000
    
    
    
    
    
    
    
    340,000J R Nicholls
    
    
    
    
    
    
    
    
    
    
    B S McComish
    
    
    
    
    
    
    
    
    
    
    Other key management personnel of the groupP R Wetzig
    
    
    400
    
    
    
    
    
    
    
    400B I Farmer
    
    
    
    
    
    
    P D Faulkner
    
    
    
    
    
    
    
    
    
    
    J Cronin
    
    
    
    
    
    
    
    
    
    
    J D MacDonald
    
    
    
    
    
    
    
    
    
    
    G L Bergeron III
    
    
    
    
    
    
    
    
    
    
    521,255
    
    
    
    
    
    
    
    521,255
 c. Loans to key management personnel
  F-36




---



##### Table of Contents



d. Other transactions and balances with key management personnel
 Directors fees
  2009
    
    2008
    
    2007$
    
    $
    
    $T J ODwyer
    
    
    13,333
    
    
    
    
    
    
    
    6,666J R Nicholls
    
    
    15,000
    
    
    
    12,500
    
    
    
    4,167T W Tappenden
    
    
    12,486
    
    
    
    
    
    
    
    J M Crunk
    
    
    
    
    
    
    
    
    
    
    10,000P D Jonson
    
    
    
    
    
    
    
    
    
    
    15,00040,819
    
    
    
    12,500
    
    
    
    35,833
 
 25. Remuneration of auditors
  a. Audit Services
 2009
    
    2008
    
    2007$
    
    $
    
    $PricewaterhouseCoopersAudit and review of financial statements
    
    
    341,500
    
    
    
    445,330
    
    
    
    332,000Non-PricewaterhouseCoopersAudit and review of financial statements
    
    
    
    
    
    
    
    
    
    
    353,458341,500
    
    
    
    445,330
    
    
    
    685,458b. Non-audit ServicesPricewaterhouseCoopersNon-audit services
    
    
    69,000
    
    
    
    70,750
    
    
    
    69,000
    
    
    
    70,750
    
    
    
    
 
 26. Commitments
 a. Operating leases
  2009
    
    2008
    
    2007$
    
    $
    
    $Within one year
    
    
    138,494
    
    
    
    442,874
    
    
    
    443,858After one year but not more than 5 years
    
    
    
    
    
    
    161,771
    
    
    
    476,093More than 5 years
    
    
    
    
    
    
    
    
    
    
    Total minimum lease payments
    
    
    138,494
    
    
    
    604,645
    
    
    
    919,951
 b. Finance leases
  2009
    
    2008
    
    2007Minimum
    
    Present value
    
    Minimum
    
    Present value
    
    Minimum
    
    Present valuelease
    
    of lease
    
    lease
    
    of lease
    
    lease
    
    of leasepayments
    
    payments
    
    payments
    
    payments
    
    payments
    
    payments$
    
    $
    
    $
    
    $
    
    $
    
    $Consolidated
Within one year
    
    
    6,590
    
    
    
    5,344
    
    
    
    219,517
    
    
    
    203,699
    
    
    
    84,626
    
    
    
    63,907After one year but
not more than 5
years
    
    
    8,556
    
    
    
    7,630
    
    
    
    19,594
    
    
    
    16,783
    
    
    
    232,487
    
    
    
    215,036Total minimum lease
payments
    
    
    15,146
    
    
    
    12,974
    
    
    
    239,111
    
    
    
    220,482
    
    
    
    317,113
    
    
    
    278,943Less amounts
representing
finance charges
    
    
    (2,172
    )
    
    
    
    
    
    
    (18,629
    )
    
    
    
    
    
    
    (38,170
    )
    
    
    12,974
    
    
    
    12,974
    
    
    
    220,482
    
    
    
    220,482
    
    
    
    278,943
    
    
    
    278,943
 F-37




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##### Table of Contents



27. Related party transactions
 a. Transactions with related parties
   
 28. Subsidiaries
 Percentage of equityCountry of
    
    held by the Group
    
    InvestmentIncorporation
    
    2009
    
    2008
    
    2007
    
    2009
    
    2008
    
    2007Metal Storm Inc.
    
    USA
    
    
    49
    %
    
    
    49
    %
    
    
    49
    %
    
    
    2,920
    
    
    
    2,920
    
    
    
    2,920ProCam Machine LLC
    
    USA
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    Metal Storm USA
Limited
    
    USA
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    Digigun LLC
    
    USA
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    
    
    
    
    
    
    
    
    
  
 29. Events occurring after the end of the reporting period
     
    
    Type 1  a cash advance of up to $400,000 (which can be increased to a maximum of
$800,000 at the discretion of GEM); or
    
    Type 2  a cash advance equivalent to 700% of the 15-day average trading volume
(GEM can elect to pay between 50% and 200% of this request).
        F-38




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##### Table of Contents



30. Reconciliation of loss after income tax to net cash inflow from operating activities
 2009
    
    2008
    
    2007$
    
    $
    
    $Net Loss
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Adjustments for:Depreciation and amortisation
    
    
    184,537
    
    
    
    220,906
    
    
    
    249,496Accretion expense
    
    
    3,183,491
    
    
    
    3,236,015
    
    
    
    1,884,443Amortisation of transaction costs
    
    
    576,976
    
    
    
    865,465
    
    
    
    865,465Net loss on disposal of plant and equipment
    
    
    
    
    
    
    1,159
    
    
    
    Foreign exchange differences
    
    
    87,508
    
    
    
    (132,150
    )
    
    
    17,495Impairment loss on receivables
    
    
    
    
    
    
    Fair value of services paid for via issue of options
    
    
    
    
    
    
    12,412
    
    
    
    136,549Fair value of services paid for via issue of shares
    
    
    
    
    
    
    138,935
    
    
    
    Fair value adjustment to conversion derivative
    
    
    224,611
    
    
    
    (3,620,682
    )
    
    
    (2,421,388
    )Fair value adjustment to available-for-sale assets
    
    
    
    
    
    
    
    
    
    
    (2,080
    )Gain on extinguishment of debt
    
    
    (2,467,609
    )
    
    
    
    
    
    
    Impairment loss (gain) on AFS
    
    
    (75,000
    )
    
    
    
    
    
    
    Impairment loss on available-for-sale assets
    
    
    
    
    
    
    769,200
    
    
    
    220,800Interest received
    
    
    (136,833
    )
    
    
    (1,040,700
    )
    
    
    (1,354,047
    )Other
    
    
    
    
    
    
    
    
    
    
    758Changes in assets and liabilities:(Increase) / decrease in trade and other receivables
    
    
    461,352
    
    
    
    1,445,602
    
    
    
    (1,379,346
    )(Increase) / decrease in prepayments
    
    
    302,279
    
    
    
    2,524
    
    
    
    11,009(Decrease) / increase in trade and other payables
    
    
    287,751
    
    
    
    (1,475,708
    )
    
    
    662,620(Decrease) / increase in provisions
    
    
    (17,558
    )
    
    
    74,421
    
    
    
    (139,836
    )(Decrease) / increase in other liabilities
    
    
    (30,299
    )
    
    
    (21,910
    )
    
    
    (9,684
    )Net cash used in operating activities
    
    
    (8,704,228
    )
    
    
    (10,180,514
    )
    
    
    (11,255,896
    )
 F-39




---



##### Table of Contents



31. Earnings per share
 a. Basic and diluted earnings per share
 2009
    
    2008
    
    2007$
    
    $
    
    $Loss for the year
    
    
    (11,307,664
    )
    
    
    (10,656,003
    )
    
    
    (9,998,150
    )Basic and diluted earnings per share (cents per share)
    
    
    (1.61
    )
    
    
    (1.62
    )
    
    
    (1.56
    )
 b. Weighted average number of shares used as the denominator
 2009
    
    2008
    
    2007Number
    
    Number
    
    NumberWeighted average number of
ordinary shares for basic
and diluted earnings per
share
    
    
    701,839,327
    
    
    
    658,320,401
    
    
    
    641,329,047
  c. Information concerning the classification of securities
  2009
    
    2008
    
    2007Number
    
    Number
    
    NumberInterest bearing convertible notes
    
    
    33,040,799
    
    
    
    147,584,129
    
    
    
    152,656,884Secured convertible notes
    
    
    109,471,371
    
    
    
    
    
    
    
    Listed options
    
    
    
    
    
    
    176,756,604
    
    
    
    176,756,604Unlisted options
    
    
    90,345,809
    
    
    
    18,989,688
    
    
    
    18,569,688
 
 32. Share-based payments
 a. Employee share option plan
       b. Options issued under the constitution
      F-40




---



##### Table of Contents



2009
    
    2008
    
    2007Number
    
    WAEP
    
    Number
    
    WAEP
    
    Number
    
    WAEPOutstanding at the
beginning of the year
    
    
    18,989,688
    
    
    
    0.30
    
    
    
    19,044,688
    
    
    
    0.30
    
    
    
    18,100,938
    
    
    
    0.31Granted during the year
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,000,000
    
    
    
    0.19Expired during the year
    
    
    (5,717,188
    )
    
    
    0.43
    
    
    
    (55,000
    )
    
    
    0.54
    
    
    
    (56,250
    )
    
    
    0.54Outstanding at the end
of the year
    
    
    13,272,500
    
    
    
    0.24
    
    
    
    18,989,688
    
    
    
    0.30
    
    
    
    19,044,688
    
    
    
    0.30Exercisable at the end
of the year
    
    
    8,272,500
    
    
    
    0.37
    
    
    
    13,989,688
    
    
    
    0.40
    
    
    
    13,207,188
    
    
    
    0.41
  c. Shares issued at the discretion of the Board
   d. Expenses arising from share based payment transactions
 2009
    
    2008
    
    2007$
    
    $
    
    $Options expense
    
    
    22,230
    
    
    
    12,412
    
    
    
    136,549Shares granted but not yet issued to employees
    
    
    
    
    
    
    14,820
    
    
    
    Shares granted and issued to employees
    
    
    
    
    
    
    9,600
    
    
    
    22,230
    
    
    
    36,832
    
    
    
    136,549
 e. Other unlisted options issued
    2009
    
    2008
    
    2007Number
    
    WAEP
    
    Number
    
    WAEP
    
    Number
    
    WAEPOutstanding at the
beginning of the year
    
    
    
    
    
    
    0.001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Granted during the year
    
    
    78,217,067
    
    
    
    0.001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Exercised during the year
    
    
    (1,293,758
    )
    
    
    0.001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Outstanding at the end
of the year
    
    
    76,923,309
    
    
    
    0.001
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
 F-41




---



##### Table of Contents



f. Other unlisted options issued
  ExercisePrice
    
    2009
    
    2008
    
    2007Expiry Date
    
    $
    
    Number
    
    Number
    
    Number31 March 2008
    
    
    0.556
    
    
    
    
    
    
    
    
    
    
    
    12,50004 June 2008
    
    
    0.388
    
    
    
    
    
    
    
    
    
    
    
    5,00030 June 2008
    
    
    0.556
    
    
    
    
    
    
    
    
    
    
    
    12,50030 September 2008
    
    
    0.556
    
    
    
    
    
    
    
    
    
    
    
    12,50031 December 2008
    
    
    0.556
    
    
    
    
    
    
    
    
    
    
    
    12,50014 January 2009
    
    
    0.400
    
    
    
    
    
    
    
    125,000
    
    
    
    125,00002 February 2009
    
    
    0.400
    
    
    
    
    
    
    
    100,000
    
    
    
    100,00016 February 2009
    
    
    0.400
    
    
    
    
    
    
    
    14,438
    
    
    
    14,43824 February 2009
    
    
    0.400
    
    
    
    
    
    
    
    81,250
    
    
    
    81,25010 March 2009
    
    
    0.400
    
    
    
    
    
    
    
    8,250
    
    
    
    8,25031 March 2009
    
    
    0.400
    
    
    
    
    
    
    
    62,500
    
    
    
    62,50005 April 2009
    
    
    0.400
    
    
    
    
    
    
    
    29,500
    
    
    
    29,50014 April 2009
    
    
    0.400
    
    
    
    
    
    
    
    1,100,000
    
    
    
    1,100,00010 May 2009
    
    
    0.400
    
    
    
    
    
    
    
    25,000
    
    
    
    25,00008 June 2009
    
    
    0.400
    
    
    
    
    
    
    
    25,000
    
    
    
    25,00021 June 2009
    
    
    0.400
    
    
    
    
    
    
    
    3,225,000
    
    
    
    3,225,00021 June 2009
    
    
    1.100
    
    
    
    
    
    
    
    40,000
    
    
    
    40,00021 June 2009
    
    
    1.150
    
    
    
    
    
    
    
    200,000
    
    
    
    200,00030 June 2009
    
    
    0.400
    
    
    
    
    
    
    
    62,500
    
    
    
    62,50005 July 2009
    
    
    0.400
    
    
    
    
    
    
    
    75,000
    
    
    
    75,00014 July 2009
    
    
    0.400
    
    
    
    
    
    
    
    125,000
    
    
    
    125,00004 September 2009
    
    
    0.400
    
    
    
    
    
    
    
    31,250
    
    
    
    31,25030 September 2009
    
    
    0.400
    
    
    
    
    
    
    
    62,500
    
    
    
    62,50014 October 2009
    
    
    0.400
    
    
    
    
    
    
    
    125,000
    
    
    
    125,00024 November 2009
    
    
    0.400
    
    
    
    
    
    
    
    6,250
    
    
    
    6,25004 December 2009
    
    
    0.400
    
    
    
    
    
    
    
    31,250
    
    
    
    31,25007 December 2009
    
    
    0.400
    
    
    
    
    
    
    
    12,500
    
    
    
    12,50031 December 2009
    
    
    0.400
    
    
    
    
    
    
    
    150,000
    
    
    
    150,00018 March 2010
    
    
    0.400
    
    
    
    20,000
    
    
    
    20,000
    
    
    
    20,00031 March 2010
    
    
    0.400
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    200,00021 June 2010
    
    
    0.400
    
    
    
    578,750
    
    
    
    578,750
    
    
    
    578,75024 June 2010
    
    
    0.400
    
    
    
    1,990,000
    
    
    
    1,990,000
    
    
    
    1,990,00030 June 2010
    
    
    0.400
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    200,00030 September 2010
    
    
    0.400
    
    
    
    200,000
    
    
    
    200,000
    
    
    
    200,00031 December 2010
    
    
    0.400
    
    
    
    218,750
    
    
    
    218,750
    
    
    
    218,75031 March 2011
    
    
    0.400
    
    
    
    193,750
    
    
    
    193,750
    
    
    
    193,75028 April 2011
    
    
    0.400
    
    
    
    940,000
    
    
    
    940,000
    
    
    
    940,00030 June 2011
    
    
    0.400
    
    
    
    818,750
    
    
    
    818,750
    
    
    
    818,75002 July 2011
    
    
    0.010
    
    
    
    5,000,000
    
    
    
    5,000,000
    
    
    
    5,000,00030 September 2011
    
    
    0.400
    
    
    
    125,000
    
    
    
    125,000
    
    
    
    125,00027 October 2011
    
    
    0.400
    
    
    
    506,250
    
    
    
    506,250
    
    
    
    506,25031 December 2011
    
    
    0.400
    
    
    
    193,750
    
    
    
    193,750
    
    
    
    193,75008 March 2012
    
    
    0.180
    
    
    
    1,000,000
    
    
    
    1,000,000
    
    
    
    1,000,00031 March 2012
    
    
    0.400
    
    
    
    193,750
    
    
    
    193,750
    
    
    
    193,75030 June 2012
    
    
    0.400
    
    
    
    193,750
    
    
    
    193,750
    
    
    
    193,75024 September 2012
    
    
    0.001
    
    
    
    76,923,309
    
    
    
    
    
    
    
    30 September 2012
    
    
    0.400
    
    
    
    193,750
    
    
    
    193,750
    
    
    
    193,75031 December 2012
    
    
    0.400
    
    
    
    168,750
    
    
    
    168,750
    
    
    
    168,75031 March 2013
    
    
    0.400
    
    
    
    168,750
    
    
    
    168,750
    
    
    
    168,75030 June 2013
    
    
    0.400
    
    
    
    168,750
    
    
    
    168,750
    
    
    
    168,75090,195,809
    
    
    
    18,989,688
    
    
    
    19,044,688
 F-42