06 - CAP-XX

CAP-XX Limited is a world leader in the design and manufacture of revolutionary thin-form supercapacitors predominately for use in small portable electronic devices. Supercapacitors can considerably extend battery run-times and provide power-hungry functions that are not possible with current battery technology. The photograph shows part of the automated production process in Sydney, Australia

CAP-XX LimitedABN 47 050 845 291

Units 9 & 10, Ph +61 2 9420 0690 12 Mars Road Fax +61 2 9420 0692 Lane Cove NSW 2066 email [email protected] www.cap-xx.com

06 A N N U A L R E P O R T 2 0 0 6

CAP-XX Limited is a world

leader in the design and

manufacture of revolutionary

thin-form supercapacitors

predominately for use in small

portable electronic devices.

Supercapacitors can

considerably extend battery

run-times and provide

power-hungry functions that

are not possible with current

battery technology.





�CAP-XX LIMITED ANNUAL REPORT 200606

Contents Page

Corporatedirectory 2

Chairman’sstatement 4

Businessreview 5

Directors’report 8

Independencedeclaration 15

Corporategovernancestatement 16

Financialstatements 18

Directors’declaration 61

Independentauditreporttothemembers 62

2 CAP-XX LIMITED ANNUAL REPORT 2006 06

Directors MichaelQuinnChairman

AnthonyKongatsManagingDirector

GrahamTitcombe

JohnMurray

ChristerHarkonen

Secretaries RobertBuckingham

ChrisCampbellChiefFinancialOfficer

Notice of annual general meeting TheannualgeneralmeetingofCAP-XXLimitedwill be held attheofficesof:

Faegre&BensonLLP7PilgrimStreetLondonEC4V6LBUnitedKingdom

time:9.30am 16November2006

Aformalnoticeofmeetingisenclosed.

Registered office Level3 685PittwaterRoad DeeWhyNSW2099 Australia

Principal place of business Units9and1012MarsRoadLaneCoveNSW2066Australia

Registrars to shares ComputershareInvestorServicesPtyLtdYarraFalls452JohnstonStreetAbbotsfordVIC3067Australia

Corporate DireCtory


Registrars to depositary interests ComputershareInvestorServicesplcThePavilionsBridgwaterRoadBristolBS997NHUnitedKingdom

Nominated adviser and broker to the Company CollinsStewartLimited9thFloor88WoodStreetLondonEC2V7QRUnitedKingdom

Auditor PricewaterhouseCoopers201SussexStreetSydneyNSW1171Australia

Solicitors to the Company as to Australian law DibbsAbbotStillmanLevel9,AngelPlace123PittStreetSydneyNSW2000Australia

Solicitors to the Company as to English law Faegre&BensonLLP7PilgrimStreetLondonEC4V6LBUnitedKingdom

Bankers CommonwealthBankofAustralia120PittStreetSydney,NSW2000Australia

Stock exchange listings SharesarelistedasDepositaryInterestsonAIM,amarketregulatedbyLondonStockExchangeplcunderthecodeCPX

Website address www.cap-xx.com

Corporate DireCtorycontinued

� CAP-XX LIMITED ANNUAL REPORT 2006 06

Iampleasedtoreport,inthefirstsetoffullyearresultssinceitsadmissiontotradingonAIMon20April2006,thatCAP-XXLimited(theCompany)anditscontrolledentities(togethertheGroup)hasperformedaheadoftheprioryearandinlinewithourexpectations.

Revenueforthe12monthsto30June2006increased16.2%toAUD$2.6million(2005:AUD$2.2million),withsalesgrowthforthequarterended30June2006aheadbymorethan40%overthepreviousquarter.

Ouroverallresultforthetwelvemonthsto30June2006wasalossofAUD$10.3million(2005lossofAUD$11.7million).TheoperatinglossfromtradingoperationswasAUD$9.7million(2005lossAUD$10.9million)withnegativeEBITDAofAUD$6.0million(2005negativeAUD$7.0million).

CAP-XXhasastrongbalancesheetwithAUD$20.1millioncashandnodebt.InApril,2006theCompanyraisedAUD$37.5million(netoflistingcosts)throughthesuccessfulfloatationoftheCompanyontheAlternateInvestmentMarket(AIM),apartoftheLondonStockExchange.AUD$16.7millionofthefloatproceedswasusedtoretiredebt,resultinginAUD$20.1millioncashinbankandnootherfinancialdebtontheBalanceSheetat30June,2006.

Companyexecutiveshavecontinueddiscussionsaimedatsecuringbusinesswithanumberofglobaloriginalequipmentmanufacturersactiveinmobilephoneandportableconsumerelectronics.Naturally,astheopportunitiesareconsiderablylargerthantheCompany’spreviousexperiencetheleadtimefromfirstdiscussionsthroughtoinitialdesignwinscanbemanymonthsbutweareoptimisticwiththecurrentoutlook.

Wehavemetfinancialexpectationswhilstmakingsignificantinvestmentsinpeople,andaddressinginfrastructureandprocessestoensurethecreationoflongtermshareholdervalue.Inparticular,wehavebolsteredtheCompany’ssalesandmarketingcapabilityandenhancedtheCompany’sresearchandproductdevelopmentfunction.Asisusuallythecasewithearlystagecompanies,salesandmarketingspendwillremainhighrelativetorevenuesforthisfinancialyearasCAP-XXestablishesitscustomerbase.

AsCAP-XXishighlydependentonitsuniqueintellectualpropertytoestablishitselfinthemarketandgeneratehighreturns,theCompanywillbeexpendingmoreonresearchanddevelopmenttomaintainandenhanceitsposition.Wehavemajorprogramsinplacewithobjectivesthatincludeimprovingthemanufacturingprocessforhighervolumemanufacturing,thedevelopmentofsmallerdevicesandcostreduction.

TheCompanyadvanceditscontractmanufacturingstrategywiththeobjectiveofbeinginapositiontomeetplannedmanufacturinggrowth.OurexistingcontractmanufacturercontinuestorampuptheirproductionvolumesandexpandoverallcapacityattheirfacilityinPenang,Malaysia.Weareverypleasedwiththeircommitmentandco-operation.

TheinitialpublicofferingrequiredasubstantialrestructuringoftheCompanytomaximisefutureshareholdervalueandwasaccomplishedwithenormousenthusiasmandenergybystaff.Thefinancialteamhandledthecorporaterestructureandfloatationexpeditiouslyagainsttighttimelinesandthesales,production,anddevelopmentteamsdidanoutstandingjobofmaintainingtheiroperationsaswellashelpingthefinancialteamwhererequired.Weareallgratefulfortheircommitmentandgoodhumourunderpressure.

TheCompanyhascommencedthenewfinancialyearwithafirmorderbookfromexistingcustomersandwecontinuetoseeagoodflowofnewprospectsandopportunitiesacrossallourtargetmarketscoveringwireless,consumerandcommercialapplications.WhilstthisflowremainsstrongacrossNorthAmericaandAsia,weareparticularlyexcitedaboutanumberofnewprospectsandopportunitiesemergingfromEurope.

CAP-XXiswellplacedtobenefitsubstantiallyfromtheincreasingenergymanagementdemandsofportableelectronicdevicesandwelookforwardtoayearofgoodprogress.

MichaelQuinnChairman

5October2006

Chairman’s statement


About CAP-XX LimitedCAP-XXLimitedisaworldleaderinthedesignandmanufactureofrevolutionarythin-formsupercapacitorspredominatelyforuseinsmallportableelectronicdevices.Supercapacitorscanconsiderablyextendbatteryrun-timesandprovidepower-hungryfunctionsthatarenotpossiblewithcurrentbatterytechnology.

CAP-XXsupercapacitorshaveacompact,thin-formdesignandtheycanstorehighervolumesofenergyandoutputhigherpowerlevelsthancompetingsupercapacitorproducts.Theseattributesarecriticalforcurrentandfuturegenerationelectronicdevices,suchasmobilephonecameraswithaqualityflashphotographycapability.Otherpotentialapplicationsincludedigitalstillcameras,MP3players,portabledrugdeliverysystems,wirelesssensors,uninterruptedpowersupplies,tolltagsandlocationtrackingdevices.TheCompanybelievesthatfuelcellswillhaveaparttoplayinthesolutiontobatterylimitationsandbelievesthatthisalsooffersanothersignificantopportunitytoCAP-XX.

Portabledevicesareafast-growingsegmentoftheelectronicsmarket.In2004,approximately900millionportableelectronicdevicesweresold,includingover600millionmobilephones,approximately50millionlaptops,andtoys,digitalcamerasandMP3players.Manyofthesedevicescouldbenefitfromsupercapacitors.

In2005-2006CAP-XXsuppliedsupercapacitorstoanumberofbluechipconsumerelectronicscompaniesforuseincurrentgenerationwirelessdevicessuchasruggedisedPDAs(personaldigitalassistants)andPCMCIA(personalcomputermemorycardinternationalassociation)cards.CAP-XXisnowfocussingonthecameraphonemarketandisindiscussionswithleadingmobilephonemanufacturers.

CAP-XXisincorporatedinAustraliaandhasitsheadquartersandresearchanddevelopmentandmanufacturingfacilitiesinSydney,Australiaemploying48staff.ThesefacilitieshaveISO9000status.AsimilarbutlargermanufacturingfacilityisoperatedinMalaysiabyPolarTwinAdvanceSdnBhdunderamanufacturingagreementwithCAP-XX.

Historical MilestonesIn1994,acompanyassociatedwithAnthonyKongats,nowManagingDirectorofCAP-XXLimited,enteredintoanagreementwithCSIRO(theAustralianCommonwealthScientificandIndustrialResearchOrganisation)toresearchandcommercialisesupercapacitortechnologythathadresultedfromCSIROresearch.

CAP-XXLimited(formerlyknownasEnergyStorageSystemsPtyLimited)wasestablishedin1996byAnthonyKongatsasthevehicletoholdtheintellectualpropertyresultingfromthepartnershipwithCSIRO.CAP-XXreceivedresearchanddevelopmentgrantsfromtheAustralianGovernmentandwasbackedbysomeoftheworld'sleadingtechnologyinvestors,includingIntel,Acer,ABNAmroandWaldenandwellsupportedbyAustralianbasedventurecapitalistsInnovationCapitalandTechnologyVenturePartners.

TheCompanybuiltapilotproductionplantin1999inLaneCove,Sydney,Australia,andprogressivelyimprovedproductioncapacity.Itbeganshippingsupercapacitorproductstocustomersin2003.CustomerssuppliedtodateincludeSony,SonyEricsson,IPWireless,Option,SierraWireless,Flextronics,andproductshippedtoSymbolTechnologiesandHandHeldProductshasbeenincorporatedinfield-criticaldevicesusedbyleadingparceldeliverycompaniessuchasFedExandUPS.

Inlate2004thecompanyenteredintoamanufacturingagreementwithPolarTwinAdvanceSdnBhd(“PTA”)ofMalaysiatoprovidehighvolumemanufacturingservices.TheproductionflowprocessdevelopedinSydneyhasbeensuccessfullyreplicatedinMalaysiaandPTAisintheprocessofexpandingitsproductioncapacity.

Business review


CAP-XXwasnameda2005TechnologyPioneerbytheWorldEconomicForumindevelopingandapplyinginnovativeandtransformationaltechnology.

InFebruary2006theCAP-XXtechnologywasrecognisedbyFrost&Sullivan's2005TechnologyInnovationoftheYearAwardasa‘breakthroughnanotechnologyprocessforproducingsupercapacitorstomeetthepulse-powerrequirementsofportabledevices’.TheAwardrecognisesresearchexpectedtomakesignificantcontributionstotheelectronicsindustry.

Review of Operations and Activities TheCompanyhascontinuedtogrowitsrevenueyearonyearsinceitsfirstshipmentsin2003withrevenueforthe12monthsto30June2006increasingby16.2%toAUD$2.6million(2005:AUD$2.2million).Theoverallresultforthetwelvemonthsto30June2006wasalossofAUD$10.3million(2005lossofAUD$11.7million).

InJanuary2006thecompanystatuswaschangedfromaproprietarycompanylimitedbysharestoapubliccompanylimitedbyshares.On5April2006theCompanydemergedfromitsformerparentCAP-XXInc,acompanyincorporatedintheUSAandthenamewaschangedfromEnergyStorageSystemsLimitedtoCAP-XXLimited.

On20April2006CAP-XXLimitedwaslistedontheAIMmarketoftheLondonStockExchangeinconjunctionwithaplacementof18,433,333sharesat93pencepersharewhichraisedgrossproceedsofAUD$41million(£17.1million)andincreasedthetotalshareholdingto48,565,893shares

andmarketcapitalisation(at93ppershare)toaboutAUD$108million(£45.2million).

Thefundsraisedwereusedtopayexistingdebtleavingthecompanyfreeoffinancialdebtasof30June2006andwithcashassetsofAUD$20.1milliontofundfutureoperations.

Business EnvironmentPortabledevicesareoneofthefastestgrowingsegmentsoftheelectronicsmarketandprovidesthegreatestopportunitiesforCAP-XX'sproducts.

In2004,approximately900millionportableelectronicdevicesweresold,includingover600millionmobilephones,approximately50millionlaptops,andtoys,digitalcamerasandMP3players.Thenumberandtypesofportableelectronicdevicesareexpectedtocontinuetoexpandrapidly.Almostallofthesedevicescouldbenefitfromsupercapacitorstoincreasebatteryruntimeandprovidenewfunctionsthatrequirehigherpowerlevelsthatarenotpossiblewithexistingbatterytechnology.

CAP-XXtechnologyprovidesacompetitiveadvantageoverothersupercapacitormanufacturers,whichincludeAVX,MaxwellTechnologiesandNEC/TokinCorporation.OthermanufacturersareunabletomatchtheCAP-XXtechnologyforthinness,energydensityandpowerdensity.Manycompetitorsmanufacturehigher-capacity,largepackagedevicesandfocusonapplicationswherethecombinationofthinness,energydensityandpowerdensityisnotanissue.

CAP-XX'sproductsarealreadyanestablishedtechnologyforcurrentgenerationwirelessdevices,suchasruggedisedPDAsandPCMCIAcards.

OpportunitiesTherapidlygrowingcameraphonemarketisanareaofopportunityasmobilehandsetprovidersseektoprovideincreasinglypowerhungryapplications,suchasqualitycameraflashphotography.Atpresentthereisawideninggapbetweenthepowertheseapplicationsrequireandthepowercurrentbatterytechnologycanprovide.

CAP-XXisideallyplacedtoprovideanimmediatesolutiontotheissueofpowerinmobiledevicesandisindiscussionswithleadingmobilephonehandsetmanufacturersforthecommercialdeploymentofitstechnologyforcamera-phoneflashapplications.Thisincludesinteractionswithinternationalintegratedcircuit(IC)companiesthataredevelopingnewchipstoworkwithsupercapacitorproductstoprovidethepowerrequired.

Business reviewcontinued


Otherpotentialapplicationsincludedigitalstillcameras,MP3players,portabledrugdeliverysystems,wirelesssensors,uninterruptedpowersupplies,tolltagsandlocationtrackingdevices.TheCompanybelievesthatfuelcellswillhaveaparttoplayinthesolutiontobatterylimitationsandbelievesthatthisalsooffersanothersignificantopportunitytoCAP-XX.

Leadingplayersinthemobiledeviceindustryarecurrentlyattemptingtoredesignthepowerarchitectureoftheirdevicesbasedonbatterieswithhigherenergydensities.Thekeyaimwiththesebatterieswillbetoincreaseruntimebutasideeffectofthisbenefitwillbeadifferentvoltagedischargecurve,whichtheCompanybelieveswillrequiretheinclusionofsupercapacitorsforbuffering.

CAP-XXhasidentifiedpossibleresistancebyapplicationsdesignersandengineerstoacceptinganewtechnologytobeapotentialbarriertoentrytonewmarketsandhasplacedastrongfocusonprovidingsamplekits,andengineeringanddesignsupportservicestoapplicationdeveloperstofacilitateconsiderationandacceptanceofCAP-XXproducts.

Strategies for GrowthTheCompanycontinuestohavediscussionsaimedatsecuringbusinesswithanumberofglobaloriginalequipmentmanufacturersactiveinmobilephoneandportableconsumerelectronics.

CAP-XXhasanexperiencedtechnicalsalesteamandsalesofficesinTaipei,TaiwanandinSouthCarolina,USAandisintheprocessofestablishingasalesofficeinEurope.Mostsalestodatehavebeenachievedbydirectsalesandthecompanyplanstomaintaindirectsalescontactswithkeycustomers.Togainbroadermarketcoverage,theCompanyhasenteredintodistributionagreementswithanumberofwell-qualifieddistributorscoveringAsia(inclusiveofJapan,SouthKoreaandChina)andEurope.

CAP-XXundertakesselectedmarketingcampaigns,attendstradeshowsandhasawebsite,www.cap-xx.com.Inaddition,CAP-XXstronglysupportselectronicsystemdesignersbyprovidingengineeringanddesignservicesforselectionandapplicationofsupercapacitors,evaluationsamplekitsforexperimentationanddevelopmentwork,andapplicationbriefsandnotesincludingexamples.

Research and DevelopmentCAP-XXhasaresearchfacilityatitsheadquartersinLaneCove,Australiawherearesearchanddevelopmentteamcomprisedof

11engineersandscientistsiscontinuingdevelopmentworktomaintainCAP-XX’sleadpositionintheengineeringofelectrode,separatorandelectrolytematerialinsupercapacitordevices.

OutlookThemarketinwhichtheCompanyoperatesiscompetitiveandischaracterisedbyrapidtechnologicalchange.Thereareanumberofothersupercapacitormanufacturersthatmaybeabletooffernewtechnologiesandproductsatlowerprices,orsuperiorperformancelevelsorwithgreatermarketacceptance,thatwouldcompetewithCAP-XXsupercapacitors.TheCompanybelievesthatitcurrentlyhasastrongcompetitivepositioninallitstargetmarketscoveringwireless,consumerandcommercialapplicationswithitscapabilitytoproducesupercapacitorswithahighenergydensityandpowerdensityinasmallconvenientlysizedflatpackage.Furthermore,theCAP-XXdevicesarelightweight,workoverabroadtemperaturerangeandhaveanoperatinglifetimemeasuredinyears.

TheCompany’ssuccessdependsonitsabilitytoprotectitsintellectualpropertyandtoavoidanyinfringementsofothers’intellectualproperty.CAP-XXhassoughttoprotectitsintellectualpropertyandhasconsiderableintellectualpropertyembodiedinpatentscoveringthedesign,manufactureanduseofitshighperformancesupercapacitors.TheCAP-XXpatentportfoliocurrentlyconsistsof19patentfamilies,9grantedUSpatents,13USpatentapplicationsandcorrespondinginternationalpatentsandapplications.Thepatentscoversupercapacitivedevices,techniquesformanufacturingdevicesandapplicationsofthedevicesinelectroniccircuits.

Asignificantareaofuncertaintyliesinthetimingofexpandingtheproductioncapacitytomeettheanticipatedsubstantialincreaseddemandforsupercapacitorproducts.Managingthescale-upofmanufacturingcapacitybyCAP-XXoritsmanufacturingpartner,orlicensingthetechnologytoanotherpartytoprovidetheproductioncapacityrequiredtomatchthegrowthindemandwillbeacriticalfactorinthegrowthofthebusiness.Byend2006CAP-XXcontractmanufacturerPTAplanstobuildfurthermanufacturingcapabilitytoincreaseproductiontomeettheanticipateddemandforCAP-XXsupercapacitors.

Overall,theCompanyishappywiththeprogresstodateinbuildingitsrelationshipswithglobaloriginalequipmentmanufacturers,andwithexistingandpotentialmanufacturingpartners,andbelievesitisontrackwithplanstocreatelongtermshareholdervalue.

Business reviewcontinued

� CAP-XX LIMITED ANNUAL REPORT 2006 06

Yourdirectorspresenttheirreportontheconsolidatedentity(referredtohereafterastheGroup)consistingofCAP-XXLimited(theCompanyorCAP-XX)andtheentitiesitcontrolledattheendof,orduring,theyearended30June2006.

DirectorsThefollowingpersonsweredirectorsofCAP-XXLimitedduringthefinancialyearanduptothedateofthisreport:

MichaelQuinn ChairmanAnthonyKongats ManagingDirectorJohnMurrayChristerHarkonen Appointed20April2006GrahamTitcombe Appointed20April2006AndrewBailey Resigned6April2006HockVoonLoo Resigned6April2006IngoSusing Resigned27March2006AllanAaron Resigned6April2006(alternatedirectortoJohnMurray)JohnPaulKaumeyer Resigned27March2006

(alternatedirectortoIngoSusing)

Principal activitiesTheGroup’sprincipalcontinuingactivitiesduringthefinancialyearconsistedofthedevelopment,manufactureandsaleofsupercapacitors.TherehavebeennosignificantchangesinthenatureoftheGroup’sactivities.

DividendsNodividendswerepaid,declaredorrecommendedduringthefinancialyearorsince30June2006.

Review of operationsTheGroupexperiencednetlossesof$10,322,000duringtheyearended30June2006(2005:lossof$11,683,000).InformationontheoperationsandfinancialpositionoftheGroupanditsbusinessstrategiesandprospectsissetoutonpages5-7ofthisAnnualReport.

Significant changes in the state of affairsSignificantchangesintheGroup’sstateofaffairsduringthefinancialyearwereasfollows:

(a)Anincreaseincontributedequityof$34,460,000(from$41,128,000to$75,588,000)asaresultof: $ ‘ 000

Issueof18,433,333fullypaidordinarysharesat93penceeachinconjunctionwiththeadmissionofCAP-XXonAIM 41,017IssueoffullypaidordinarysharesatUS$0.01eachupontheexerciseofwarrantsbyholdersofConvertibleNotes 4Issueof75,118fullypaidordinarysharesat$0.47eachonexerciseofoptionsgrantedunderthe2006ShareOptionExchange 35

41,056Less:Purchaseandcancellationof932,761ordinaryshares (2,630)Transactionalcostsarisingonshareissue (3,966)

��,�60

DireCtors’ report


(b)On5April2006aspartoftheDemerger(seenote25(f))holdersofconvertiblenotesinCAP-XX,IncexchangedtheirconvertiblenotesforsubstantiallysimilarconvertiblenotesofCAP-XX.ThisresultedinthenetissueofUS$6,404,000(A$8,983,000)ofadditionalconvertiblenotesbyCAP-XX.On27April2006thetotalconvertiblenoteliabilityinclusiveofaccruedinterestofUS$12,455,000(A$16,671,000)wasrepaidoutoftheproceedsoftheinitialpublicoffering(IPO).

(c)On5October2004,theGroupsignedacontractfortheoutsourcingofvolumeassemblymanufacturingwithPolarTwinAdvance(M)Sdn.Bhd.(PTA).AsaresultoftheoutsourcedvolumeassemblymanufacturingcapacityatPTA,thebookvalueoftheplantandequipmentheldattheGroup’sSydney,Australiamanufacturingfacilitywasreviewedforimpairment.Itwasreasonablybelievedthatby1July2006allvolumeassemblymanufacturingwouldbeoutsourcedtoPTAandtheaffectedplantandequipmentremaininginSydney,Australiawouldbeusedforproductdevelopmentandprocessimprovementpurposesonly.

Accordingly,theGroupwroteoff$1,029,000ofplantandequipmentat30June2005andaccelerateddepreciationofotherplantandequipmentfrom1July2004resultinginanincreaseindepreciationchargesof$1,907,000fortheyearended30June2006and$1,942,000fortheyearended30June2005.

Use of fundsFundsspentsincetheIPOhavebeenspentinaccordancewiththeOfferdocumentdated12April2006.

Matters subsequent to the end of the financial yearNomatterorcircumstancehasarisensince30June2006thathassignificantlyaffected,ormaysignificantlyaffect:

(a) theGroup’soperationsinfuturefinancialyears,or(b) theresultsofthoseoperationsinfuturefinancialyears,or(c) theGroup’sstateofaffairsinfuturefinancialyears.

Likely developments and expected results of operationsInformationonlikelydevelopmentsintheGroup’soperationsandtheexpectedresultsofoperationshavenotbeenincludedinthisreportbecausethedirectorsbelieveitwouldbelikelytoresultinunreasonableprejudicetotheGroup.

Environmental regulationTheGroupissubjecttostandardwastemanagementenvironmentalregulationsinrespectofitsresearchandmanufacturingactivitiesconductedatLaneCove,Sydney,Australia.

Information on directors

Michael Quinn Chairman.Age59

Experience and qualificationsMichaelbecameadirectoron12November1998.Heisexecutivechairmanofventurecapitalfundmanager,InnovationCapitalAssociatesPtyLtd,andwaspreviouslyco-founderofMemtecLtd,thehightechnologyfiltrationcompany,whichwaslistedontheASX,NASDAQandthenNYSE.MichaelisalsoadirectorofResMedInc.,whichislistedonNYSE,andisontheboardoftwonot-for-profitorganisations.Priortoitsacquisition,hewasexecutivechairmanofthelistedcompanyPhoenixScientificIndustriesLtdthatmanufacturedandimportedmedicalandscientificequipment.Michaelhasalsoheldexecutivepositionsinthebanking,transportandhigh-technologyplasticsindustriesandhasbeenadirectorofnumerouslistedandunlistedcompanies.HehasanMBAfromHarvard.

Special responsibilitiesChairmanofauditcommittee.

Interests in shares and options2,522,998ordinarysharesinCAP-XXLimited(includingsharesheldbyInnovationCapitalLimited,InnovationCapitalLLCandKaylaraPtyLimited)

123,864optionsoverordinarysharesinCAP-XXLimited(includingoptionsheldbyInnovationCapitalLimited,InnovationCapitalLLCandKaylaraPtyLimited)

Anthony Kongats ManagingDirector.Age48

Experience and qualificationsAnthonyfoundedtheCompanyin1996.PriortoCAP-XX,hewasthemanagingdirectorofamanufacturerofpassivecomponentsbeforesellingthebusinesstoacompetitor.AnthonypreviouslyworkedasamanagementconsultantwithMcKinsey&CompanyandheldvariousengineeringpositionsinAustraliaandEurope.Hehasabachelor’sdegree(honours)inengineeringfromtheUniversityofNewSouthWales,abachelorofsciencedegree

DireCtors’ reportcontinued

�0 CAP-XX LIMITED ANNUAL REPORT 2006 06

fromtheUniversityofSydneyandanMBAfromtheAustralianGraduateSchoolofManagement.

Special responsibilitiesNil

Interests in shares and options3,231,028ordinarysharesinCAP-XXLimited(includingsharesheldbyDuconManagementPtyLimited).123,336optionsoverordinarysharesinCAP-XXLimited.

Christer Harkonen Non-executiveDirector.Age49

Experience and qualificationsChristerisSeniorVicePresidentofUPMRaflatac,responsiblefortheRadioFrequencyIdentificationBusiness.BeforejoiningthatcompanyheheldvariousmanagementpositionsatElcoteq,aglobalelectronicsmanufacturingservicescompany.During2000-2004heheadedElcoteq’slargestbusinessarea,TerminalProducts,andwasresponsibleforstrategicaccounts.Christerhasheldvariousproduction,logisticsandpurchasingpositionsintheelectronicsindustrysince1984includingcompaniessuchasNokia,ICLPersonalSystemsOyandEspoo.Hehasamaster’sdegreeinengineering.

Special responsibilitiesMemberofauditcommittee.Memberofremunerationcommittee

Interests in shares and optionsNil

John Murray Non-executivedirector.Age47

Experience and qualificationsJohnbecameadirectoron18September2000.Hehas14years’experienceinprovidingventurecapitaltotechnologycompaniesintheAsiaPacificregionwithBankofAmerica,AustralianTechnologyGroupandTechnologyVenturePartners.Johnisaco-founderofTechnologyVenturePartners,oneoftheleadingVCfirmsinAustralia.HehasbeenchairmanoftheAustralianVentureCapitalAssociation;amemberoftheAustradeICTExportAdvisoryPanel;andamemberofthe2002CooperativeResearchCentreExpertReviewPanel.JohnhaspersonallybeeninvolvedinfinancingandassistingthedevelopmentofanumberofAustraliancompanieswhichhavesuccessfullycommercialisedtechnology,includingSecurityDomain,IntegratedSiliconDesignandManageSoft.Hehasalawdegree(honours)fromtheUniversityofEdinburghandisamemberoftheInstituteofCharteredAccountantsofScotland.

Special responsibilitiesMemberofauditcommittee.Memberofremunerationcommittee.

Interests in shares and options5,230,700ordinarysharesinCAP-XXLimited(includingsharesheldbyTVPNo2FundNomineesPtyLimitedandTVPNo3FundNomineesPtyLimited).3,501optionsoverordinarysharesinCAP-XXLimited.(includingoptionsheldbyTVPPtyLimited)

Graham Titcombe Non-executivedirector.Age64.

Experience and qualificationsGrahamworkedforJohnsonMattheyplcfor42yearsretiringin2002asgroupmanagingdirector.HewasamemberoftheJohnsonMattheyBoardfor12yearsandwasresponsibleatvarioustimesfortheJohnsonMattheygroup’spreciousmetals,catalystsandceramicsdivisions.HewasalsotheJohnsonMattheyboardmemberresponsiblefortechnology.Graham’soutsidedirectorshipshaveincludedBallardPowerSystems,TheWorldFuelCellCouncil,WagonplcandInfastGroupplc.HewaschairmanofInfastbeforesteppingdowninJuly2005.HeiscurrentlyseniorindependentdirectorontheboardofPolyFuelInc,whichlistedonAIMinJune2005.

Special responsibilitiesChairmanofremunerationcommittee.Seniorindependentdirector

Interests in shares and options20,000ordinarysharesinCAP-XXLimited.

Company secretaryThecompanysecretariesareRobertBuckinghamandChrisCampbell.Chris,theCompany’sChiefFinancialOfficer,wasappointedasacompanysecretaryon13August2006.RobertismanagingpartnerofAllanHallPartnership,CharteredAccountants,apositionhehasheldsince1989.Hehasabachelorofcommercedegree(honours)fromtheUniversityofNewSouthWalesandisanassociatedmemberofInstituteofCharteredAccountantsinAustraliaandanassociatedmemberofCertifiedPractisingAccountantsinAustralia.


��CAP-XX LIMITED ANNUAL REPORT 200606

Meetings of directorsThenumbersofmeetingsoftheCompany’sboardofdirectorsandofeachboardcommitteeheldduringtheyearended30June2006,andthenumbersofmeetingsattendedbyeachdirectorwere:

Full meetings of directors A B

MichaelQuinn 11 12AnthonyKongats 12 12JohnMurray 12 12ChristerHarkonen(appointed20April2006) 1 1GrahamTitcombe(appointed20April2006) 1 1AndrewBailey(resigned6April2006) 8 10HockVoonLoo(resigned6April2006) 7 10IngoSusing(resigned27March2006) 8 10

A=NumberofmeetingsattendedB=Numberofmeetingsheldduringthetimethedirectorheldofficeorwasamemberofthecommitteeduringtheyear

ThetermsofreferenceandcompositionoftheauditandremunerationcommitteesweredeterminedaspartoftheprocessofthelistingoftheCompany.Listingoccurredon20April2006andatyear-endthecommitteeshadnotmet.

Directors’ remunerationDetailsoftheremunerationofeachdirectorofCAP-XXLimitedfortheyearended30June2006aresetoutinthefollowingtable.Thecashbonusesaredependentonthesatisfactionofperformanceconditions.Allotherelementsofremunerationarenotdirectlyrelatedtoperformance.

Directors of CAP-XX Limited Primary Post-employment Equity

Name Cash salary and Cash Non-monetary Super- Retirement Options Total accrued fees bonus benefits annuation benefits $ $ $ $ $ $ $

Executive directors AnthonyKongats 199,196 - - 16,710 - 3,714 219,620

Non-executive directorsMichaelQuinn 15,219 - - 1,369 - 3,419 20,007JohnMurray 11,414 - - 1,027 - - 12,441ChristerHarkonen 12,441 - - - - - 12,441GrahamTitcombe 15,839 - - - - - 15,839AndrewBailey - - - - - 4,302 4,302HockVoonLoo - - - - - - -IngoSusing - - - - - - -

Total 2��,�0� - - ��,�06 - ��,�� 2��,6�0



Loans to directors and executivesTheGrouphasnoloanstodirectorsand/orexecutives.

Share options granted to directors and the most highly remunerated officers OptionsoverunissuedordinarysharesofCAP-XXgrantedduringtheyearended30June2006toanyofthedirectorsorthe5mosthighlyremuneratedofficersoftheCompanyandGroupaspartoftheirremunerationwereasfollows:

Directors Options grantedAnthonyKongats 111,327MichaelQuinn 103,170AndrewBailey 129,810

Other executives of CAP-XX Limited

GeorgeKarhan 225,000ChrisCampbell 77,649PierreMars 60,903PaulKhoo 72,468PhillipAitchison 50,001

Theoptionsweregrantedunderthe2006ShareOptionExchange-seenote29(a).Theyaretheresultoftheapplicationofa3:1splitaspartoftheDemergeroftheCompanyfromCAP-XX,Incon5April2006andinexchangeforthesurrenderofunexercisedoptionspreviouslygrantedtotheoptionholderson1July2005byCAP-XX,Inc.

OptionsoverunissuedordinarysharesofCAP-XXgrantedsince30June2006toanyofthedirectorsorthe5mosthighlyremuneratedofficersoftheCompanyandGroupaspartoftheirremunerationwereasfollows:

Directors Options GrantedAnthonyKongats 150,000

Other executives of CAP-XX Limited GeorgeKarhan 150,000ChrisCampbell 150,000PierreMars 150,000PaulKhoo 100,000PhillipAitchison 100,000

Theoptionsweregrantedon19September2006underthetermsandconditionsofthe2006EmployeeShareOptionPlan.



Shares under optionUnissuedordinarysharesofCAP-XXLimitedunderoptionatthedateofthisreportareasfollows:

Date options granted Expiry date Issue price of shares Number under option28August2001 31May2008 $2.96 28,49728August2001 29January2009 $11.84 13,50028August2001 10October2009 $8.88 5101November2002 30September2012 $15.64 48,0031April2004 31May2008 $2.96 9,9991April2004 29January2009 $11.84 1,5091April2004 30September2012 $4.19 19,5001April2004 30September2012 $15.64 14,50230June2004 31May2014 $0.47 30,00026August2004 25July2014 $0.23 48,00021March2005 20February2015 $0.23 48,0001July2005 31May2015 $0.47 1,357,7111July2005 31May2015 $15.64 18,00920April2006 20April2009 93pence 503,35020April2006 22February2011 $1.40 60,00019September2006 19September2016 $2.38 1,760,000

�,�6�,0�0

Nooptionholderhasanyrightundertheoptionstoparticipateinanyothershareissueofthecompanyorofanyotherentity.


�� CAP-XX LIMITED ANNUAL REPORT 2006 06

Shares issued on the exercise of optionsThefollowingordinarysharesofCAP-XXwereissuedduringtheyearended30June2006ontheexerciseofoptionsgrantedunderthe2006ShareOptionExchange.37,413furthershareshavebeenissuedsincethatdate.Noamountsareunpaidonanyoftheshares.

Date options granted Issue price of shares Number under option1July2005 $0.47 75,118

Indemnification and Insurance of Officers

IndemnificationCAP-XXhasagreedtoindemnifythecurrentdirectorsandexecutiveofficersoftheGroupandformerdirectorsoftheCompanyagainstallliabilitiestoanotherperson(otherthantheCompanyorarelatedbodycorporate)thatmayarisefromtheirpositionasdirectorsandexecutiveofficersoftheCompanyanditscontrolledentities,exceptwheretheliabilityarisesoutofconductinvolvingalackofgoodfaith.TheagreementstipulatesthattheCompanywillmeetthefullamountofanysuchliabilities,includingcostsandexpenses.

Insurance PremiumsThedirectorshavenotincludeddetailsofthenatureoftheliabilitiescoverednortheamountofthepremiumpaidinrespectoftheDirectors’andOfficersliabilityinsurancecontracts,assuchdisclosureisprohibitedunderthetermsofthecontract.

Auditor’s independence declarationAcopyoftheauditor’sindependencedeclarationasrequiredundersection307CoftheCorporationsAct2001issetoutonpage15.

Rounding of amountsTheCompanyisofakindreferredtoinClassOrder98/0100,issuedbytheAustralianSecuritiesandInvestmentsCommission,relatingtothe“roundingoff”ofamountsinthedirectors’report.Amountsinthedirectors’reporthavebeenroundedoffinaccordancewiththatClassOrdertothenearestthousanddollars,orincertaincases,tothenearestdollar.

AuditorPricewaterhouseCooperscontinuesinofficeinaccordancewithsection327oftheCorporationsAct2001.

Thisreportismadeinaccordancewitharesolutionofthedirectors.

MichaelQuinnDirector

Sydney5October2006



PricewaterhouseCoopersABN 52 780 433 757

Auditor’s Independence Declaration

auDitor’s inDepenDenCe report


Corporate governance statementOverthepastyeartheBoardhasconductedtheaffairsoftheCompanyinaccordancewithprinciplesofgoodcorporategovernance.However,theCompanydidnothaveformalgovernanceproceduresinplaceuntillistinginApril2006whereuponagreaterfocuswasgiventothisissue.

WhilstcompanieswhosesharesarelistedonAIMarenotformallyrequiredtocomplywiththeCombinedCodeonCorporateGovernance(July2003),theBoardsupportstheCodeandappliesitinsofarasispracticableandappropriateforapubliccompanyofitssize.TheBoardiscommittedtoensuringthathighstandardsofcorporategovernancearemaintained.

ThereisacleardivisionofresponsibilitybetweentheChairmanandtheManagingDirector.TheBoardcomprisesfivedirectors,fourofwhomarenon-executivedirectorsandtwoofwhomareindependentnon-executivedirectors.Noneofthenon-executivedirectorshaveanyday-to-dayinvolvementintherunningofthebusiness.

TheBoardisresponsibleforoverallstrategy,thepolicyanddecisionmakingframeworkinwhichthisstrategyisimplemented,approvalofbudgets,monitoringperformance,andriskmanagement.

TheBoardmeetsatregularscheduledintervalsandfollowsaformalagenda.Italsomeetsasandwhenrequired.Betweenlistingon20April2006and30June2006oneBoardmeetingwasheld.

ThedirectorsmaytakeindependentprofessionaladviceattheCompany’sexpense.

Board CommitteesTheCompanyhasanauditcommitteeandaremunerationcommitteebothconsistingofthreenon-executivedirectors.ThetermsofreferenceandcompositionoftheauditandremunerationcommitteesweredeterminedaspartoftheprocessofthelistingoftheCompany.Atyearendthecommitteeshadnotmetalthoughboththeauditcommitteeandtheremunerationcommitteehavesincemet.Eachcommitteeistomeetatleasttwiceayear.

TheauditcommitteecomprisesMichaelQuinn(Chairman),ChristerHarkonenandJohnMurray.TheremunerationcommitteecomprisesGrahamTitcombe(Chairman),ChristerHarkonenandJohnMurray.

TheauditcommitteereviewsthefinancialstatementsoftheCompanyandmonitorstheintegrityofthefinancialstatements.TheauditcommitteealsokeepsunderreviewtheeffectivenessoftheCompany’sinternalcontrolsandriskmanagementsystems.

Theremunerationcommitteedetermines,agreesandreviewswiththeBoardtheframeworkorbroadpolicyfortheremunerationoftheCompany’sChairmanandexecutivesandwithinthetermsoftheagreedpolicy(inconsultationwiththeChairmanand/orchiefexecutiveasappropriate)determinesthetotalindividualremunerationpackageofeachseniorexecutive.TheremunerationcommitteealsoreviewsandnotesannuallytheremunerationtrendsacrosstheGroup.

Relationships with ShareholdersTheBoardunderstandstheneedforclearcommunicationswithitsshareholders.Inadditiontopresentationsafterpublicationofresultsandtheannualgeneralmeeting,meetingsareheldwithfundmanagers,analysts,andinstitutionalinvestors.InformationispostedontheCompany’swebsite,www.cap-xx.com.

Corporate GovernanCe statement


Intellectual PropertyTheBoardhasalwaysbeenvigilantinmanagingtheCompany’sintellectualproperty(IP)portfoliowhichcurrentlyconsistsof19patentfamilies,9grantedUSpatents,13USpatentapplicationsandcorrespondinginternationalpatentsandapplications.TheCompany’sIPstrategyhasbeentobuildcompanyvaluebyfocussingonopportunitiestocapturemarketshareandexcludecompetitionwithanIPportfoliocapableofgeneratinglicensingrevenue.

Thedirectorsbelievecomprehensiveembodimentsandinterlockingpatentgroups,combinedwitha‘quicktofile,quicktoabandon’policy,havegiventheCompanyastrongandfocussedIPportfolio.

Corporate GovernanCe statementcontinued


Contents PageIncomestatements 19Balancesheets 20Statementsofchangesinequity 21Cashflowstatements 22Notestothefinancialstatements 23

ThisfinancialreportcoversbothCAP-XXLimitedasanindividualentityandtheconsolidatedentityconsistingofCAP-XXLimitedanditssubsidiaries.ThefinancialreportispresentedintheAustralian currency.

CAP-XXLimitedisacompanylimitedbyshares,incorporatedanddomiciledinAustralia.Itsprincipalplaceofbusinessis:

Units9-1012MarsRoadLaneCoveNSW2066

Itsregisteredofficeis:

Level3685PittwaterRoadDeeWhyNSW2099

Adescriptionofthenatureoftheconsolidatedentity’soperationsanditsprincipalactivitiesisincludedinthechairman’sstatementonpage4,businessreviewonpages5-7andinthedirectors’reportonpages8-14,allofwhicharenotpartofthisfinancialreport.

Thefinancialreportwasauthorisedforissuebythedirectorson3October2006.Thecompanyhasthepowertoamendandreissuethefinancialreport.

Throughtheuseoftheinternet,wehaveensuredthatourcorporatereportingistimely,complete,andavailablegloballyatminimumcosttothecompany.Allpressreleases,financialreportsandotherinformationareavailableatourInvestors’Centreonourwebsite:www.cap-xx.com.

FinanCial statements30 June 2006


income statements for the year ended 30 June 2006

Consolidated Parent Entity 2006 200� 2006 200�Currency: Australian Dollars Notes $ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000

Revenuefromsaleofgoods 5 2,581 2,222 - -Costofsaleofgoods 7 (6,751) (7,839) - -

Gross margin (loss) on sale of goods (4,170) (5,617) - -

Otherrevenue 5 764 479 684 405Otherincome 6 176 1,214 451 -

Generalandadministrativeexpenses (2,415) (2,263) (137) (15)Sellingandmarketingexpenses (1,217) (1,002) (3) -Researchanddevelopmentexpenses (1,904) (2,023) (5,431) (6,570)Financecosts 7 (911) (333) (594) (200)Otherexpenses 7 (645) (2,138) (9,931) (2,736)

(Loss) before income tax (10,322) (11,683) (14,961) (9,116)

Incometaxbenefit 8 - - - -

Net (loss) for the year (�0,�22) (��,6��) (��,�6�) (�,��6)

(Loss) attributable to members of CAP-XX Limited (�0,�22) (��,6��) (��,�6�) (�,��6)

Earnings per share for (loss) attributable to the ordinary equity holders of the company Cents CentsBasicearningspershare 31 (31.1) (38.8)Dilutedearningspershare 31 (31.1) (38.8)

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


Balance sheets as at 30 June 2006


ASSETSCurrent assets Cashandcashequivalents 9 20,107 1,191 19,696 26Receivables 10 850 4,722 - 3,521Inventories 11 351 361 - -Other 12 126 80 43 58

Totalcurrentassets 21,434 6,354 19,739 3,605

Non-current assets Property,plantandequipment 13 1,678 5,428 - -Other 14 153 153 - -Totalnon-currentassets 1,831 5,581 - -Total assets 2�,26� ��,�� ,�� ,60�

LIABILITIES Current liabilities Payables 15 1,070 1,681 42 -Borrowings 17 - 12,669 - 3,823Provisions 16 449 482 - -Totalcurrentliabilities 1,519 14,832 42 3,823

Non-current liabilities Provisions 18 113 23 - -Totalnon-currentliabilities 113 23 - -Total liabilities �,6�2 ��,�� 2 �,�2�

NET ASSETS (DEFICIENCy) 2�,6�� (2,�20) ��,6�� (2��)

EQUITyContributedequity 19 75,588 41,128 75,588 41,128Reserves 20 414 (1) 416 -Accumulatedlosses 20 (54,369) (44,047) (56,307) (41,346)

TOTAL EQUITy 2�,6�� (2,�20) ��,6�� (2��)

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

2�CAP-XX LIMITED ANNUAL REPORT 200606

statements of changes in equity for the year ended 30 June 2006


Totalequityatthebeginningofthefinancialyear (2,920) 8,763 (218) 8,898

Exchangedifferencesontranslationofforeignoperations (1) - - -

Net(loss)recogniseddirectlyinequity (1) - - -(Loss)fortheyear (10,322) (11,683) (14,961) (9,116)

Total recognised income and expenses for the year (10,323) (11,683) (14,961) (9,116)

Transactionswithequityholdersintheircapacityasequityholders:Employeeshareoptions 20 416 - 416 -Exerciseofoptions 19 35 - 35 -Sharebuy-back 19 (2,630) - (2,630) -Contributionsofequity,netofissuancecosts 19 37,055 - 37,055 - 34,876 - 34,876 -

Total equity at the end of the financial year 2�,6�� (2,�20) ��,6�� (2��)

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


Cash flow statements for the year ended 30 June 2006


Cash flows from operating activitiesReceiptsfromcustomers(inclusiveofgoodsandservicestax) 1,996 2,175 - -Paymentstosuppliersandemployees(inclusiveofgoodsandservicestax) (8,814) (8,209) (176) (58)

(6,818) (6,034) (176) (58)Grantsreceived 150 786 - -Interestreceived 289 46 250 45

Net cash (outflow) inflow from operating activities 28 (6,��) (�,202) �� (��)

Cash flows from investing activitiesPaymentsforproperty,plantandequipment (839) (1,199) - -Advancedproceedsfromsaleofplantandequipment - 723 - -Proceedsfromsaleofproperty,plantandequipment 53 583 - -Loanstorelatedparties - - (4,945) (3,335)

Net cash (outflow) inflow from investing activities (��6) �0� (�,��) (�,��)

Cash flows from financing activitiesProceedsfromissueofshares 41,056 - 41,056 -Paymentsforissuancecostsofshares (3,606) - (3,606) -Proceedsfromissueofconvertiblenotes 3,783 3,378 3,783 3,378Paymentsforissuancecostsofconvertiblenotes (21) (40) (21) (40)Repaymentofconvertiblenotesincludingaccruedinterest (16,671) - (16,671) -Loansfromrelatedparties 1,540 2,736 - -

Net cash inflow from financing activities 26,0�� 6,0�� 2�,�� ,��

Net increase (decrease) in cash and cash equivalents 18,916 979 19,670 (10)Cashandcashequivalentsatthebeginningofthefinancialyear 1,191 212 26 36

Cash and cash equivalents at the end of the financial year 9 20,�0� �,�� ,6�6 26

Financingarrangements 17 Non-cashfinancingandinvestingactivities 25

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


notes to the financial statements 30 June 2006

Contents of the notes to the financial statements Page

1 Summaryofsignificantaccountingpolicies 24

2 Financialriskmanagement 32

3 Criticalaccountingestimatesandjudgements 33

4 Segmentinformation 34

5 Revenue 35

6 Otherincome 35

7 Expenses 36

8 Incometaxbenefit 37

9 Currentassets‐Cashandcashequivalents 38

10 Currentassets‐Receivables 38

11 Currentassets‐Inventories 39

12 Currentassets‐Other 39

13 Non‐currentassets‐Property,plantandequipment 40

14 Non‐currentassets‐Other 41

15 Currentliabilities‐Payables 41

16 Currentliabilities‐Provisions 42

17 Currentliabilities‐Borrowings 43

18 Non‐currentliabilities‐Provisions 45

19 Contributedequity 46

20 Reservesandaccumulatedlosses 47

21 Keymanagementpersonneldisclosures 48

22 Remunerationofauditors 49

23 Contingencies 49

24 Commitments 50

25 Relatedpartytransactionsanddemerger 50

26 Subsidiaries 54

27 Eventsoccurringafterthebalancesheetdate 54

28 Reconciliationofprofitafterincometaxtonetcash(outflow)inflowfromoperatingactivities 55

29 Share‐basedpayments 55

30 Economicdependency 59

31 Earningspershare 60

32 ExplanationoftransitiontoAustralianequivalentstoIFRSs 60

2� CAP-XX LIMITED ANNUAL REPORT 2006 06

Note � Summary of significant accounting policiesTheprincipalaccountingpoliciesadoptedinthepreparationofthefinancialreportaresetoutbelow.Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.ThefinancialreportincludesseparatefinancialstatementsforCAP-XXLimitedanindividualentityandtheconsolidatedentityconsistingofCAP-XXLimitedanditssubsidiaries.

On20January2006theCompanychangeditsstatusfromaproprietarycompanylimitedbysharestoapubliccompanylimitedbysharesandon5April2006itchangeditsnamefromEnergyStorageSystemsLimitedtoCAP-XXLimited.

AllamountsshownareinAustralianDollarsunlessotherwisestated.

(a) Basis of preparationThisgeneralpurposefinancialreporthasbeenpreparedinaccordancewithAustralianequivalentstoInternationalFinancialReportingStandards(AIFRSs),otherauthoritativepronouncementsoftheAustralianAccountingStandardsBoard,UrgentIssuesGroupInterpretationsandtheCorporationsAct2001.

Compliance with IFRSsAustralianAccountingStandardsincludeAIFRSs.CompliancewithAIFRSsensuresthattheconsolidatedfinancialstatementsandnotescomplywithInternationalFinancialReportingStandards(IFRSs).TheparententityfinancialstatementsandnotesalsocomplywithIFRSsexceptthatithaselectedtoapplythereliefprovidedtoparententitiesinrespectofcertaindisclosurerequirementscontainedinAASB132FinancialInstruments:PresentationandDisclosure.

Application of AASB 1 First time Adoption of Australian Equivalents to International Financial Reporting StandardsThesefinancialstatementsarethefirstCAP-XXLimitedfinancialstatementstobepreparedinaccordancewithAIFRSs.AASB1FirsttimeAdoptionofAustralianEquivalentstoInternationalFinancialReportingStandardshasbeenappliedinpreparingthesefinancialstatements.

FinancialstatementsofCAP-XXLimiteduntil30June2005hadbeenpreparedinaccordancewithpreviousAustralianGenerallyAcceptedAccountingPrinciples(AGAAP).AGAAPdiffersincertainrespectsfromAIFRS.WhenpreparingCAP-XXLimited2006financialstatements,managementhasamendedcertainaccounting,valuationandconsolidationmethodsappliedintheAGAAPfinancialstatementstocomplywithAIFRS.Withtheexceptionoffinancialinstruments,thecomparativefiguresinrespectof2005wererestatedtoreflecttheseadjustments.TheGrouphastakentheexemptionavailableunderAASB1toonlyapplyAASB132andAASB139from1July2005.

ReconciliationsanddescriptionsoftheeffectoftransitionfrompreviousAGAAPtoAIFRSsontheGroup’sequityanditsnetincomearegiveninnote32.

Historical cost conventionThesefinancialstatementshavebeenpreparedunderthehistoricalcostconvention.

Critical accounting estimatesThepreparationoffinancialstatementsinconformitywithAIFRSrequirestheuseofcertaincriticalaccountingestimates.ItalsorequiresmanagementtoexerciseitsjudgementintheprocessofapplyingtheGroup’saccountingpolicies.Theareasinvolvingahigherdegreeofjudgementorcomplexity,orareaswhereassumptionsandestimatesaresignificanttothefinancialstatementsaredisclosedinnote3.

(b) Continuation as a going concern TheGrouphasexperiencedsignificantrecurringoperatinglossesandnegativecashflowsfromoperatingactivitiessinceitsinception.DuringtheyeartheGrouphasundergonesignificantrestructuringincludingrationalisationoftheGroup’soperations,completionofitslistingontheAlternativeInvestmentMarket(AIM)ontheLondonStockExchangeandtheraisingoffundsviatheInitialPublicOffering.


continued


Thedirectorshaveconsideredthesignificanceandpossibleeffectsofthesecircumstancesinordertodeterminethesuitabilityofadoptingthegoingconcernbasisforthepreparationofthisfinancialreport.

Havingcarefullyassessedthefinancialandoperatingimplicationsoftheabovematters,thedirectorsconsiderthatthecompanywillbeabletopayitsdebtsasandwhentheyfalldueforat12leastmonthsfollowingthedateofthesefinancialstatementsandthatitisappropriatefortheaccountstobepreparedonagoingconcernbasis.

(c) Principles of ConsolidationTheconsolidatedfinancialstatementsincorporatetheassetsandliabilitiesofallsubsidiariesofCAP-XXLimited(‘’company’’or‘’parententity’’)asat30June2006andtheresultsofallsubsidiariesfortheyearthenended.CAP-XXLimitedanditssubsidiariestogetherarereferredtointhisfinancialreportastheGrouportheconsolidatedentity.

Subsidiariesareallthoseentities(includingspecialpurposeentities)overwhichtheGrouphasthepowertogovernthefinancialandoperatingpolicies,generallyaccompanyingashareholdingofmorethanone‐halfofthevotingrights.TheexistenceandeffectofpotentialvotingrightsthatarecurrentlyexercisableorconvertibleareconsideredwhenassessingwhethertheGroupcontrolsanotherentity.

SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheGroup.Theyarede-consolidatedfromthedatethatcontrolceases.

ThepurchasemethodofaccountingisusedtoaccountfortheacquisitionofsubsidiariesbytheGroup(refertonote1(j)).

Intercompanytransactions,balancesandunrealisedgainsontransactionsbetweenGroupcompaniesareeliminated.Unrealisedlossesarealsoeliminatedunlessthetransactionprovidesevidenceoftheimpairmentoftheassettransferred.AccountingpoliciesofsubsidiarieshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.

Investmentsinsubsidiariesareaccountedforatcostlessimpairmentintheindividualfinancialstatementsoftheparententity.

(d) Segment reportingAbusinesssegmentisagroupofassetsandoperationsengagedinprovidingproductsorservicesthataresubjecttorisksandreturnsthataredifferenttothoseofotherbusinesssegments.Ageographicalsegmentisengagedinprovidingproductswithinaparticulareconomicenvironmentandissubjecttorisksandreturnsthataredifferentfromthoseofsegmentsoperatinginothereconomicenvironments.

(e) Foreign currency translation

(i) Functional and presentation currency ItemsincludedinthefinancialstatementsofeachoftheGroup’sentitiesaremeasuredusingthecurrencyoftheprimaryeconomicenvironmentinwhichtheentityoperates(‘thefunctionalcurrency’).TheconsolidatedfinancialstatementsarepresentedinAustraliandollars,whichisCAP-XXLimited’sfunctionalandpresentationcurrency.

(ii) Transactions and balances Foreigncurrencytransactionsaretranslatedintothefunctionalcurrencyusingtheexchangeratesprevailingatthedatesofthetransactions.Foreignexchangegainsandlossesresultingfromthesettlementofsuchtransactionsandfromthetranslationatyear‐endexchangeratesofmonetaryassetsandliabilitiesdenominatedinforeigncurrenciesarerecognisedintheincomestatement,exceptwhendeferredinequityasqualifyingcashflowhedges.

(iii) Group companiesTheresultsandfinancialpositionofalltheGroupentities(noneofwhichhasthecurrencyofahyperinflationaryeconomy)thathaveafunctionalcurrencydifferentfromthepresentationcurrencyaretranslatedintothepresentationcurrencyasfollows:


continued


• assetsandliabilitiesforeachbalancesheetpresentedaretranslatedattheclosingrateatthedateofthatbalancesheet;• incomeandexpensesforeachincomestatementaretranslatedataverageexchangerates(unlessthisisnotareasonable

approximationofthecumulativeeffectoftheratesprevailingonthetransactiondates,inwhichcaseincomeandexpensesaretranslatedatthedatesofthetransactions);and

• allresultingexchangedifferencesarerecognisedasaseparatecomponentofequity.

Whenaforeignoperationissoldorborrowingsrepaid,aproportionateshareofsuchexchangedifferencesarerecognisedintheincomestatementaspartofthegainorlossonsale.

Goodwillandfairvalueadjustmentsarisingontheacquisitionofaforeignentityaretreatedasassetsandliabilitiesoftheforeignentitiesandtranslatedattheclosingrate.

(f) Revenue recognitionRevenueismeasuredatthefairvalueoftheconsiderationreceivedorreceivable.Amountsdisclosedasrevenuearenetofreturns,tradeallowancesanddutiesandtaxespaid.

Asaleisrecordedwhengoodshavebeendeliveredtothecustomer,thecustomerhasacceptedthegoodsandcollectibilityoftherelatedreceivablesisprobable.

Interestincomeisrecognisedonatimeproportionbasisusingtheeffectiveinterestmethod.

(g) Government grantsGrantsfromthegovernmentarerecognisedattheirfairvaluewherethereisareasonableassurancethatthegrantwillbereceivedandtheGroupwillcomplywithallattachedconditions.Governmentgrantsrelatingtocostsaredeferredandrecognisedintheincomestatementovertheperiodnecessarytomatchthemwiththecoststhattheyareintendedtocompensate.

(h) Income taxTheincometaxexpenseorrevenuefortheperiodisthetaxpayableonthecurrentperiod’staxableincomebasedonthenationalincometaxrateforeachjurisdictionadjustedbychangesindeferredtaxassetsandliabilitiesattributabletotemporarydifferencesbetweenthetaxbasesofassetsandliabilitiesandtheircarryingamountsinthefinancialstatements,andtounusedtaxlosses.

Deferredtaxassetsandliabilitiesarerecognisedfortemporarydifferencesatthetaxratesexpectedtoapplywhentheassetsarerecoveredorliabilitiesaresettled,basedonthosetaxrateswhichareenactedorsubstantivelyenactedforeachjurisdiction.Therelevanttaxratesareappliedtothecumulativeamountsofdeductibleandtaxabletemporarydifferencestomeasurethedeferredtaxassetorliability.Anexceptionismadeforcertaintemporarydifferencesarisingfromtheinitialrecognitionofanassetoraliability.Nodeferredtaxassetorliabilityisrecognisedinrelationtothesetemporarydifferencesiftheyaroseinatransaction,otherthanabusinesscombination,thatatthetimeofthetransactiondidnotaffecteitheraccountingprofitortaxableprofitorloss.

Deferredtaxassetsarerecognisedfordeductibletemporarydifferencesandunusedtaxlossesonlyifitisprobablethatfuturetaxableamountswillbeavailabletoutilisethosetemporarydifferencesandlosses.

Deferredtaxliabilitiesandassetsarenotrecognisedfortemporarydifferencesbetweenthecarryingamountandtaxbasesofinvestmentsincontrolledentitieswheretheparententityisabletocontrolthetimingofthereversalofthetemporarydifferencesanditisprobablethatthedifferenceswillnotreverseintheforeseeablefuture.

Deferredtaxassetsandliabilitiesareoffsetwhenthereisalegallyenforceablerighttooffsetcurrenttaxassetsandliabilitiesandwhenthedeferredtaxbalancesrelatetothesametaxationauthority.Currenttaxassetsandtaxliabilitiesareoffsetwheretheentityhasalegallyenforceablerighttooffsetandintendseithertosettleonanetbasis,ortorealisetheassetandsettletheliabilitysimultaneously.

Currentanddeferredtaxbalancesattributabletoamountsrecogniseddirectlyinequityarealsorecogniseddirectlyinequity.


continued


Tax consolidation legislationCAP-XXLimitedanditswhollyownedAustraliancontrolledentitieshaveimplementedthetaxconsolidationlegislationasof1July2002.

Theheadentity,CAP-XXLimited,andthecontrolledentitiesinthetaxconsolidatedgroupcontinuetoaccountfortheirowncurrentanddeferredtaxamounts.Thesetaxamountsaremeasuredasifeachentityinthetaxconsolidatedgroupcontinuestobeastandalonetaxpayerinitsownright.

Inadditiontoitsowncurrentanddeferredtaxamounts,CAP-XXLimitedalsorecognisesthecurrenttaxliabilities(orassets)andthedeferredtaxassetsarisingfromunusedtaxlossesandunusedtaxcreditsassumedfromcontrolledentitiesinthetaxconsolidatedgroup.

Taxfundingagreementsarecurrentlynotinplace.Amountsassumedarerecognisedasacontributionto(ordistributionfrom)whollyownedtaxconsolidatedentities.

(i) LeasesLeasesofproperty,plantandequipmentwheretheGrouphassubstantiallyalltherisksandrewardsofownershipareclassifiedasfinanceleases.Financeleasesarecapitalisedatthelease’sinceptionatthelowerofthefairvalueoftheleasedpropertyandthepresentvalueoftheminimumleasepayments.Thecorrespondingrentalobligations,netoffinancecharges,areincludedinotherlongtermpayables.

Leasesinwhichasignificantportionoftherisksandrewardsofownershipareretainedbythelessorareclassifiedasoperatingleases(note24).Paymentsmadeunderoperatingleasesarechargedtotheincomestatementonastraight‐linebasisovertheperiodofthelease.

(j) Business combinationsThepurchasemethodofaccountingisusedtoaccountforallbusinesscombinations,includingbusinesscombinationsinvolvingentitiesorbusinessesundercommoncontrol,regardlessofwhetherequityinstrumentsorotherassetsareacquired.Costismeasuredasthefairvalueoftheassetsgiven,sharesissuedorliabilitiesincurredorassumedatthedateofexchangepluscostsdirectlyattributabletotheacquisition.Whereequityinstrumentsareissuedinanacquisition,thevalueoftheinstrumentsistheirpublishedmarketpriceasatthedateofexchangeunless,inrarecircumstances,itcanbedemonstratedthatthepublishedpriceatthedateofexchangeisanunreliableindicatoroffairvalueandthatotherevidenceandvaluationmethodsprovideamorereliablemeasureoffairvalue.Transactioncostsarisingontheissueofequityinstrumentsarerecogniseddirectlyinequity.

Identifiableassetsacquiredandliabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate,irrespectiveoftheextentofanyminorityinterest.TheexcessofthecostofacquisitionoverthefairvalueoftheGroup’sshareoftheidentifiablenetassetsacquiredisrecordedasgoodwill.Ifthecostofacquisitionislessthanthefairvalueofthenetassetsofthesubsidiaryacquired,thedifferenceisrecogniseddirectlyintheincomestatement,butonlyafterareassessmentoftheidentificationandmeasurementofthenetassetsacquired.

(k) Impairment of assetsAssetsthathaveanindefiniteusefullifearenotsubjecttoamortisationandaretestedannuallyforimpairment.Assetsthataresubjecttoamortisationarereviewedforimpairmentwhenevereventsorchangesincircumstancesindicatethatthecarryingamountmaynotberecoverable.Animpairmentlossisrecognisedfortheamountbywhichtheasset’scarryingamountexceedsitsrecoverableamount.Therecoverableamountisthehigherofanasset’sfairvaluelesscoststosellandvalueinuse.Forthepurposesofassessingimpairment,assetsaregroupedatthelowestlevelsforwhichthereareseparatelyidentifiablecashinflowswhicharelargelyindependentofthecashinflowsfromotherassetsorgroupsofassets(cashgeneratingunits).Non-financialassetsotherthangoodwillthatsufferedanimpairmentarereviewedforpossiblereversaloftheimpairmentateachreportingdate.

(l) Cash and cash equivalentsCashandcashequivalentsincludescashonhand,depositsheldatcallwithfinancialinstitutions,othershort‐term,highlyliquid


continued

2� CAP-XX LIMITED ANNUAL REPORT 2006 06

investmentswithoriginalmaturitiesofthreemonthsorlessthatarereadilyconvertibletoknownamountsofcashandwhicharesubjecttoaninsignificantriskofchangesinvalue.

(m) Trade receivablesTradereceivablesarerecognisedinitiallyatfairvalueandsubsequentlymeasuredatamortisedcost,lessprovisionfordoubtfuldebts.Tradereceivablesaredueforsettlementnomorethan30daysfromthedateofrecognition.

Collectibilityoftradereceivablesisreviewedonanongoingbasis.Debtswhichareknowntobeuncollectiblearewrittenoff.AprovisionfordoubtfulreceivablesisestablishedwhenthereisobjectiveevidencethattheGroupwillnotbeabletocollectallamountsdueaccordingtotheoriginaltermsofreceivables.Theamountoftheprovisionisthedifferencebetweentheasset’scarryingamountandthepresentvalueofestimatedfuturecashflows,discountedattheeffectiveinterestrate.Cashflowsrelatingtoshort-termreceivablesarenotdiscountediftheeffectofdiscountingisimmaterial.Theamountoftheprovisionisrecognisedintheincomestatement.

(n) InventoriesRawmaterials,workinprogressandfinishedgoodsarestatedatthelowerofcostandnetrealisablevalue.Costcomprisesdirectmaterials,directlabourandanappropriateproportionofvariableandfixedoverheadexpenditure,thelatterbeingallocatedonthebasisofnormaloperatingcapacity.Costsareassignedtoindividualitemsofinventoryonthebasisofweightedaveragecosts.Netrealisablevalueistheestimatedsellingpriceintheordinarycourseofbusinesslesstheestimatedcostsofcompletionandtheestimatedcostsnecessarytomakethesale.

Rawmaterialsheldfordevelopmentpurposesarealsostatedatthelowerofcostandnetrealisablevalue,hencearegenerallyrecognisedintheincomestatementasanexpensewhenreceived.

(o) Fair value estimation Thefairvalueoffinancialassetsandfinancialliabilitiesmustbeestimatedforrecognitionandmeasurementorfordisclosurepurposes.Thenominalvaluelessestimatedcreditadjustmentsoftradereceivablesandpayablesareassumedtoapproximatetheirfairvalues.

(p) Property, plant and equipmentProperty,plantandequipmentisstatedathistoricalcostlessdepreciation.Historicalcostincludesexpenditurethatisdirectlyattributabletotheacquisitionoftheitems.

Subsequentcostsareincludedintheasset’scarryingamountorrecognisedasaseparateasset,asappropriate,onlywhenitisprobablethatfutureeconomicbenefitsassociatedwiththeitemwillflowtotheGroupandthecostoftheitemcanbemeasuredreliably.Allotherrepairsandmaintenancearechargedtotheincomestatementduringthefinancialperiodinwhichtheyareincurred.

Depreciationonassetsiscalculatedusingthestraight-linemethodtoallocatetheircostamounts,netoftheirresidualvaluesovertheirestimateusefullivesasfollows:

Leaseholdimprovements 2-5yearsFurnitureandfittings 2-10yearsPlantandequipment–Manufacturing 2-10yearsPlantandequipment–Research&Development 2-10years

Theassets’residualvaluesandusefullivesarereviewed,andadjustedifappropriate,ateachbalancesheetdate.

Anasset’scarryingamountiswrittendownimmediatelytoitsrecoverableamountiftheasset’scarryingamountisgreaterthanitsestimatedrecoverableamount(note1(k)).


continued


Gainsandlossesondisposalsaredeterminedbycomparingproceedswithcarryingamount.Theseareincludedintheincomestatement.

(q) IntangiblesExpenditureonresearchactivities,undertakenwiththeprospectofobtainingnewscientificortechnicalknowledgeandunderstanding,isrecognisedintheincomestatementasanexpensewhenitisincurred.

Expenditureondevelopmentactivities,beingtheapplicationofresearchfindingsorotherknowledgetoaplanordesignfortheproductionofneworsubstantiallyimprovedproductsorservicesbeforethestartofcommercialproductionoruse,iscapitalisediftheproductorserviceistechnicallyandcommerciallyfeasibleandadequateresourcesareavailabletocompletedevelopment.Theexpenditurecapitalisedcomprisesalldirectlyattributablecosts,includingcostsofmaterials,services,directlabourandanappropriateproportionofoverheads.Otherdevelopmentexpenditureisrecognisedintheincomestatementasanexpenseasincurred.Capitaliseddevelopmentexpenditureisstatedatcostlessaccumulatedamortisation.Amortisationiscalculatedusingthestraight‐linemethodtoallocatethecostovertheperiodoftheexpectedbenefit.ThedirectorsbelievetheGrouphavenotincurreddevelopmentexpenditurethatmettheconditionsforcapitalisation.

Expenditureonpatentsarecapitalisedwhenthepatentisofasignificantvalue.Otherwise,theexpenditureisrecognisedintheincomestatementasanexpensewhenitisincurred.NosignificantpatentshavebeencapitalisedasthetimebetweenachievingtechnicalfeasibilityandthegeneralavailabilityoftheGroup’sproducthasbeenrelativelyshort.

(r) Trade and other payablesTheseamountsrepresentliabilitiesforgoodsandservicesprovidedtotheGrouppriortotheendoffinancialyearwhichareunpaid.Theamountsareunsecuredandareusuallypaidwithin55daysofrecognition.

(s) BorrowingsBorrowingsareinitiallyrecognisedatfairvalue,netoftransactioncostsincurred.Borrowingsaresubsequentlymeasuredatamortisedcost.Anydifferencebetweentheproceeds(netoftransactioncosts)andtheredemptionamountisrecognisedintheincomestatementovertheperiodoftheborrowingsusingtheeffectiveinterestmethod.

Thefairvalueoftheliabilityportionofaconvertiblebondisdeterminedusingamarketinterestrateforanequivalentnon‐convertiblebond.Thisamountisrecordedasaliabilityonanamortisedcostbasisuntilextinguishedonconversionormaturityofthebonds.Theremainderoftheproceedsisallocatedtotheconversionoption.Thisisrecognisedandincludedinshareholders’equity,netofincometaxeffects.Thedirectorsdeterminedthatthereisnoremainderofproceedswhichcouldbeallocatedtotheconversionoption.

BorrowingsareclassifiedascurrentliabilitiesunlesstheGrouphasanunconditionalrighttodefersettlementoftheliabilityforatleast12monthsafterthebalancesheetdate.

(t) Borrowing costsBorrowingcostsareexpensed.

(u) ProvisionsProvisionsarerecognisedwhen:theGrouphasapresentlegalorconstructiveobligationasaresultofpastevents;itismorelikelythannotthatanoutflowofresourceswillberequiredtosettletheobligation;andtheamounthasbeenreliablyestimated.Provisionsarenotrecognisedforfutureoperatinglosses.

Wherethereareanumberofsimilarobligations,thelikelihoodthatanoutflowwillberequiredinsettlementisdeterminedbyconsideringtheclassofobligationsasawhole.Aprovisionisrecognisedevenifthelikelihoodofanoutflowwithrespecttoanyoneitemincludedinthesameclassofobligationsmaybesmall.


continued


(v) Employee benefits

(i) Wages and salaries and annual leave Liabilitiesforwagesandsalaries,includingnon‐monetarybenefitsandannualleaveexpectedtobesettledwithin12monthsofthereportingdatearerecognisedinotherpayablesinrespectofemployees’servicesuptothereportingdateandaremeasuredattheamountsexpectedtobepaidwhentheliabilitiesaresettled.

(ii) Long service leaveTheliabilityforlongserviceleaveisrecognisedintheprovisionforemployeebenefitsandmeasuredasthepresentvalueofexpectedfuturepaymentstobemadeinrespectofservicesprovidedbyemployeesuptothereportingdateusingtheprojectedunitcreditmethod.Considerationisgiventoexpectedfuturewageandsalarylevels,experienceofemployeedeparturesandperiodsofservice.Expectedfuturepaymentsarediscountedusingmarketyieldsatthereportingdateonnationalgovernmentbondswithtermstomaturityandcurrencythatmatch,ascloselyaspossible,theestimatedfuturecashoutflows.

(iii) Retirement benefit obligations TheGroupdoesnotmaintainaGroupsuperannuationplan.TheGroupmakesfixedpercentagecontributionsforallAustralianresidentemployeestocomplyingthirdpartysuperannuationfunds.TheGroup’slegalorconstructiveobligationislimitedtothesecontributions.

Contributionstothecomplyingthirdpartysuperannuationfundsarerecognisedasanexpenseastheybecomepayable.Prepaidcontributionsarerecognisedasanassettotheextentthatacashrefundorareductioninthefuturepaymentsisavailable.

(iv) Share-based paymentsShare-basedcompensationbenefitsareprovidedtoemployeesviathe2006ShareOptionExchangeandthe2006EmployeeShareOptionPlan.Informationrelatingtotheseschemesissetoutinnote29.

shares options granted before 7 november 2002 and/or vested before 1 January 2005

Noexpenseisrecognisedinrespectoftheseoptions.Thesharesarerecognisedwhentheoptionsareexercisedandtheproceedsreceivedallocatedtosharecapital.

shares options granted after 7 november 2002 and vested after 1 January 2005

Thefairvalueofoptionsgrantedunderthe2006ShareOptionExchangePlanandthe2006EmployeeShareOptionPlanisrecognisedasanemployeebenefitexpensewithacorrespondingincreaseinequity.Thefairvalueismeasuredatgrantdateandrecognisedovertheperiodduringwhichtheemployeesbecomeunconditionallyentitledtotheoptions.

ThefairvalueatgrantdateisindependentlydeterminedusingaBlack‐Scholesoptionpricingmodelthattakesintoaccounttheexerciseprice,thetermoftheoption,theimpactofdilution,thenon‐tradeablenatureoftheoption,thesharepriceatgrantdateandexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyieldandtherisk‐freeinterestrateforthetermoftheoption.

Thefairvalueoftheoptionsgrantedexcludestheimpactofanynon‐marketvestingconditions(forexample,profitabilityandsalesgrowthtargets).Non‐marketvestingconditionsareincludedinassumptionsaboutthenumberofoptionsthatareexpectedtobecomeexercisable.Ateachbalancesheetdate,theentityrevisesitsestimateofthenumberofoptionsthatareexpectedtobecomeexercisable.Theemployeebenefitexpenserecognisedeachperiodtakesintoaccountthemostrecentestimate.

Upontheexerciseofoptions,theproceedsreceived,netofanydirectlyattributabletransactioncosts,arecreditedtosharecapital.

(v) Bonus plansTheGrouprecognisesaliabilityandanexpenseforbonuseswherecontractuallyobligedorwherethereisapastpracticethathascreatedaconstructiveobligation.


continued


(w) Contributed equity

Ordinarysharesareclassifiedasequity.Incrementalcostsdirectlyattributabletotheissueofnewsharesoroptionsareshowninequityasadeduction,netoftax,fromtheproceeds.

Iftheentityreacquiresitsownequityinstruments,egastheresultofasharebuyback,thoseinstrumentsaredeductedfromequityandtheassociatedsharesarecancelled.Nogainorlossisrecognisedintheprofitorlossandtheconsiderationpaidincludinganydirectlyattributableincrementalcosts(netofincometaxes)isrecogniseddirectlyinequity.

(x) Earnings per share

(i) Basic earnings per shareBasicearningspershareiscalculatedbydividingtheprofitattributabletoequityholdersofthecompany,excludinganycostsofservicingequityotherthanordinaryshares,bytheweightedaveragenumberofordinarysharesoutstandingduringthefinancialyear,adjustedforbonuselementsinordinarysharesissuedduringtheyear.

(ii) Diluted earnings per shareDilutedearningspershareadjuststhefiguresusedinthedeterminationofbasicearningspersharetotakeintoaccounttheafterincometaxeffectofinterestandotherfinancingcostsassociatedwithdilutivepotentialordinarysharesandtheweightedaveragenumberofsharesassumedtohavebeenissuedfornoconsiderationinrelationtodilutivepotentialordinaryshares.

(y) Goods and Services Tax (GST)Revenues,expensesandassetsarerecognisednetoftheamountofassociatedGST,unlesstheGSTincurredisnotrecoverablefromthetaxationauthority.Inthiscaseitisrecognisedaspartofthecostofacquisitionoftheassetoraspartoftheexpense.

ReceivablesandpayablesarestatedinclusiveoftheamountofGSTreceivableorpayable.ThenetamountofGSTrecoverablefrom,orpayableto,thetaxationauthorityisincludedwithotherreceivablesorpayablesinthebalancesheet.

Cashflowsarepresentedonagrossbasis.TheGSTcomponentsofcashflowsarisingfrominvestingorfinancingactivitieswhicharerecoverablefrom,orpayabletothetaxationauthority,arepresentedasoperatingcashflow.

(z) Rounding of amountsThecompanyisofakindreferredtoinClassorder98/0100,issuedbytheAustralianSecuritiesandInvestmentsCommission,relatingtothe‘’roundingoff’’ofamountsinthefinancialreport.AmountsinthefinancialreporthavebeenroundedoffinaccordancewiththatClassOrdertothenearestthousanddollars,orincertaincases,thenearestdollar.

(aa) New accounting standards and UIG interpretationsCertainnewaccountingstandardsandUIGinterpretationshavebeenpublishedthatarenotmandatoryfor30June2006reportingperiods.TheGroup’sassessmentoftheimpactofthesenewstandardsandinterpretationsissetoutbelow.

(i) UIG 4 Determining whether an Asset Contains a LeaseUIG4isapplicabletoannualperiodsbeginningonorafter1January2006.TheGrouphasnotelectedtoadoptUIG4early.ItwillapplyUIG4inits2007financialstatementsandtheUIG4transitionprovisions.TheGroupwillthereforeapplyUIG4onthebasisoffactsandcircumstancesthatexistedasof1July2006.ImplementationofUIG4isnotexpectedtochangetheaccountingforanyoftheGroup’scurrentarrangements.

(ii) UIG 5 Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation FundsTheGroupdoesnothaveinterestsindecommissioning,restorationandenvironmentalrehabilitationfunds.ThisinterpretationwillnotaffecttheGroup’sfinancialstatements.


continued


(iii) AASB 2005 9 Amendments to Australian Accounting Standards [AASB 4, AASB 1023, AASB 139 & AASB 132]AASB20059isapplicabletoannualreportingperiodsbeginningonorafter1January2006.Theamendmentsrelatetotheaccountingforfinancialguaranteecontracts.TheGrouphasnotelectedtoadopttheamendmentsearly.Itwillapplytherevisedstandardsinits2007financialstatements.Applicationoftherevisedrulesmayresultintherecognitionoffinancialliabilitiesinthefinancialstatementsoftheparententityunderguaranteesgiveninrespectofamountspayablebywhollyownedsubsidiaries.Anassessmentofthefairvalueoftheseguaranteeshasnotyetbeenperformed.ThenewruleswillbeimplementedretrospectivelywitharestatementofthecomparativesasrequiredbyAASB108AccountingPolicies,ChangesinAccountingEstimatesandErrors.

(iv) AASB 7 Financial Instruments: Disclosures and AASB 2005 10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038]AASB7andAASB200510areapplicabletoannualreportingperiodsbeginningonorafter1January2007.TheGrouphasnotadoptedthestandardsearly.Applicationofthestandardswillnotaffectanyoftheamountsrecognisedinthefinancialstatements,butwillimpactthetypeofinformationdisclosedinrelationtotheGroup’sfinancialinstruments.

(v) UIG 6 Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic EquipmentUIG6isapplicabletoannualreportingperiodsbeginningonorafter1December2005.TheGrouphasnotsoldanyelectronicorelectricalequipmentontheEuropeanmarketandhasnotincurredanyassociatedliabilities.ThisinterpretationwillnotaffecttheGroup’sfinancialstatements.

(vi) AASB 2006 1 Amendments to Australian Accounting Standards [AASB 121]AASB2006-1isapplicabletoannualreportingperiodsendingonorafter31December2006.Theamendmentrelatestomonetaryitemsthatformpartofareportingentity’snetinvestmentinaforeignoperation.Itremovestherequirementthatsuchmonetaryitemshadtobedenominatedeitherinthefunctionalcurrencyofthereportingentityortheforeignoperation.CAP-XXLimiteddoesnothaveanymonetaryitemsformingpartofanetinvestmentinaforeignoperation.TheamendmenttoAASB121willthereforehavenoimpactontheGroup’sfinancialstatements.

Note 2 Financial risk managementTheGroup’sactivitiesexposeittoavarietyoffinancialrisks;marketrisk(includingcurrencyrisk,fairvalueinterestrateriskandpricerisk),creditrisk,liquidityriskandcashflowinterestraterisk.TheGroup’soverallriskmanagementprogramfocusesontheunpredictabilityoffinancialmarketsandseekstominimisepotentialadverseeffectsonthefinancialperformanceoftheGroup.

(a) Market risk

(i) Foreign exchange riskForeignexchangeriskariseswhenfuturecommercialtransactionsandrecognisedassetsandliabilitiesaredenominatedinacurrencythatisnottheentity’sfunctionalcurrency.

TheGroupoperatesinternationallyandisexposedtoforeignexchangeriskarisingparticularlyfromcurrencyexposurestotheUSdollar.TheGrouphastodatemanagedthisriskbysellingUSdollarswhenforeignexchangerateshavebeenfavourableandcappingexposuresthroughforeignexchange“stop-loss”sellorders.Forwardcurrencycontractsarealsousedtomanageforeignexchangerisk.

(ii) Price riskTheGroupisnotexposedtoequitysecuritiespricerisknortocommoditypricerisk.

(iii) Fair value interest rate riskReferto(d)below.

(b) Credit riskTheGrouphassomeconcentrationsofcreditrisk.TheGrouphaspoliciesinplacetoensurethatsalesofproductsaremadetocustomerswithanappropriatecredithistory.TheGrouphasnocreditexposuretoanyfinancialinstitution.


continued


(c) Liquidity riskPrudentliquidityriskmanagementimpliesmaintainingsufficientcash,theavailabilityoffundingthroughtheabilitytoclose‐outmarketpositions.TheGrouphasexperiencedrecurringoperatinglossesandoperatingcashoutflowssinceinceptionto30June2006astheGroupistransitioningfromadevelopmentstage.DuetothenegativecashflowpositiontheGrouphasnotcommittedtoanycreditfacilitiesratherrelieduponequityanddebtfinancingthroughprivateandpublicequityinvestors.

(d) Cash flow and fair value interest rate riskTheGroup’sinterest-rateriskmainlyarisesfrominterestbearingassets,withtheGroup’sincomeandoperatingcashflowsexposedtochangesinmarketinterestrates.TheinterestbearingassetshavebeenpredominantlydepositedatshorttermfixedratesexposingtheGrouptocashflowinterest-raterisk.

TheGroup’sinterestrateriskalsoarosefromborrowings.TheseborrowingshadbeenissuedatfixedratesexposingtheGrouptofairvalueinterestraterisk.Asat30June2006,theGrouphasnoborrowings.

Note � Critical accounting estimates and judgements Estimatesandjudgementsarecontinuallyevaluatedandarebasedonhistoricalexperienceandotherfactors,includingexpectationsoffutureeventsthatarebelievedtobereasonableunderthecircumstances.

(a) Critical accounting estimates and assumptions TheGroupmakesestimatesandassumptionsconcerningthefuture.Theresultingaccountingestimateswill,bydefinition,seldomequaltherelatedactualresults.Apartfromthegoingconcernassumptionasdiscussedinnote1(b),theestimatesandassumptionsthathaveasignificantriskofcausingamaterialadjustmenttothecarryingamountsofassetsandliabilitieswithinthenextfinancialyeararediscussedbelow.

(b) Critical judgements in applying the entity’s accounting policies

(i) Impairment loss and accelerated depreciation plant and equipmentTheGroupsignedacontractfortheoutsourcingofvolumeassemblymanufacturingwithPolarTwinAdvance(M)Sdn.Bhd.(PTA)on5October2004.WiththeintroductionoftheoutsourcedvolumeassemblymanufacturingcapacityatPTA,thebookvalueoftheplantandequipmentheldattheGroup’sSydney,Australiamanufacturingfacilitywasreviewedforimpairmentinaccordancewiththeaccountingpolicystatedinnote1(k)and1(p).Itwasreasonablybelievedthatby1July2006allvolumeassemblymanufacturingwillbeoutsourcedtoPTAandtheaffectedplantandequipmentremaininginSydney,Australiawillbeusedforproductdevelopmentandprocessimprovementpurposesonly.Accordingly,assetswithawrittendownvalueof$896,000andcapitalworksinprogressof$133,000werewrittendowntonilat30June2005andotherassetshavebeensubjectedtoaccelerateddepreciationfrom1July2004resultinginanincreasedepreciationchargesof$1,907,000fortheyearended30June2006and$1,942,000fortheyearended30June2005.

Asat30June2005theGrouphasalsorecognisedalossonthesaleofacertainitemofplantandequipmenttoPTA.TheGroupwasoriginallycontractedtosupplyasecondhandmachinetoPTAundertheoutsourcedManufacturerAgreementdated5October2004.SubsequenttothisdatetheGroupelectedtosupplytoPTAanewmachinewhichwasmoretechnicallyadvancedandefficientforhighvolumemanufacturingthantheproposedsecondhandmachine.ThenewmachinewasunderconstructionandwascompletedinAugust2005andtheGroupagreedtobeartheloss.ThenewmachinehasbeeninstalledatPTAandisnowfullyoperational.Asat30June2005PTAhadpaidforthemachineandthesaleproceedsareincludedinnote15.Asat30June2005theGroupalsowrotedownthenewmachinetoitsrecoverableamount,beingtheadvancedsaleproceeds,whichresultedinanimpairmentlossof$708,000.


continued


InsummarytheGroupincurredthefollowingone-offcharges:

$ ‘ 000

year ended 30 June 2005Impairmentlossassetsduetooutsourcingmanufacturingcapacity 1,029Impairmentmachinetoitsnetrealisablevalue,beingitsproceeds 708

Impairmentloss 1,737

Accelerateddepreciationplantandequipment 1,942

Totalone-offcharges 3,679

Yearended30June2006Accelerateddepreciationplantandequipment 1,907

Totalone-offcharges 1,907

Note � Segment information

(a) Description of segments

Business segments - primary reportingTheconsolidatedentityoperatesinasinglebusinesssegmentwhichisthedevelopment,manufactureandsaleofsupercapacitors.

Geographical segments - secondary reportingAlthoughtheconsolidatedentityismanagedonaglobalbasis,itoperatesin3maingeographicalareasbeingAsia,NorthAmericaandEurope.

Geographicalsegmentscanbesummarisedasfollows:

Segment revenues from sales to external customers Segment assets 2006 200� 2006 200� $ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000

Australia - - 22,235 7,202Asia 1,017 1,266 400 176NorthAmerica 1,007 783 454 4,540Europe 557 173 176 17

2,�� 2,222 2�,26� ��,��

Segmentrevenuesareallocatedbasedonthecountryinwhichthecustomerislocated.Segmentassetsandcapitalexpenditureareallocatedbasedonwheretheassetsarelocated.

(b) Notes to and forming part of the segment information

(i) Accounting policiesSegmentinformationispreparedinconformitywiththeaccountingpoliciesoftheentityasdisclosedinnote1andaccountingstandardAASB114SegmentReporting.Segmentrevenuesandassetsarethosethataredirectlyattributabletoasegmentandtherelevantportionthatcanbeallocatedtothesegmentonareasonablebasis.Segmentassetsincludeallassetsusedbyasegmentandconsistprimarilyofoperatingcash,receivables,inventoriesandproperty,plantandequipment,netofrelatedprovisions.Segmentassetsdonotincludeincometaxes.


continued


(ii) Inter-segment transfers

Segmentrevenuesincludetransfersbetweensegments.Suchtransfersarepricedonan‘’arm’s‐length’’basisandareeliminatedonconsolidationandnotdisclosedinthisnote.

(iii) Acquisitions of property, plant and equipment, intangibles and other non-current segment assets.

Theacquisitionsofnon-currentsegmentassets(refernote13and14)relatetotheAustraliansegment.

Note � Revenue Consolidated Parent Entity 2006 200� 2006 200� $ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000

Sales revenueSaleofgoods 2,581 2,222 - -

Other revenueManagementandotherfees 339 379 - -Licencefees - - 322 322Interest 425 100 362 83

764 479 684 405

Total revenue �,�� 2,�0� 6�� 0�

Consolidated Parent Entity 2006 200� 2006 200� $ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000

Note 6 Other IncomeNetgainondisposalofproperty,plantandequipment 26 237 - -Foreignexchangegains(net) - 191 451 -Governmentgrants(note(a)) 150 786 - -

��6 �,2�� -

(a) Government grantsExportmarketdevelopmentgrantsof$150,000(2005:$150,000)andresearchanddevelopmentstartgrantsof$Nil(2005:$636,000)wererecognisedasotherincomebytheGroupduringtheyearended30June2006.Therearenounfulfilledconditionsattachingtothesegrants.

Theresearchanddevelopmentstartgrantsaresubjecttoalimiteddiscretionaryrightto“claw-back”aproportionoffundingonaslidingscaleforupto5yearsfromthecompletionoftheproject.Theresearchanddevelopmentstartgrantreceivedtotalling$3,172,000wascompletedon30March2005andnoclaimfor“claw-back”hasbeenmadeontheGroup.

TheGroupdidnotbenefitdirectlyfromanyotherformsofgovernmentassistance.


continued



Note � ExpensesLossbeforeincometaxincludesthefollowingspecificexpenses:

Cost of sale of goodsDirectmaterialsandlabour 1,958 2,387 - -Indirectmanufacturingexpenses 4,793 5,452 - -

Totalcostofsaleofgoods 6,�� ,�� - -

DepreciationPlantandequipment 3,685 4,341 - -Furnitureandfittings 4 4 - -Leaseholdimprovements 151 123 - -

Totaldepreciation �,��0 �,�6� - -

Finance costs – netConvertiblenoteissuancecosts 21 40 21 40Amortisationofconvertiblenoteissuancecosts 39 38 39 38Interestandfinancechargespayable 872 295 555 162

932 373 615 240Amountcapitalised (21) (40) (21) (40)

Finance costs expensed �� 200

other expenses Demergercosts 602 - 580 -Foreignexchangelosses(refernote6fornetgains) 58 - - 84Provisionfornonrecoveryrelatedpartiesloans/(write-back) (401) 401 9,351 2,652Impairmentlossonplantandequipment(refernote3(b)) - 1,737 - -Impairmentlossongoodwill 386 - - -

6�� 2,�� ,�� 2,��6

rental expense relating to operating leasesMinimumleasepayments 388 377 - -

Employeebenefitsexpense 3,828 4,532 - -


continued



Note � Income Tax Benefit

(a) Income tax benefitCurrenttax - - - -Deferredtax - - - -

- - - -

(b) Numerical reconciliation of income tax benefit to prima facie tax benefit(Loss)beforeincometaxbenefit (10,322) (11,683) (14,961) (9,116)

TaxattheAustraliantaxrateof30% (3,097) (3,505) (4,488) (2,735)Taxeffectofamountswhicharenotdeductible(taxable)incalculatingtaxableincome:

Goodwillimpairment 116 - - -Sharebasedpayments 17 - 17 -Sundryitems 11 15 - -

(2,953) (3,490) (4,471) (2,735)Benefitarisingfromtemporarydifferencesnotrecognised (91) 238 2,804 784Benefitarisingfromtaxlossesnotrecognised 3,044 3,252 1,667 1,951

Income tax benefit - - - -

(c) Tax losses Unusedtaxlossesforwhichnodeferredtaxassethasbeenrecognised 52,946 42,800 52,946 42,800

Potentialtaxbenefit@30% 15,884 12,840 15,884 12,840

AllunusedtaxlosseswereincurredbyAustralianentities.Thedeferredtaxassetsinrelationtothetaxlosseswillonlybeobtainedif:

(i) theconsolidatedentityderivesfutureassessableincomeofanatureandofanamountsufficienttoenablethebenefitfromthedeductionsforthelossestoberealised,and

(ii) theconsolidatedentitycontinuestocomplywiththeconditionsfordeductibilityimposedbytaxlegislation,and(iii)nochangesintaxlegislationadverselyaffecttheconsolidatedentityinrealisingthebenefitfromthedeductionsforthelosses.

(d) Unrecognised temporary differencesTemporarydifferenceforwhichnodeferredtaxassethasbeenrecognised 798 1,101 23,971 14,623

Potentialtaxbenefit@30% 239 330 7,191 4,387

(e) Tax consolidation legislationCAP-XXLimitedanditswhollyownedAustraliancontrolledentitieshaveimplementedthetaxconsolidationlegislationasof1July2002.Theaccountingpolicyinrelationtothislegislationissetoutinnote1(h).CAP-XXLimitedhasnotrecognisedanytaxconsolidationdistributionfromortowhollyownedtaxconsolidatedentities.


continued



Note � - Current assets - Cash and cash equivalentsCashatbankandonhand 384 117 5 3Cashondeposits 19,723 1,074 19,691 23

20,�0� �,�� ,6�6 26

(a) Cash at bank and on hand Thesearebearingfloatinginterestratesbetween0%and3%(2005:0%and2.5%).

(b) Deposits at callThedepositsarebearingfloatinginterestratesbetween3%and5.8%(2005:1.5%and5.3%).Thesedepositshaveanaveragematurityof30to60days.


Note �0 Current assets – ReceivablesTradereceivables 886 300 - -Provisionfordoubtfulreceivables (38) (17) - -

848 283 - -Amountsduefromrelatedparties - 4,757 24,014 18,183Provisionfordoubtfulreceivables - (401) (24,014) (14,662)

- 4,356 - 3,521Otherreceivables 2 83 - -

��0 �,�22 - �,�2�

(a) Bad and doubtful trade receivablesTheGrouphasrecognisedalossof$21,000(2005:$17,000)inrespectofbadanddoubtfultradereceivablesduringtheyearended30June2006.Thelosshasbeenincludedin“Generalandadministrativeexpenses”intheincomestatement.Theparententityhasrecognisedalossof$9,351,000(2005:$2,652,000)inrespectofdoubtfulamountsduefromrelatedpartiesduringtheyearended30June2006.Thelosshasbeenincludedin“Otherexpenses”intheincomestatement.

(b) Other receivablesTheseamountsgenerallyarisefromtransactionsoutsidetheusualoperatingactivitiesoftheGroup.Collateralisnotnormallyobtained.

(c) Interest rate risk and credit riskWiththeexceptionofsomeamountsduefromrelatedparties,thecurrentreceivablesarenon-interestbearing.Furtherinformationrelatingtoamountsduefromrelatedpartiesissetoutinnote25.Thereissomeconcentrationofcreditriskwithrespecttocurrentreceivables,astheGrouphasalimitednumberofcustomers,internationallydispersed.Refertonote2formoreinformationontheriskmanagementpolicyoftheGroup.


continued



Note �� Current assets - InventoriesRawmaterialsandstores-atcost 206 245 - -Finishedgoods-atcost - 116 - -Finishedgoods-atnetrealisablevalue 145 - - -

145 116 - -Developmentmaterials-atnetrealisablevalue - - - -

�� 6� - -

(a) Inventory expenseInventoriesrecognisedasexpenseduringtheyearended30June2006amountedto$455,000(2005:$388,000).

Write‐downsofinventoriestonetrealisablevaluerecognisedasanexpenseduringtheyearended30June2006amountedto$83,000(2005:$238,000).Theexpenseforfinishedgoodshasbeenincludedin‘costofsaleofgoods’intheincomestatement.Theexpensefordevelopmentmaterialshasbeenincludedin‘researchanddevelopmentexpenses’intheincomestatement.


Note �2 Current assets - OtherPrepayments 126 62 43 40Convertiblenoteissuancecosts - 56 - 56Amortisationofissuancecosts - (38) - (38)

- 18 - 18

�26 �0 ��


continued



Note �� Non-current assets - Property, plant and equipment Plantandequipmentatcost 12,515 12,259 - -Accumulateddepreciation (11,187) (7,502) - -

Netbookamount 1,328 4,757 - -

Capitalworksinprogress 283 449 - - Furnitureandfittingsatcost 64 64 - -Accumulateddepreciation (29) (25) - -

Netbookamount 35 39 - -

Leaseholdimprovementsatcost 437 437 - -Accumulateddepreciation (405) (254) - -

Netbookamount 32 183 - -

Totalproperty,plantandequipment 13,299 13,209 - -Totalaccumulateddepreciation (11,621) (7,781) - -

Total net book amount �,6�� ,�2� - -

Movement in classes of assets: Plant and Capital works Furniture Leasehold TotalConsolidated equipment in progress and fittings improvements

$ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000

Year ended 30 June 2005Openingnetbookamount 9,824 670 43 243 10,780Additions - 1,136 - 63 1,199Transfersfromcapitalworksinprogress 516 (516) - - -Disposals (346) - - - (346)Writeoffofassets1 (896) (841) - - (1,737)Depreciationcharge (4,341) - (4) (123) (4,468)

Closing net book amount �,�� ,�2�

Year ended 30 June 2006 Openingnetbookamount 4,757 449 39 183 5,428Additions - 840 - - 840Transferstoplantandequipment 256 (256) - - -Disposals - (750) - - (750)Depreciation (3,685) - (4) (151) (3,840)

Closingnetbookamount 1,328 283 35 32 1,678

1Thewriteoffofassetsisaresultofthereviewforimpairmenttogetherwiththewritedownofassetsunderconstructiontotheirnetrealisablevalueasdescribedinnote3(b).


continued


Parent entityTherewerenomovementsinproperty,plantandequipmentintheparententity.


Note �� Non-current assets - OtherRentalbond 153 153 - -Sharesinsubsidiaries(note26) - - - -Goodwill(note26) - - - -

�� - -


Note �� Current liabilities - PayablesTradepayables 841 636 42 -Othercreditorsandaccruedexpenses 229 322 - -Advancepaymentonsaleofplantandequipment2 - 723 - -

�,0�0 �,6�� 2 -

2Thisliabilityisdescribedinnote3(b).


continued



Note �6 Current liabilities - ProvisionsEmployeebenefits 287 377 - -Productreturnsandwarranties 162 105 - -

�� 2 - -

(a) Product returns and warrantiesProvisionismadeforestimatedproductreturnsandwarrantyclaimsinrespectofproductssold.TheGroupprovidesaoneyearwarrantyonproductssoldtocustomers.TheGrouphastodateexperiencedminimalproductreturnsandwarrantyclaims;howevermanagementconsidersitprudenttomaintainaprovisionagainstanyestimatedproductreturnsandwarrantyclaims.

(b) Movements in provisionsMovementsintheproductreturnsandwarrantiesprovisionduringthefinancialyearsaresetoutbelow:


Carryingamountatstartofyear 105 23 - -Additionalprovisionsrecognisedduringtheyear 57 82 - -

Carryingamountatendofyear �62 �0� - -


continued



Note �� Current liabilities - BorrowingsUnsecuredConvertiblenotes - 3,823 - 3,823

SecuredAmountsduetorelatedparties - 8,846 - -

- �2,66� - �,�2�

(a) Convertible notesThefollowingconvertiblenoteshavebeenissuedinUSdollarsandcanbesummarisedasfollows:

Consolidated Parent Entity 2006 200� 2006 200� US$ ‘ 000 US$ ‘ 000 US$ ‘ 000 US$ ‘ 000

CAP-XXLimitedA-Notes–19April2004 - 170 - 170CAP-XXLimitedA-Notes–17September2004 - 113 - 113CAP-XXLimitedA-Notes–7February2005 - 2,500 - 2,500

ConvertibleA-Notes - 2,783 - 2,783Accruedinterest* - 124 - 124

TotalconvertiblenoteliabilityinUSdollars - 2,907 - 2,907

A$ ‘ 000 A$ ‘ 000 A$ ‘ 000 A$ ‘ 000Total convertible note liability in Australian dollars (using the closing rate) - �,�2� - �,�2�

*interestexpenseiscalculatedbyapplyingtheeffectiveinterestrateof10%totheliabilitycomponent.

Movementsintheconvertiblenoteliabilityduringthefinancialyeararesetoutbelow:

Consolidated and parent entity US$ ‘ 000 A$ ‘ 000Balanceasat30June2005 2,907 3,823B-Notes-4January2006 1,659 2,270B-Notes-17February2006 1,106 1,513A&B-Notes-5April2006 6,404 8,983Accruedinterestcharges 379 510Foreignexchangegains - (428)

12,455 16,671Less:Repaymenton27April2006 (12,455) (16,671)

Balance as at �0 June 2006 - -


continued


Initial and Second ClosingsOn19April2004,CAP-XX,IncandCAP-XXLimitedcollectivelysoldUS$5,000,000ofconvertiblenotestoparticipatingstockholdersofCAP-XX,Inc(the“NoteFinancing”),ofwhichUS$3,000,000ofconvertiblenoteswereissuedatanInitialClosingthatoccurredon19April2004andUS$2,000,000ofconvertiblenoteswereissuedattheSecondClosingthatoccurredon17September2004raisingA$3,992,000andA$2,880,000respectively.AtboththeInitialandSecondClosings,CAP-XXLimitedissuedandsoldA-NotestotwostockholdersandCAP-XX,IncissuesandsoldA-NotesandB-Notestootherstockholders.TheStockholderswhopurchasedNoteswereissuedA-WarrantsandB-Warrants.

BoththeA-NotesandB-Noteswereduetomatureon19May2005,unlessotherwiseaccelerateduponoccurrenceofcertaineventsofdefault.Thenoteholdersagreedon7February2005toamendthematuritydateuntilnoearlierthan31January2006.

Supplemental issueOn7February2005,CAP-XX,IncandCAP-XXLimitedcollectivelysoldafurtherUS$3,271,000ofconvertiblenotesasasupplementalissueraisingA$4,207,000.A-NotesonlywereissuedthetermsofwhichwerethesameasthepreviousA-Notes(asamended)andwereduetomaturenoearlierthan31January2006unlessotherwiseaccelerateduponoccurrenceofcertaineventsofdefault.Onmaturity,thenotes(inclusiveofaccruedinterestof10%perannumcompoundingmonthly)attheoptionofthenoteholdermayhave,eitherbedueandpayableorbeconvertedintoSeriesBPreferredStockofCAP-XX,Inc.Noobligationtorepaythenotesoutstandingexistedonorafterthatdateunlessnoticefromatleast65%oftheaggregateofallnotesoutstanding(inclusiveof3noteholderswhoheldSeriesBPreferredStockinCAP-XX,Incasdefined)wasreceived.

Second supplemental issue On4January2006,CAP-XXLimitedsoldafurtherUS$2,766,000(A$3,783,000)ofconvertibleB-notesasasecondsupplementalissue.US$1,659,000(A$2,270,000)ofconvertiblenoteswereissuedattheInitialClosingon4January2006andUS$1,106,000(A$1,513,000)ofconvertiblenoteswereissuedattheSecondClosingthatoccurredon17February2006.

TheseB-NotescarriedliquidationandrepaymentpreferencesthatrankedabovethepreviousA&B-NotesissuedbyCAP-XX,IncorCAP-XXLimited.OtherwisethetermsarethesameasthepreviousB-Notes(asamended)andwereduetomaturenoearlierthan30June2006unlessotherwiseaccelerateduponoccurrenceofcertaineventsofdefault.Onmaturity,thenotes(inclusiveofaccruedinterestof10%perannumcompoundingmonthly)attheoptionofthenoteholdermayeitherbedueandpayableorbeconvertedintoSeriesBPreferredStockofCAP-XX,Inc.Noobligationtorepaythenotesoutstandingexistedonorafterthatdateunlessnoticefromatleast65%oftheaggregateofallnotesoutstanding(inclusiveof3noteholderswhoheldSeriesBPreferredStockinCAP-XX,Incasdefined)wasreceived.

Demerger and IPOOn5April2006aspartofDemerger(seenote25(f))holdersofconvertiblenotesinCAP-XX,IncexchangedtheirconvertiblenotesforsubstantiallysimilarconvertiblenotesofCAP-XXLimited.ThisresultedinthenetissueofUS$6,404,000(A$8,983,000)ofadditionalconvertiblenotesbyCAP-XXLimited.On27April2006thetotalconvertiblenoteliabilityinclusiveofaccruedinterestofUS$12,455,000(A$16,671,000)wasrepaidoutoftheproceedsoftheIPO.

A-Warrants and B-WarrantsAsdetailedabove,CAP-XX,Incand/orCAP-XXLimitedissuedA-WarrantsandB-WarrantsintheNoteFinancings.Thewarrantswereexercisableatanytimeaftertheearliertooccurof(X)theSecondClosing,(Y)fifteen(15)daysprecedingtheclosingdateofanyliquidationeventordeemedliquidationeventinvolvingtheCompany,or(Z)30November2004,uptotheearliertooccurof(i)thedateoftheclosingofCAP-XX,IncinitialpublicofferingpursuanttoaregistrationstatementundertheUSSecuritiesAct,(ii)ten(10)daysprecedingtheclosingdateofanydeemedliquidationeventinvolvingCAP-XX,Inc,(iii)theten(10)yearanniversaryofthedateofissuanceofthewarrants,or(iv)thedateoftheclosingoftheAIMlisting,suchdatesbeingtherespectivedatesofthevariousClosings.

TheA-WarrantsentitletheholdersthereoftoreceiveuponexercisesuchnumberofsharesofSeriesBPreferredequaltodividing(X)theproductobtainedbymultiplyingtheaggregateamountofA-Notespurchasedbytheholderby0.2,by(Y)thelowerofthethen


continued


effectiveconversionpricefortheSeriesBPreferredorthepricepershareatwhichCAP-XX,Incissuesequitysecuritiesinanewequityfinancing(asdefined)(the“StockPurchasePrice”).TheB-WarrantsentitletheholdersthereoftoreceiveuponexercisesuchnumberofsharesofSeriesBPreferredequaltodividing(X)theproductobtainedbymultiplyingtheaggregateamountofB-Notespurchasedbytheholderby0.4,by(Y)theStockPurchasePrice.

ThesharesofSeriesBPreferredissuablepursuanttotheA-WarrantsandB-WarrantswereexercisableatapriceofUS$0.01pershare.On5April2006aspartofDemergerholdersofexistingwarrantsofCAP-XX,IncexchangedtheirwarrantsforsubstantiallysimilarwarrantsofCAP-XXLimitedadjustedfora3:1sharesplitthatoccurredonDemerger.ThesewarrantswerefullyexercisedbyallnoteholdersforSeriesBpreferredsharesofCAP-XXLimitedon20April2006.

(c) Financing arrangementsDetailsofconvertiblenotesarenotedabove.TheGroupdoesnothaveaccesstoanyotherlinesofcredit.

(d) Interest rate risk exposureTheinterestratewasfixedat10%perannumcompoundedmonthly.Interestcommencedfromthedateofeachissueandcontinuedontheoutstandingprincipalamountuntilthenotewaspaid.

(e) Fair valueThecarryingamountofconvertiblenotesapproximatesthefairvalueastheywerenotreadilytradedonorganisedmarketsinstandardisedform.


Note �� Non-current liabilities – ProvisionsEmployeebenefits–longserviceleave �� 2� - -


continued


Parent Entity Parent Entity 2006 200� 2006 200� Shares Shares $ ‘ 000 $ ‘ 000

Note �� Contributed equity

(a) Share capital Fullypaidordinaryshares(noparvalue) ��,6��,0�� ,0��,0�� ,�� ,�2�

(b) Movement in ordinary share capital:Date Details Notes Number of shares Issue price $ ‘ 0001July2004 Openingbalance 3,394,169 - 41,1284February2005 Shareconsolidationon45:40basis (d) (377,130) - -

�0 June 200� Balance �,0��,0�� - 41,128

5April2006 Sharebuy-back (e) (932,761) $2.82 (2,630)5April2006 Shareconsolidation (d) (2,084,277) - -5April2006 Shareissue (f) 6,785,312 - -20April2006 ConversionofSeriesAPreferredShares (f) 3,920,744 - -20April2006 ConversionofSeriesBPreferredShares (f) 19,426,503 - 420April2006 ShareissuethroughIPO (g) 18,433,333 $2.23 41,01727June2006 Exerciseofstockoptions (h) 75,118 $0.47 35

��,�� Less:Costof20April2006shareissue (3,966)

�0 June 2006 Balance ��,6��,0�� ,��

(c) Ordinary sharesAt30June2006,therewere48,641,011issuedordinaryshareswhichwerefullypaid,withnoparvalue.Ordinarysharesentitletheholdertoparticipateindividendsandtheproceedsonwindingupofthecompanyinproportiontothenumberofandamountspaidonthesharesheld.

Onashowofhandseveryholderofordinarysharespresentatameetinginpersonorbyproxy,isentitledtoonevote,anduponapolleachshareisentitledtoonevote.

(d) Share consolidationOn5February2005,theCompanycompletedaconsolidationofordinarysharesona45:40basis.Thenon5April2006,theCompanycompletedanotherconsolidationofordinarysharestoreducealloutstandingordinarysharestooneordinaryshare.

(e) Share buy-backOn5April2006theCompanypurchasedandcancelled932,761ordinarysharesoffmarketinordertosettleamountsduefromrelatedpartiesasdescribedinnote25(f)for$2,630,000.

(f) Share issue, exercise of warrants and conversion of preferred shares On5April2006,theCompanydistributedordinarysharesandpreferredsharestotheexistingstockholdersofCAP-XX,IncinsuchnumberstoreplicateintheCompanytheequityownershipstructureofthestockholdersinCAP-XX,Incwhichwasalsoinclusiveofa3:1sharesplit.Subsequently,asdescribedinnote25(f)on20April,2006preferredsharesissuedbythecompanywereconvertedtoordinaryshareswithApreferredsharesconvertedonbasisof1:2.872397andBpreferredsharesconvertedonbasisof1:3.828762.Furthermore,asdetailedinnote17on20April2006theholdersofConvertibleNotesexercisedallwarrantsoutstandingatUS$0.01nettingadditionalsharecapitalof$4,000.


continued


(g) Share issue through IPOAsdescribedinnote25(f)theCompanycompletedaninitialpublicoffering(IPO)ontheAlternativeInvestmentMarket(AIM),apartoftheLondonStockExchangeon20April2006whereonCAP-XXLimitedissued18,433,333ordinarysharesraisingnewcapitalof$37,051,000(netoflistingcostsof$3,966,000).Includedinthelistingcostsis$360,000ofsharebasedpayments,refertonote29forfurtherdetails.

(h) OptionsInformationrelatingtothe2006ShareOptionExchangeand2006EmployeeShareOptionPlan,includingdetailsofoptionsissued,exercisedandlapsedduringthefinancialyearandoptionsoutstandingattheendofthefinancialyear,issetoutinnote29.


Note 20 Reserves and accumulated losses

(a) Reserves Foreigncurrencytranslationreserve (2) (1) - -Share-basedpaymentsreserve 416 - 416 -

�� (�) ��6 -

Movements: Foreign currency translation reserve Balance1July (1) (1) - -Currencytranslationdifferencesarisingduringtheyear (1) - - -

Balance30June (2) (1) - -

share-based payments reserve Balance1July - - - -Optionexpense 416 - 416 -

Balance30June 416 - 416 -

(b) Accumulated losses Movementsinaccumulatedlosseswereasfollows:

Balance1July (44,047) (32,364) (41,346) (32,230)Net(loss)fortheyear (10,322) (11,683) (14,961) (9,116)

Balance30June (��,�6�) (��,0��) (�6,�0�) (��,��6)

(c) Nature and purpose of reserves

(i) Foreign currency translation reserveExchangedifferencesarisingontranslationoftheforeigncontrolledentityaretakentotheforeigncurrencytranslationreserve,asdescribedinnote1(e).Thereserveisrecognisedinprofitandlosswhenthenetinvestmentisdisposedof.

(ii) Share-based payments reserveTheshare-basedpaymentsreserveisusedtorecognisethefairvalueofoptionsissuedbutnotexercised.


continued


Note 2� Key management personnel disclosures

(a) Directors Thenamesofthedirectorswhohaveheldofficeduringthefinancialyearareasfollows:

Executive directorAnthonyKongats(ManagingDirector)

Non-executive directorsMichaelQuinn(Chairman) JohnMurray GrahamTitcombe (appointed20April2006)ChristerHarkonen (appointed20April2006)HockVoonLoo (resigned6April2006)IngoSusing (resigned27March2006) AndrewBailey (resigned6April2006) AllanAaron(alternatedirectortoJohnMurray) (resigned6April2006) JohnPaulKaumeyer(alternatedirectortoIngoSusing) (resigned27March2006)

(b) Key management and personnel compensation Keymanagementpersonnelcompensationissetoutbelow.ThekeymanagementpersonnelincludeallthedirectorsofthecompanyandthoseexecutivesthatreportdirectlytotheManagingDirector.

Consolidated Parent Entity 2006 200� 2006 200� $ $ $ $

Short-termbenefits 474,078 416,999 54,913 -Post-employmentbenefits 38,907 35,100 2,396 -Share-basedpayments 21,176 - 7,721 -Total ��,�6� ��2,0�� 6�,0�0 -

(c) Other transactions with key management personnel or entities related to them Informationontransactionswithkeymanagementpersonnelorentitiesrelatedtothem,otherthancompensation,aresetoutbelow.

TheCompanyhadenteredintoamanagementincentiveagreementwithkeymanagementandotherexecutivesforabonuspaymentifthecompanywassuccessfulwithatradesaleoftheGroupbefore30June2006.Thisagreementhasnotbeenextendedandexpiredon30June2006.Noexpensehasbeenrecognised.

Therearenoothertransactionswithkeymanagementpersonnel.


continued



Note 22 Remuneration of auditors DuringtheyearthefollowingfeeswerepaidorpayableforservicesprovidedbytheauditoroftheGroup,itsrelatedpracticesandnon-relatedauditfirms:

(a) Assurance services

Audit servicesPricewaterhouseCoopersAustralianfirmAuditoffinancialreport 77,500 58,200 - -AuditoffinancialreportsofCAP-XX,Inc.forthepurposeoftheIPO 120,000 - 120,000 -AuditofAIFRSopeningbalancesheets 20,000 - 20,000 -

Total remuneration for audit services 2��,�00 ��,200 ��0,000 -

(b) Taxation servicesPricewaterhouseCoopersAustralianfirm

Taxcomplianceservices,includingreviewofcompanyincometaxreturns 54,527 146,905 - -InternationaltaxconsultingandtaxadviceondemergerandCompanyrestructure 278,665 - 278,665 -

RelatedpracticesofPricewaterhouseCoopersAustralianfirmTaxcomplianceservices,includingreviewofcompanyincometaxreturns 50,934 46,700 - -InternationaltaxconsultingandtaxadviceondemergerandCompanyrestructure 98,106 - 98,106 -

Total remuneration for taxation services ��2,2�2 ��,60� ��6,�� -

ItistheGroup’spolicytoemployPricewaterhouseCoopersonassignmentsadditionaltotheirstatutoryauditdutieswherePricewaterhouseCoopers’expertiseandexperiencewiththeGroupareimportant.Theseassignmentsareprincipallytaxadvice,orwherePricewaterhouseCoopersisawardedassignmentsonacompetitivebasis.ItistheGroup’spolicytoseekcompetitivetendersforallmajorconsultingprojects.

Note 2� ContingenciesWhilenoclaimshavebeenmadeasyet,theresearchanddevelopmentstartgrantsaresubjecttoalimiteddiscretionaryrightoftheAustraliangovernmentto“claw-back”aproportionofthefundingonaslidingscaleforuptofiveyearsfrom30March2005.Thedirectorsbelievehoweverthatthecompanyhasmetallconditionsattachedtothegrants.

Aletterofcomfortdated5April2006wasprovidedbytheCompanytoCAP-XX,IncaspartoftheDemerger(refernote25(f)).Pursuanttotheletterofcomfort,theCompanyundertakestosupportthefinancialcommitmentsofCAP-XX,Inc.Theundertakingislimitedfor12monthsfromthedateoftheletterandiscappedatUS$100,000.


continued


Note 2� Commitments

(a) Capital commitmentsCapitalexpenditurecontractedforatreportingdatebutnotrecognisedasliabilitiesisasfollows:


property, plant and equipment Withinoneyear 555 507 - -Laterthanoneyearbutnotlaterthan5years - - - -Laterthan5years - - - -

�� 0� - -

(b) Lease commitments: Group / company as lesseeTheGroupleasesfactoryspacewithanofficeandwarehouseunderanon‐cancellableoperatingleaseduetoexpireon3October2007.TheGrouphasarenewalrightoptionwhichexpires6monthsbeforetheexpirationofthelease.Onrenewal,thetermsoftheleasearerenegotiated.

TheGroupalsoleasesofficeequipmentandofficespaceundercancellableoperatingleases.TheGroupisrequiredtogive3monthsnoticeforterminationoftheseleases.


Commitmentsforminimumleasepaymentsinrelationtonon‐cancellableoperatingleasesarepayableasfollows:

Withinoneyear 310 328 - -Laterthanoneyearbutnotlaterthan5years 89 - - -Laterthan5years - - - -

�� 2� - -

Note 2� Related party transactions and demerger

(a) Parent entitySince5April2006theultimateparententitywithintheGroupisCAP-XXLimited.Priorto5April2006,theCompanywasawholly-ownedsubsidiaryofCAP-XX,Inc,aDelawarecompanyincorporatedintheUnitedStatesofAmerica.Aspartofthedemergerprocess,alltheissuedsharesofCAP-XXLimitedwereconsolidatedintoasingleOrdinaryShareon5April2006,whichwassubsequentlytransferredtoAnthonyKongats,uponwhichthecompanyissuedfurtherOrdinarySharesasdescribedinnote19.

(b) SubsidiariesInterestsinsubsidiariesaresetoutinnote26.


continued


(c) Key management personnelDisclosuresrelatingtokeymanagementpersonnelaresetoutinnote21.

(d) Transactions with related parties and outstanding balances Consolidated Parent Entity 2006 200� 2006 200� $ $ $ $

Thefollowingtransactionsoccurredwithrelatedpartiesotherthankeymanagementpersonnelorentitiesrelatedtothem:

Expenses Researchanddevelopmentservicesfromsubsidiaries - - 5,116,131 6,319,978

Interestexpensefromultimateholdingcompany 361,172 132,493 - -Managementandsalessupportfeesfromotherrelatedparties 768,919 561,528 - -

Revenue

Saleofgoodstootherrelatedparty 890,607 563,405 - -Managementfeestoultimateholdingcompany 238,024 379,912 - -Licencefeesfromsubsidiaries - - 321,873 321,695Interestincomefromultimateholdingcompany 136,260 37,392 112,221 25,416Interestincomefromotherrelatedparties 31,999 16,344 21,136 12,442

Theamountsoutstandingatthereportingdatedtogetherwiththeirmovementsduringtheyearcanbesummarisedasfollows:

Loans to subsidiaries

Beginningofyear - - 14,203,761 20,527,387

Netloansadvanced/(paid) - - 4,959,504 (82,400)Loanset-off(non-cash) - - 9,946,320 -Revenuechargesandcreditsreceived - - 321,873 321,695Expensechargesandcostsincurredapplied - - (6,082,250) (6,562,921)Transferfromotherrelatedparties - - 664,668 -

- - 24,013,876 14,203,761Provisionfordoubtfuldebts - - (24,013,876) (14,203,761)

Endofyear - - - -


continued



Amounts due to other related parties

Beginningofyear 400,786 395,048 458,804 492,437Loanset-off(non-cash) 178,337 - 178,337 -Revenuechargesandcreditsreceivedapplied 890,607 563,405 - -Expensechargesandcostsincurredapplied (832,380) (573,614) (3,213) -Interestcharged 31,999 16,344 21,136 12,442Foreignexchangevariance 34,325 (397) 9,604 (46,075)Transfertosubsidiaries (703,674) - (664,668) -

- 400,786 - 458,804Provisionfordoubtfuldebts - (400,786) - (458,804)

Endofyear - - - -

Loans to ultimate holding company (CAP-XX, Inc)

Beginningofyear 4,355,871 586,060 3,520,570 58,692Netloansadvanced/(paid) (15,616) 3,417,451 (14,066) 3,417,451Convertiblenoteexchange(non-cash) 8,983,123 - 8,983,123 -Loanset-off(non-cash) (11,031,373) - (10,124,657) -Sharebuy-back(non-cash) (2,630,386) - (2,630,386) -Revenuechargesandcreditsreceivedapplied - 379,912 - -Expensechargesandcostsincurredapplied - (34,147) - -Interestcharged 136,260 37,392 112,221 25,416Foreignexchangevariance 202,121 (30,797) 153,195 19,011

- 4,355,871 - 3,520,570Provisionfordoubtfuldebts - - - -

Endofyear - �,��,�� - �,�20,��0

Loans from ultimate holding company (CAP-XX, Inc)

Beginningofyear (8,845,996) (2,911,163) - -Netloans(advanced)/paid (1,524,809) (6,153,460) - -Loanset-off(non-cash) 10,853,036 - - -Revenuechargesandcreditsreceivedapplied - (27,615) - -Expensechargesandcostsincurredapplied 449,393 2,745 - -Interestcharged (361,172) (132,493) - -Foreignexchangevariance (570,452) 375,990 - - - (8,845,996) - -Provisionfordoubtfuldebts - - - -

Endofyear - (�,��,��6) - -

Provisionsraisedfordoubtfuldebtshavebeendisclosedabove.Expensesrecognisedinrespectofbadordoubtfuldebtsduefromrelatedpartiesaredisclosedinnote7.


continued


(e) Terms and conditionsTherearenofixedtermsfortherepaymentofamountsdue/loansbetweenentitiesandunlessotherwisestatedamountsdue/loansareunsecuredandrepayableincash.Aloanof$10,853,036(2005:$nil)advancedbyParenttoasubsidiaryissecuredbyafixedandfloatingchargeovertheassetsofthatsubsidiary.Aloanof$nil(2005:$8,845,996)advancedbyCAP-XX,Inctoarelatedpartywassecuredbyafixedandfloatingchargeovertheassetsofthatrelatedparty.

Nointerestischargedonamountsdue/loansbetweenentitieswithinAustralia.Theaverageinterestrateonamountsdue/loanswithoverseasentitiesduringtheyearwas4%(2005:3%).

AllothertransactionswithintheGroupweremadeonnormalcommercialtermsandconditionsandatmarketrates.

(f) Demerger and Initial Public OfferingTheBoardofDirectorsrecommendedandStockholdersofCAP-XX,Inc(the“formerparententity”)agreedinMarch2006,thattofundthefuturegrowthoftheCAP-XXGroup,itwasinthebestinterestoftheStockholdersthatCAP-XX,Incaffectaninitialpublicoffering(IPO)ontheAlternateInvestmentMarket(AIM),apartoftheLondonStockExchange.ItwasdeemedthatthelistingofordinarysharesofCAP-XXLimited,athenwhollyownedsubsidiaryofCAP-XX,IncrepresentedthebestprospectsforanIPOonAIMandon5April2006thedemerger(“Demerger”)ofCAP-XXLimitedfromCAP-XX,Incwaseffected.TheadmissionofCAP-XXLimitedonAIMwascompletedon20April,2006whereonCAP-XXLimitedissued18,433,333ordinarysharesraisingnewcapitalof$37,050,901(netoflistingcostsof$3,966,126).Includedinthelistingcostsis$359,671ofsharebasedpayments,refertonote29forfurtherdetails.

Thefollowingtransactions,amongothers,werecompletedinconnectionwithDemergerandtheIPO:

(i) CAP-XXLimiteddistributedordinarysharesandpreferredsharestotheexistingstockholdersofCAP-XX,IncinsuchnumberstoreplicateinCAP-XXLimitedtheequityownershipstructureofthestockholdersinCAP-XX,Incwhichwasalsoinclusiveofa3:1sharesplit;

(ii) holdersofconvertiblenotes(“Notes”)inCAP-XX,IncexchangedtheirNotesforsubstantiallysimilarnotesofCAP-XXLimited;(iii)holdersofexistingwarrantsofCAP-XX,IncexchangedtheirwarrantsforsubstantiallysimilarwarrantsofCAP-XXLimited;(iv) holdersofoptionstopurchaseCommonStock(“Options”)pursuanttotheCAP-XX,Inc2001StockOptionExchangePlanand

2002StockIncentivePlanexchangedtheirOptionsforsubstantiallysimilaroptionsofCAP-XXLimited;(v) CAP-XX,InctransferredallofitsequityinterestsinCAP-XXUSA,Inc.,awholly-ownedsubsidiarytoCAP-XXLimited;(vi) aset-offofvariousinter-companyloansbetweenCAP-XX,Incanditswholly-ownedsubsidiarieswascompletedtogetherwiththe

buy-back(the“Buy-Back”)byCAP-XXLimitedofacertainnumberofordinarysharesheldbyCAP-XX,Inc;(vii)investmentagreementsofCAP-XX,IncrelatingtopriorfinancingsdidnotenvisagetheAIMlistingwithrespecttotheconversion

rightsofthePreferredStockofCAP-XX,Inc(the“PreferredStock”)toCommonStockofCAP-XX,Inc(the“CommonStock”).CertainholdersofPreferredStockandCommonStockofCAP-XX,Inc,negotiatedaconversionmethodologyforthepreferredsharesonIPOthatgenerallyfollowedthecommercialintentionoftheinvestmentagreements,withallowanceforpracticalissues,andprotectionofpartiesintheeventofmarketfluctuationsandfairness.ThePreferredStockconversiononIPOofApreferredshareswas1:2.872397andBpreferredshares-1:3.828762.TheprotectionofpartiesissupportedbythegrantofCallOptionsbytheformerpreferredshareholdersofCAP-XXLimitedinfavourofcertainordinaryshareholders(inclusiveofoptionholders)ofCAP-XXLimitedwhichwassubjecttoandconditionaluponthecompletionofIPO;

(viii)on20January2006theParentEntitychangeditsstatusfroma“private”to“public”companyandchangeditsnamefromEnergyStorageSystemsPtyLimitedtoEnergyStorageSystemsLimitedandsubsequentlyon5April2006toCAP-XXLimited.


continued


Note 26 SubsidiariesTheconsolidatedfinancialstatementsincorporatetheassets,liabilitiesandresultsofthefollowingsubsidiariesandbranchinaccordancewiththeaccountingpolicydescribedinnote1(c):

Name of entity Country of incorporation Class of shares Equity holding * 30June2006 30June2005 % %CAP-XX(Australia)PtyLtd Australia Ordinary 100 100CAP-XXResearchPtyLtd Australia Ordinary 100 100CAP-XXUSA,Inc** UnitedStates Ordinary 100 -CAP-XX(Australia)PtyLtd(TaiwanBranch) Taiwan

* Theproportionofownershipinterestisequaltotheproportionofvotingpowerheld.** On5April2006,theparententityacquired100%oftheissuedsharecapitalofCAP-XXUSA,Inc,theUSsalesoperationofthe

CAP-XXGroup,fromCAP-XX,Inc.TheacquiredbusinessdidnotcontributematerialrevenuesnorprofitstotheGroup.Iftheacquisitionhadoccurredon1July2005,revenuesandresultswouldalsonothaveresultedinamaterialchange.

Detailsofthefairvalueoftheassetsandliabilitiesacquiredandgoodwillareasfollows:

$ ‘ 000Tradereceivables 230Tradepayables (90)Amountsduetorelatedparties (526)

Netidentifiableassetsacquired (386)

Purchaseconsideration–cash -

Goodwill ��6

Giventheacquiredbusinesshasnotrackrecordofyearonyearprofits,managementhaveperformedanassessmentoftherecoverableamountofthegoodwillbasedonhistoricalresults.Thisresultedinexpensingthegoodwillarisingonacquisitiondirectlyintheincomestatementof$386,000.

Note 2� Events occurring after the balance sheet dateNosignificanteventshaveoccurredafterbalancesheetdatewhichwouldhaveamaterialimpactonthefinancialresultsoftheCompany.


continued


Note 2� Reconciliation of profit after tax to net cash (outflow) inflow from operating activities Consolidated Parent Entity 2006 200� 2006 200� $ ‘ 000 $ ‘ 000 $ ‘ 000 $ ‘ 000

Netloss (10,322) (11,683) (14,961) (9,116)Depreciationandamortisation 3,840 4,468 - -Profitonsaleofplantandequipment (26) (237) - -Impairmentlossonplantandequipment - 1,737 - -Non-cashemployeebenefitexpense–sharebasedpayments 56 - 56 -Accruedfinancesharesonconvertiblenotes 510 162 510 162Provisionfornonrecoveryofrelatedpartyloans (401) 401 9,351 2,652Write-offgoodwillonconsolidation 386 - - -Netunrealisedexchangeloss/(gains) (61) (286) (580) 85

Changes in assets and liabilities: (Increase)/decreaseinreceivables (484) (61) - -(Increase)/decreaseininventories 11 99 - -(Increase)/decreaseinamountswithrelatedparties (32) (232) 5,620 6,203(Increase)/decreaseinotherassets (25) 61 37 (1)Increaseinprovisions 57 115 - -Increase/(decrease)inpayables 112 254 41 2

Netcash(outflow)inflowfromoperatingactivities (6,��) (�,202) �� (��)

Note 2� Share-based payments

(a) 2006 Share Option Exchange Theestablishmentofthe2006ShareOptionExchange(the“2006Exchange”)wasapprovedbytheCompany’sBoardofDirectorswitheffectfromon5April2006.The2006ExchangeprovidesfortheissuanceofstockoptionsforthepurchaseofordinarysharesoftheCompanyinexchangeforthesurrenderofoptionspreviouslygrantedbutunexercisedinCAP-XX,Inc.The2006ExchangeprovidesforthegrantofshareoptionsforthepurchaseofsharesoftheCompany’sordinarysharesbyofficers,employees,independentcontractors,consultants,advisersanddirectorsoftheCompanyand/oranyofitssubsidiaries.TheBoardisresponsibleforadministrationofthe2006Exchange.


continued


SetoutbelowaresummariesofoptionsgrantedundertheExchange:

Grant Date Expiry date Exercise Balance at Granted Exercised Forfeited Balance at Exercisable price� start of during during during end of end of the year the year the year the year theyear the year

A$ Number Number Number Number Number Number

Consolidated and parent entity – 2006 28August2001 31May2008 $2.96 9,499 18,998 - - 28,497 28,49728August2001 29January2009 $11.84 4,500 9,000 - - 13,500 13,50028August2001 10October2009 $8.88 170 340 - - 510 5101November2002 30September2012 $15.64 16,000 32,003 - - 48,003 48,0031April2004 31May2008 $2.96 3,333 6,666 - - 9,999 9,9991April2004 29January2009 $11.84 503 1,006 - - 1,509 1,5091April2004 30September2012 $4.19 6,500 13,000 - - 19,500 19,4081April2004 30September2012 $15.64 4,835 9,667 - - 14,502 13,71330June2004 31May2014 $0.47 10,000 20,000 - - 30,000 22,50026August2004 25July2014 $0.23 16,000 32,000 - - 48,000 48,00021March2005 20February2015 $0.23 16,000 32,000 - - 48,000 48,0001July2005 31May2015 $0.47 - 1,500,117 (88,680)4 - 1,411,437 1,018,5591July2005 31May2015 $15.64 - 20,511 - - 20,511 18,341

��,��0 �,6��,�0� (��,6�0) - �,6��,�6� �,2�0,��

Weighted Average Exercise Price $�.�� $�.�6 $0.�� $ - $�.�0 $�.66

Grant Date Expiry date Exercise Balance at Granted Exercised Forfeited Balance at Exercisable price start of during during during end of end of the year the year the year the year theyear the year


Consolidated and parent entity – 2005 28August2001 31May2008 $8.88 9,499 - - - 9,499 9,49928August2001 29January2009 $35.52 4,500 - - - 4,500 4,50028August2001 10October2009 $26.64 170 - - - 170 1701November2002 30September2012 $46.92 16,000 - - - 16,000 15,8021April2004 31May2008 $8.88 3,333 - - - 3,333 3,3331April2004 29January2009 $35.52 503 - - - 503 5031April2004 30September2012 $12.57 6,500 - - - 6,500 5,1111April2004 30September2012 $46.92 4,835 - - - 4,835 4,16930June2004 31May2014 $1.41 10,000 - - - 10,000 5,00026August2004 25July2014 $0.69 - 16,000 - - 16,000 16,00021March2005 20February2015 $0.69 - 16,000 - - 16,000 16,000

55,340 32,000 - - 87,340 80,087

Weighted Average Exercise Price $2�.�� $0.6� $ - $ - $��.�� $�6.�6

3Asdetailedinnote25(f)on5April2006aspartofDemergerexistingsharecapitalwassubjecttoa3:1splitresultingintheissueof1,179,391additionalshareoptionsoverordinaryshareandtheadjustmentoftheexercisepricebeingtheexercisepriceperordinarysharepriortoDemergerdividedbythesplitfactorof3.

4Duringtheyear75,118shareoptionswereexercisedinCAP-XXLimitedwiththebalanceexercisedinCAP-XX,IncpriortoDemerger.


continued


Exceptfortheadjustmenttotheexercisepriceandnumberofordinarysharessubjecttotheshareoption,theshareoptionsaregovernedbytheiroriginaltermsandconditionsandwillcontinuetovestpursuanttothesamevestingschedule.

Apartfromthe3:1split,shareoptionsof500,039(after3:1split1,500,117shareoptionswithexerciseprice$0.47)and6,837(after3:1split20,511shareoptionswithexercisepriceof$15.64)wereissuedon1July2005.Noshareoptionswereforfeitedduringtheyearscoveredbytheabovetables.

Noshareoptionshaveexpiredduringtheyearscoveredbytheabovetables.Theweightedaverageremainingcontractuallifeofshareoptionsoutstandingattheendoftheperiodwas8.7years(2005:8.5years).

(b) 2006 Employee Share Option PlanOn12April2006theBoardapprovedthe2006EmployeeShareOptionPlan(the“2006Plan”),whichprovidesforthegrantofshareoptionsforthepurchaseofordinarysharesoftheCompanybyofficers,employees,consultants,advisorsanddirectorsoftheCompanyorarelatedbodycorporate.TheBoardisresponsibleforadministrationofthe2006Plan.TheBoarddeterminesthetermofeachoption,theoptionexerciseprice,andthenumberofsharesforwhicheachoptionisgrantedandtherateatwhicheachoptionisexercisable.UnlessotherwisedeterminedbytheBoardanofferofOptionmustnotprovideforanexercisepricethatislessthanthevolumeweightedaveragesalepriceofasharetradedonAIMoveradefinedperiod.

Setoutbelowisasummaryofoptionsgrantedundertheplan:

Grant Date Expiry date Exercise Balance at Granted Exercised Forfeited Balance at Exercisable price start of during during during end of end of the year the year the year the year theyear the year


Consolidated and parent entity - 2006 20April2006 22February2011 $1.40 - 60,000 - - 60,000 -

- 60,000 - - 60,000 -

Weighted Average Exercise Price $ - $�.�0 $ - $ - $�.�0 $ -

TheStockOptionsaregovernedbytheiroriginaltermsandconditionsandwillcontinuetovestpursuanttothesamevestingschedule.

Noshareoptionswereforfeitedduringtheyearcoveredbytheabovetables.

Noshareoptionshaveexpiredduringtheyearcoveredbytheabovetables.

Theweightedaverageremainingcontractuallifeofshareoptionsoutstandingattheendoftheperiodwas4.8years


continued


(c) Collins Stewart Limited Share Option DeedInconsiderationofcovenantsandobligationsthatCollinsStewartLimited(“CollinsStewart”)agreedundertheCompanyAIMPlacingAgreementanditsservicesprovidedthereunder,theBoardon12April2006approvedtheCollinsStewartLimitedShareOptionDeed(the“CSDeed”).TheCSDeedprovidedforthegrantofshareoptionsofupto1%oftheissuedordinarysharecapitaloftheCompanyonafullydilutedbasisimmediatelyfollowingadmissiontoAIM,conditionaluponadmissionoccurringnolaterthan4May2006.Asdetailedinnote25(f)admissionwascompletedon20April2006whereontheCompanyissuedthebelowdetailedshareoptionstoCollinsStewart.Theoptionswerefullyvestedatdateofgrantandcanbeexercisedovera3yearperiodthroughto20April2009,withtheoptionexercisepricebeing93pence(A$2.23).

Setoutbelowisasummaryofoptionsgrantedunderthedeed:

Grant Date Expiry date Exercise Balance at Granted Exercised Forfeited Balance at Exercisable price start of during during during end of end of the year the year the year the year theyear the year GBP Number Number Number Number Number Number

Consolidated and parent entity - 2006 20April2006 20April2009 93pence - 503,350 - - 503,350 503,350

- 503,350 - - 503,350 503,350

Weighted Average Exercise Price �� pence - - �� pence �� pence

TheStockOptionsaregovernedbytheiroriginaltermsandconditions.

Noshareoptionswereforfeitedduringtheyearcoveredbytheabovetables.

Noshareoptionshaveexpiredduringtheyearcoveredbytheabovetables.

Theweightedaverageremainingcontractuallifeofshareoptionsoutstandingattheendoftheperiodwas2.8years

Fair value of options grantedTheassessedfairvalueatgrantdateofoptionsgrantedduringtheyearended30June2006underthe2006PlanandtheCSDeedwereAUD1.49andAUD0.72peroptionrespectively.ThefairvalueatgrantdateisindependentlydeterminedusingaBlack‐Scholesoptionpricingmodelthattakesintoaccounttheexerciseprice,thetermoftheoption,thevestingandperformancecriteria,theimpactofdilution,thenon‐tradeablenatureoftheoption,thesharepriceatgrantdateandexpectedpricevolatilityoftheunderlyingshare,theexpecteddividendyieldandtherisk‐freeinterestrateforthetermoftheoption.

Themodelinputsforoptionsgrantedduringtheyearended30June2006included:

(a) optionsaregrantedfornoconsideration,havea: • 3yearlifeandfullyvestedonthedateofgrant(CSDeed) • 5yearlifeandwillvestonsatisfactionofcertainperformancecriteria(2006Plan) • 10yearlifeand25%vest12monthsaftertheVestingCommencementDate,and1/48ofTotalOptionshallvestoneach

monthlyanniversaryoftheVestingCommencementDatethereafter.(b) exerciseprice:refertablesabove(c) grantdate:refertablesabove(d) expirydate:refertablesabove(e) sharepriceatgrantdate:GBP0.93(2005:US$0.50)(f) expectedpricevolatilityofthecompany’sshares:60%(2005:60%)(g) noexpecteddividendyield(h) risk-freeinterestrate:5.5%(2005:5.5%)Theexpectedpricevolatilityisbasedonthehistoricvolatility(basedontheremaininglifeoftheoptions),adjustedforanyexpectedchangestofuturevolatilityduetopubliclyavailableinformation.


continued


(d) Expenses arising from share-based payment transactionsTotalexpensesarisingfromshare-basedpaymenttransactionsrecognisedduringtheperiodaspartofemployeebenefitexpensewereasfollows:


Optionsissuedunder2006ShareOptionExchange 53 - 53 -Optionsissuedunder2006EmployeeShareOptionPlan 3 - 3 -

56 - 56 -

Totalexpensesarisingfromshare-basedpaymenttransactionsrecognisedduringtheperiodaspartofcostofissueonnewcapitalwereasfollows:


OptionsissuedunderCollinsStewartLimitedShareOptionDeed 360 - 360 -

Note �0 Economic dependencyTheGroupishighlydependentuponasmallnumberofcustomersandpotentialcustomers.Alternativesourcesofrevenuearebeingsoughttoreducefuturedependencyonanyparticularentity.


continued


Note �� Earnings per shareEarningspersharefor(loss)attributabletotheordinaryequityholdersofthecompany

Consolidated 2006 200� Cents Cents

(a) Basic earnings per share (Loss)attributabletotheordinaryequityholdersofthecompany (31.1) (38.8)

(b) Diluted earnings per share

(Loss)attributabletotheordinaryequityholdersofthecompany (31.1) (38.8)

Consolidated 2006 200� Number Number

(c) Weighted average number of shares used as the denominatorWeightedaveragenumberofordinarysharesusedasthedenominatorincalculatingbasicearningspershare 33,204,782 30,132,560Weightedaveragenumberofordinarysharesandpotentialordinarysharesusedasthedenominatorincalculatingdilutedearningspershare 33,204,782 30,132,560

Optionsareconsideredtobepotentialordinaryshares.Theoptionsarenotincludedinthecalculationofdilutedearningspersharebecausetheyareantidilutive.Theseoptionscouldpotentiallydilutebasicearningspershareinthefuture.

Note �2 Explanation of transition to Australian equivalents of IFRSs

(a) Reconciliation of equity reported under previous Australian Generally Accepted Accounting Principles (AGAAP) to equity under Australian equivalents to IFRSs (AIFRS)TheadoptionofAIFRSshasnotresultedinanymaterialadjustmentstothenetassets.

(b) Reconciliation of (loss) for the year ended �0 June 200�TheadoptionofAIFRSshasnotresultedinanymaterialadjustmentstotheincomestatement.

(c) Reconciliation of cash flow statement for the year ended �0 June 200�TheadoptionofAIFRSshasnotresultedinanymaterialadjustmentstothecashflowstatement.


continued


Cap-XX limited Directors’ declaration 30 June 2006

Inthedirectors’opinion:

(a) thefinancialstatementsandnotessetoutonpages18-60areinaccordancewiththeCorporationsAct2001,including: (i) complyingwithAccountingStandards,theCorporationsRegulations2001andmandatoryprofessionalreporting

requirements;and (ii) givingatrueandfairviewofthecompany’sandconsolidatedentity’sfinancialpositionasat30June2006andoftheir

performance,asrepresentedbytheresultsoftheiroperations,changesinequityandtheircashflows,forthefinancialyearendedonthatdate;and

(b) therearereasonablegroundstobelievethatthecompanywillbeabletopayitsdebtsasandwhentheybecomedueandpayable;and

Thedirectorshavebeengiventhedeclarationsbythechiefexecutiveofficerandchieffinancialofficerintheformcontainedinsection295AoftheCorporationsAct2001.

Thisdeclarationismadeinaccordancewitharesolutionofthedirectors.

MichaelQuinn

Director

Sydney

5October2006

63CAP-XX LIMITED ANNUAL REPORT 200606


Notes

CAP-XX Limited is a world

leader in the design and

manufacture of revolutionary

thin-form supercapacitors

predominately for use in small

portable electronic devices.

Supercapacitors can

considerably extend battery

run-times and provide

power-hungry functions that

are not possible with current

battery technology.





CAP-XX Limited is a world leader in the design and manufacture of revolutionary thin-form supercapacitors predominately for use in small portable electronic devices. Supercapacitors can considerably extend battery run-times and provide power-hungry functions that are not possible with current battery technology. The photograph shows part of the automated production process in Sydney, Australia



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