For personal use only - ASX2007/10/31 · Sam Di Giacomo. Non-Executive Director COMPANY SECRETARY Simon Robertson REGISTERED AND PRINCIPAL OFFICE: 23 View Street North Perth, Western

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c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | c o r p o r a t e d i r e c t o r y

COMPANY

Costarella Design Limited

ABN 42 091 559 125

DIRECTORS

Aurelio Costarella. Managing Director/Creative Director

Cathryn Curtin. Non-Executive Director

Sam Di Giacomo. Non-Executive Director

COMPANY SECRETARY

Simon Robertson

REGISTERED AND PRINCIPAL OFFICE:

23 View Street North Perth, Western Australia 6006

Telephone 08 9227 6535

Facsimile 08 9227 5561

Website www.aureliocostarella.com.au

SHARE REGISTER

Computershare Investor Services Pty Ltd

Level 2

45 St Georges Terrace Perth Western Australia 6000

Freecall No. 1300 55 70 10

International Call. +61 8 9323 2000

Facsimile. +61 8 9323 2033

BANKERS

Commonwealth Bank of Australia

Level 4

150 St George’s Terrace

Perth Western Australia 6000

AUDITORS

Stantons International

Level 1

1 Havelock Street

West Perth Western Australia 6005

SOLICITORS

Steinerpreis Paganin

Level 4

16 Milligan Street Perth Western Australia 6000

SECURITIES EXCHANGE

Australian Securities Exchange Limited

ASX CODE: CLD

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c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | c o n t e n t s

CORPORATE DIRECTORY 2

OPERATIOns REVIEW 7

DIRECTORs’ REPORT 11

fInAnCIAl sTATEMEnTs 21

nOTEs TO THE fInAnCIAl sTATEMEnTs 29

DIRECTORs’ DEClARATIOn 55

AUDITORs InDEPEnDEnCE DEClARATIOn 57

InDEPEnDEnT AUDITOR’s REPORT 58

CORPORATE GOVERnAnCE sTATEMEnT 61

ADDITIOnAl InfORMATIOn 66

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OPERATIONS REvIEw

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O7OverviewThe full text of the Review of Operations is contained within the Director’s report on page 11. The key information from theReview of Operations report is sumarised below.

The Company has adopted a process-oriented approach to

the promotion and marketing of its brand in the international

marketplace since listing on the ASX in March 2007.

OPERATING REvIEw AND RESULTS

The expansion of the Company’s brands requires a strong

strategic approach with a considerable initial investment.

The Company appointed leading New York public

relations firm MAO PR in January this year.

After developing an alliance with Agent 011, a leading

fashion showroom agent based in New York, the Company

will focus on expanding throughout Agent 011’s international

distribution network.

The Company successfully participated in Australian

Fashion Week 2007 which resulted in sales orders worth

approximately $400,000.

Brand expansion initiatives also focus on increasing

awareness through celebrity endorsements and editorial

coverage. Visibility in global markets has also increased,

particularly in New York where MAO PR are working on

editorial placements with leading fashion publications

around the world.

FINANCIAL REvIEw

Key financial information:

Total revenue $915,049 (2006: $649,627)

Loss for year $781,209 (2006: $45,997) includes

$313,000 spent directly on brand development and

marketing

30 June 2007 cash reserves $1,056,102

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

Increase in share capital of $1,940,575 included

successful completion of Initial Public Offering

on the ASX

Capital raising has allowed the company to continue

brand development and marketing in the international

market place

FUTURE DEvELOPMENTS

The company established a strategic partnership with a

leading manufacturer of professional makeup, sk in care

and beauty accessories, I Nuovi Cosmetics (S) Pte Ltd.

The Company will continually explore other means of

expanding its global reach to maximise opportunities for

strategic growth.

Over the next year the continued focus will be on quality

– both in the creation of outstanding products and in terms

of delivering long term value and returns to shareholders.

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c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | o p e r a t i o n s r e p o r t

THE DESIGN AND DEvELOPMENT OF EACH AURELIO COSTARELLA COLLECTION IS APPROACHED AS A jOURNEY wHICH EvOLvES PIECE BY PIECE. FROM THE vERY FIRST SKETCHES TO THE FINAL STITCHES AND EMBELLISHMENTS, EACH GARMENT IS FUSED wITH METICULOUS ATTENTION TO DETAIL AND THE CREATIvE ENERGY wHICH FORMS THE BASIS OF THE COMPANY’S DESIGN PHILOSOPHY.F

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DIRECTOR’S REPORT

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c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | d i r e c t o r ’s r e p o r t

The Directors of Costarella Design Limited present the annual financial report on the Consolidated Entity consisting of Costarella Design Limited (“the Company” or “Costarella”) and the entities it controlled during the year ended 30 June 2007 (“Consolidated Entity”). In order to comply with the provisions of the Corporations Act 2001, the Directors report as follows:

DirectorsThe names of the Directors in office during or since the end

of the previous financial year were:

DIRECTORS CURRENTLY IN OFFICE

Ms Patti Chong

Mr Aurelio Costarella

Mr Sam Di Giacomo

Ms Cathryn Curtin

Patti Chong was appointed as Non-Executive Chairperson

on 29 August 2006.

DIRECTORS NO LONGER IN OFFICE

No Director resigned or was retired during the financial year.

DETAILS OF CURRENT DIRECTORS ARE AS

FOLLOwS:

Non-Executive Chairperson

Ms Patti Chong Peng SA (B.Juris.LLB)

Patti is a celebrated lawyer with outstanding legal

knowledge gained across a range of roles including Senior

State Prosecutor with the Office of the Director of Public

Prosecutions and general counsel with the Corruption and

Crime Commission. She has established her own private

law practice in Perth. To the board of Costarella she brings

understanding of risk prevention, management experience

and an understanding of representing organisations within

the public arena. Patti is a member of the Institute of

Company Directors.

Managing Director/Creative Director

Mr Aurelio (Ray) Costarella

Aurelio has a distinguished career in the fashion industry

with over 23 years of experience in design and business

management. Aurelio Costarella is the only Western

Australian fashion label represented in prestigious

international stores Curve (New York and LA), Jack Henry

(LA), Gio Moretti and Lazzari (Italy). He represents Western

Australian at the Fashion Group International conferences,

is a casual lecturer at the Curtin University School of Art,

a founding committee member of the Western Australian

Fashion Industry Association and is the only Western

Australian based designer to show regularly at New York

Fashion Week. In 1994, 1995 and 2004 he was named WA

Designer Of The Year and was a finalist in the 2007 WA Citizen

of the Year Awards in recognition to his contribution to the

culture and light manufacturing industry of WA.

Non-Executive Director

Mr Sam Di-Giacomo (B Bus, ACA, CPA, F.Fin)

Sam has been involved in numerous capital raisings at all

stages from seed to IPO and ASX listings, and has been

involved in a number of technology and distribution licensing

deals. He has experience in international expansion

including capital markets initiatives, Australian and

international listings and capital raisings (NASDAQ and the

LSE) and the capture of new intellectual property.

He is a founder member of a number of Australian life science

companies including Spcimedica Ltd, Australian Cancer

Technology (now Avantogen), Resonance Health, and

founding Director of Advance Healthcare Group.

Sam is an Associate Member of the Institute of Chartered

Accountants in Australia (ACA) and Fellow of Financial

Services Institute of Australasia (FFIN). He is also a Fellow of

the Australian Institute of Management and is a Certified

Practicing Accountant (CPA).

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Cathryn Curtin (B.A. , B.Ed. ,MBA,MAICD,MAPS)

Cathryn has a strong management background in both

government and private business. She is a Non- Executive

Director with the ASX l isted companies Neptune Marine

Services Limited, Coretrack Limited and previously Dyesol

Limited. As a Director, Cathryn has been part of a team to

develop strategies for the international commercialisation of

new and innovative technology and products.

Her role as Non- Executive director of these companies has

underscored her effective contribution in the promotion and

development of corporate governance and system initiatives

in listed entities. Cathryn operates an independent

consultancy business providing services to private and

government sectors. She is a registered psychologist and

member of the Australian Institute of Company Directors.

Name CompaNy period of direCtorship

CATHRYn CURTIn CORETRACk lIMITED sInCE 2006

CATHRYn CURTIn nEPTUnE MARInE sERVICEs lIMITED sInCE 2003

CATHRYn CURTIn DYEsOl lIMITED 2004 – 2006

sAM DI GIACOMO ADVAnCED HEAlTHCARE lIMITED 2001 – 2005

sAM DI GIACOMO MIllEPEDE InTERnATIOnAl lIMITED sInCE 2006

sAM DI GIACOMO ROCkEbY bIOMED lIMITED sInCE 2006

Patti Chong and Aurelio Costarella have had no other Directorships in listed companies in the last 3 years.

DIRECTORSHIPS OF OTHER LISTED COMPANIES

Directorships of other listed companies held by Directors in the 3 years immediately before the end of the financial year, or

the date the Director resigned, are as follows:

Company Secretary

Simon Robertson, B.Bus, CA, M Appl. Fin.

Mr Robertson gained a Bachelor of Business from Curtin University in Western Australia and Master of Applied Finance from

Macquarie University in New South Wales. He is a member of the Institute of Chartered Accountants and the Chartered

Secretaries of Australia. Mr Robertson has experience as a Company Secretary and in transaction management. He has also

been involved in management of the ASX listing process and several specific asset transfers, general accounting for public

companies and preparation of financial statements.

PRINCIPAL ACTIvITIES

The principal activity of the Consolidated Entity as at the balance date has not changed from the previous financial year.

The Consolidated Entity wholesales and retails high end fashion garments. There have been no significant changes in the

nature of these activities during the year.

EMPLOYEES

2007 2006

THE nUMbER Of fUll TIME EqUIVAlEnT PEOPlE EMPlOYED bY THECOnsOlIDATED EnTITY AT bAlAnCE DATE

8 5

DIvIDENDS

No dividends have been declared, provided for or paid in respect of the financial year ended 30 June 2007.

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O13Review of OperationsOvERvIEw

The hallmark of the Aurelio Costarella brand is the superior

quality of its products, paired with its artisan approach to

design. The Company’s unique location in Perth allows it to

access a wealth of resources from neighbouring South East

Asia — particularly fabrics and premium hand beaded and

embroidered materials from India — which affords us both

commercial and creative advantages.

Experience has shown that creating fashion through a process

which is planned to the last detail can halt the spontaneity

and creative flow of a collection. Instead, the design and

development of each Aurelio Costarella collection is

approached as a journey which evolves piece by piece.

From the very first sketches to the final stitches and

embellishments, each garment is fused with meticulous

attention to detail and the creative energy which forms the

basis of the Company’s design philosophy.

While the unique design journey relies on freedom of

creativity and spontaneity, the Company has adopted a

process-oriented approach to the promotion and

marketing of its brand in the international marketplace

since listing on the ASX in March 2007.

OPERATING REvIEw AND RESULTS

The expansion of the Company’s brands requires a strong

strategic approach with a considerable initial investment.

In January this year, the Company appointed leading New

York public relations firm MAO PR with a mandate to grow

its brand within the lucrative US market.

After developing an alliance with Agent 011, a leading

fashion showroom agent based in New York, the Company

will focus on expanding throughout Agent 011’s distribution

network, which extends through the US to Europe, Africa,

Asia and the Middle East.

The Company successfully participated in Australian Fashion

Week 2007 which resulted in sales orders worth approximately

$400,000 from both Australian and international customers,

The Company will now seek to build on this success to

increase market penetration.

Brand expansion initiatives also focus on increasing

awareness through celebrity endorsements and editorial

coverage. In Australia, recent publicity has included

coverage in Harper’s Bazaar and an endorsement with singer

Kate Ceberano in InStyle. Visibility in global markets has also

increased, particularly in New York where MAO PR are

working on editorial placements with leading fashion

publications around the world , including Cosmo in the US and

the Chinese and Italian editions of Vogue.

FINANCIAL REvIEw

Total revenue for the year was $ 915,049, up from $ 649,627

in the previous year. The loss for the year of $ 781,209 (2006:

$45,997) reflected the costs of the increased activities

associated with brand development and marketing with

approximately $313,000 spent directly on this activity.

An increase in staff and overhead costs also occurred as the

Company’s activities increased.

At 30 June 2007 the Company had cash reserves of

$1,056,102.

SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS

During the year the Company increased its share capital by

approximately $1,940,575, which included successfully

completing its Initial Public Offering and listing on the ASX.

The raisings undertaken provided the capital required for

the Company to continue its focus on building its brand in

the Australian and global markets.

SUBSEqUENT EvENTS

Details of subsequent events are set out in note 23 to the

financial statements.

FUTURE DEvELOPMENTS

Being one of the first fashion design houses with a global

focus listed on the ASX, has seen the Company change its

focus from “seasons” to market cycles and financial year ends.

Based on the achievements of the brand in both the

northern and southern hemispheres the Company will

continue to focus on fashion but in 2008 will incorporate

other high-end luxury products under the Aurelio

Costarella brand.

Following the establishment of a strategic partnership with

a leading manufacturer of professional makeup, skin care

and beauty accessories, I Nuovi Cosmetics (S) Pte Ltd, a range

of skincare, body care, home products and an Aurelio

Costarella signature scent are expected to be released to a

global market in the first half of 2008.

The Company will continually explore other means of

expanding its global reach to maximise opportunities for

strategic growth. The Company is also currently pursuing

strategic acquisitions which can provide the Company with

synergistic benefits and which will enable the Company to

leverage off the distribution networks which it has


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established and is building. Over the next year the continued

focus will be on quality – both in the creation of

outstanding products and in terms of delivering long term

value and returns to shareholders.

DIRECTORS’ MEETINGS

The following table sets out the number of meetings of the

Company’s Directors held during the financial year ended

30 June 2007 and the number of meetings attended by

each Director.

DirectOr DirectOrs’ Meetings

TOTAl MEETInGs HElD

MEETInGs HElD WHIlsT

In OffICE

nUMbER Of MEETInGs ATTEnDED

DirectOrs

AURElIO COsTAREllA 15 13

CATHRYn CURTIn 15 15

PATTI CHOnG 14 14

sAM DI GIACOMO 15 15


DIRECTORS’ SHAREHOLDINGS

The following table sets out each Director ’s relevant interest in shares and options in shares of the Company as at the date

of this report, as well as the details of securities issued or granted to the Directors of the Company during and since the end

of the financial year:

DirectOrinterest insecurities at the

Date Of this repOrt

interest in securities issueD/granteD During anD

since the enD Of the year

ORDInARY sHAREs (1)

lIsTEDOPTIOns

(2 (3)

UnlIsTED OPTIOns(3)

ORDInARY sHAREs (1)

lIsTED OPTIOns

(2) (3)

UnlIsTED OPTIOns (3)

AURElIO COsTAREllA 18,000,000 2,000,000 - - 2,000,000

CATHRYn CURTIn 2,026,667 1,013,334 - - 1,013,334 -

sAM DI GIACOMO 578,500 269,250 - 578,500 269,250 -

PATTI CHOnG 65,400 - - 65,400 - -

NOTES

(1) “Ordinary shares” means fully paid ordinary shares in the capital of the Company.

(2) “Listed options” on issue are exercisable at 20 cents each on or before 30 September 2010.

(3) Each “listed option” and “unlisted option” entitles the holder to exercise that option as per the relevant terms to receive an “ordinary share”.

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O15


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Remuneration Report.This report outlines the remuneration arrangements in place for Directors and Executives of the Company.

Director and Executive DetailsThe Directors of Costarella Design Limited during the year were:Ms Patti Chong (appointed 26 August 2006)Mr Aurelio CostarellaMr Sam Di GiacomoMs Cathryn Curtin The Group Executives of Costarella Design Limited during the year were:Mr Paul O’Connor (appointed 2 October 2006)Ms Donna Greenwood (appointed 2 October 2006)

REMUNERATION PHILOSOPHY

The performance of the Company depends upon the quality

of its Directors and Executives. To prosper, the Company must

attract, motivate and retain highly skilled Directors and

Executives.

To this end, the Company embodies the following principles

in its remuneration framework:

Provide competitive rewards to attract high calibre

Executives

Link Executive rewards to shareholder value

A portion of Executive remuneration may be put ‘at risk’,

dependent on meeting pre-determined performance

benchmarks

Establish appropriate, demanding performance hurdles

in relation to variable Executive remuneration.

Due to the early stage of development which the Company

is in, Shareholder wealth is directly affected by the Company

share price, as the Company is not in a position to pay

dividends. By remunerating Directors and Executives in part

by share based payments, the Company aims to align the

interests of Directors and Executives with Shareholder

wealth, thus providing individual incentive to perform and

thereby improving overall Company performance and

associated value.

REMUNERATION STRUCTURE

In accordance with best practice corporate governance, the

structure of Non-Executive Director and Senior Executive

remuneration is separate and distinct.

NON-EXECUTIvE DIRECTOR REMUNERATION

Objective

The Board seeks to set aggregate remuneration at a level

which provides the Company with the ability to attract and

retain Directors to the highest calibre, whilst incurring a cost

which is acceptable to shareholders.

Structure

The Constitution and the ASX Listing Rules specify that the

aggregate Directors’ fees payable to Non-Executive Directors

shall be determined from time to time by a general

meeting. An amount not exceeding the amount determined

is then divided between the Directors as agreed. The latest

determination was at the General Meeting held on 26 April

2006 when shareholders approved an aggregate Directors

fees payable of $150,000 per year.

The amount of aggregate Directors’ fees sought to be

approved by shareholders and the manner in which it is

apportioned amongst Directors is reviewed annually.

The Board may consider advice from external consultants as

well as the fees paid to Non-Executive Directors of comparable

companies when undertaking the annual review process.

Each Non-Executive Director receives a fee of $40,000

(exclusive of superannuation) effective from 1 January 2007

for being a Director of the Company. The Non-Executive

Chairperson receives a fee of $50,000 per annum (exclusive

of superannuation) effective from 1 January 2007.

No additional fees are currently paid for Directors sitting on

Board committees. However, if a Director performs extra or

special services beyond their role as a Director, the Board may

resolve to provide additional remuneration for such services.

The remuneration of Non-Executive Directors for the period

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O17ended 30 June 2007 is detailed in Table 1 on page 18 of

this report.

EXECUTIvE REMUNERATION

Objective

The Company aims to reward Executives (both Directors and

Company Executives) with a level and mix of remuneration

commensurate with their position and responsibilities

within the Company and so as to:

Reward Executives for Company performance;

Align the interest of Executives with those of

shareholders;

Link reward with the strategic goals and performance

of the Company; and

Ensure total remuneration is competitive by market

standards.

Structure

Executive remuneration consists of both fixed and variable

elements.

FIXED REMUNERATION

Objective

The level of fixed remuneration is set so as to provide a base

level of remuneration which is both appropriate to the

position and is competitive in the market.

Fixed remuneration is reviewed annually or upon renewal of

fixed term contracts by the Remuneration Committee and

the process consists of a review of Company and individual

performance, relevant comparative remuneration in the

market and internal policies and practices.

Structure

Executives are given the opportunity to receive their fixed

remuneration in a variety of forms including cash and fringe

benefits. It is intended that the manner of payment chosen

will be optimal for the recipient without creating undue

cost for the Company. The fixed remuneration for Executive

Directors and other specified Executives is detailed in Tables

1 and 2 on page 18 of this report.

vARIABLE REMUNERATION

Objective

The objective of variable remuneration provided is to

reward Executives in a manner which aligns this element of

remuneration with the creation of shareholder wealth.

Structure

Variable remuneration may be delivered in the form of

options or cash bonus.

EMPLOYMENT CONTRACTS

Aurelio Costarella

The Company has an Executive services agreement with

Aurelio Costarella pursuant to which Mr Costarella has agreed

to serve the Company as Managing Director for a term of five

years commencing 4 October 2006. Mr Costarella may extend

the term for a period of three years by giving notice to the

Company. The Company pays Mr Costarella a salary of

$120,000 per year for his services (inclusive of

superannuation) effective from 1 January 2007. The Company

or the Executive may terminate the employment by giving 3

months written notice. The Company also provides

Mr Costarella with a mobile telephone and motor vehicle.

Mr Costarella’s key responsibilities include the promoting

and directing the performance, organisation and growth of

the Company’s business. The agreement is otherwise on usual

commercial terms.

Paul O’Connor

The Company has an employment agreement with

Paul O’Connor pursuant to which Mr O’Connor has agreed to

serve the Company as Public Relations and Sales Manager

for a term of two years commencing 2 October 2006.

The Company or the Executive may terminate the employment

by giving 3 months written notice. The Company will pay to

Mr O’Connor a salary of $70,000 per year (exclusive of

superannuation). The agreement is otherwise on usual

commercial terms.

OTHER CONTRACTS OF SERvICE

Sam Di Giacomo

The Company has entered into a corporate services

agreement with Sam Di Giacomo. The Company has agreed

to pay a consulting fee to Mr Di Giacomo of $6,000 per month.


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shOrt terM pOst eMplOyMent equity tOtal (i)

sAlARY & fEEs bOnUs nOn MOnETARY sUPERAnnUATIOn OPTIOns

$ $ $ $ $ $

PATTI CHOnG 2007 25,000 - - 2,250 - 27,250

2006 - - - - - -

AURElIO COsTAREllA 2007 90,047 - 825 8,140 - 99,012

2006 60,000 - - 5,400 - 65,400

sAM DI GIACOMO 2007 40,965 - 1,800 - 42,765

2006 - - - - - -

CATHRYn CURTIn 2007 54,252 - - 1,800 - 56,052

2006 5,000 - - - - 5000

tOtal 2007 210,264 - 825 13,990 - 225,079

tOtal 2006 65,000 - - 5,400 - 69,400

Table 2: Remuneration of the 5(i) highest remunerated Executives of the Company and Group Executives of the Consolidated Entity for the year ended 30 June 2007

shOrt terM pOst eMplOyMent equity tOtal (i)


$ $ $ $ $ $

PAUl O,COnnOR 2007 54,166 - - 4,335 - 58,501

2006 24,400 - - - - -

DOnnA GREEnWOOD 2007 30,257 4,306 - 3,111 - 37,674

2006 - - - - - -

tOtal 2007 84,423 4,306 - 7,446 - 96,175

tOtal 2006 24,400 - - - - 24,400


(i) For the year ended 30 June 2007, the Company had only 2 people that met the definition of a Company Executive.

(ii)Donna Greenwood receives a performance based bonus. No other amounts paid to Executives during the year were the subject of performance criteria.

Table 1: Director Remuneration for the year ended 30 June 2007

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O19


OPTIONS OvER ORDINARY SHARES

No options were granted to Directors or Executives during

the financial year.

INSURANCE OF OFFICERS AND AUDITORS

During the financial year, the Company paid a premium in

respect of a contract insuring the Directors of the Company,

the Company secretary and all Executive officers of the

Company and of any related body corporate against a

liability incurred as such a Director, secretary or Executive

officer to the extent permitted by the Corporations Act

2001. The contract of insurance prohibits the disclosure of

the nature of liability and the amount of the premium.

The Company has also entered into deeds of access and

indemnity with the Directors.

The Company has not otherwise, during and since the end

of the financial year, except to the extent permitted by law,

agreed to indemnify an officer or auditor of the Company or

any related body corporate against a liability incurred as

such an officer or auditor.

NON-AUDIT SERvICES

Details of the amount paid or payable to the auditor for

non-audit services provided during the year by the auditor

are outlined in note 20 to the financial statements.

The Directors are satisfied that the provision of non-audit

services, during the year, by the auditor (or by another

person or firm on the auditor’s behalf ) is compatible with the

general standard of independence for auditors imposed by

the Corporations Act 2001.

The Directors are of the opinion that the services as disclosed

in note 20 to the financial statements do not compromise the

external auditors’ independence for the following reasons:

All non-audit services have been reviewed and approved

to ensure they do not impact the integrity and

objectivity of the auditor, and

None of the services undermine the general principles

relating to auditor independence as set out in the code

of conduct APES 110 Code of Ethics for Professional

Accountants issued by the Accounting Professional and

Ethical Standards Board, including reviewing or auditing

the auditor ’s own work, acting in a management or

decision making capacity for the Company, acting as an

advocate for the Company or jointly sharing economic

risks and rewards.

AUDITOR’S INDEPENDENCE DECLARATION

The auditor ’s independence declaration is included on

page 57 of the financial report.

This report is made in accordance with a resolution of the

Directors made pursuant to section 298(2) of the

Corporations Act 2001.

For and on behalf of the Directors

Sam Di Giacomo


Perth, 27 September 2007

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FINANCIAL STATEMENTS

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O21cOnsOliDateD cOMpany

nOte 2007 2006 2007 2006

$ $ $ $

revenue 3(A) 837,660 612,895 837,660 612,895

COsT Of sAlEs (580,069) (271,720) (580,069) (271,720)

GROss PROfIT 257,591 341,175 257,591 341,175

OTHER InCOME 3(A) 77,389 36,732 77,389 36,732

bRAnD DEVElOPMEnT ExPEnsEs (317,231) (117,628) (317,231) (117,628)

CORPORATE & ADMInIsTRATIOn ExPEnsEs (382,617) (73,693) (382,617) (73,693)

DEPRECIATIOn (30,386) (17,278) (30,386) (17,278)

fInAnCE COsTs 3(b) (25,550) (10,783) (25,550) (10,783)

sTAff COsTs (360,405) (204,482) (360,405) (204,482)

lOss befOre incOMe tax expense (781,209) (45,957) (781,209) (45,957)

InCOME TAx ExPEnsE 4 - - - -

tOtal lOss attributable tO MeMbers Of cOstarella Design liMiteD 15 (781,209) (45,957) (781,209) (45,957)

bAsIC lOss PER sHARE (CEnTs) 16 (2.16) (1.03)

c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | i n c o m e s t a t e m e n t

Notes to the financial statements are included on pages 29 to 54

Income Statement for the Year Ended 30 June 2007

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cOnsOliDateD cOMpany

nOte 2007 2006 2007 2006

$ $ $ $

current assets

CAsH AnD CAsH EqUIVAlEnTs 5 1,056,103 147,290 1,056,102 147,290

TRADE AnD OTHER RECEIVAblEs 6 45,307 75,321 45,307 75,321

InVEnTORIEs 8 349,460 151,185 349,460 151,185

OTHER AssETs 7 17,511 2,245 17,511 2,245

tOtal current assets 1,468,381 376,041 1,468,380 376,041

nOn current assets

OTHER fInAnCIAl AssETs 9 - - 1 -

InVEnTORIEs 8 118,135 64,786 118,135 64,786

PROPERTY, PlAnT AnD EqUIPMEnT 10 164,719 76,317 164,719 76,317

tOtal nOn current assets 282,854 141,103 282,855 141,103

tOtal assets 1,751,235 517,144 1,751,235 517,144


Balance Sheet as at 30 June 2007

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nOte 2007 2006 2007 2006

$ $ $ $

current liabilities

TRADE AnD OTHER PAYAblEs 11 294,749 151,210 294,749 151,210

bORROWInGs 12 8,112 32,439 8,112 32,439

PROVIsIOns 13 48,382 - 48,382 -

tOtal current liabilities 351,243 183,649 351,243 183,649

nOn-current liabilities

bORROWInGs 12 27,913 136,484 27,913 136,484

PROVIsIOns 13 15,702 - 15,702 -

tOtal nOn-current liabilities 43,615 136,484 43,615 136,484

tOtal liabilities 394,858 320,133 394,858 320,133

net assets 1,356,377 197,011 1,356,377 197,011

equity

IssUED CAPITAl 14 2,179,887 239,312 2,179,887 239,312

ACCUMUlATED lOssEs 15 (823,510) (42,301) (823,510) (42,301)

tOtal equity 1,356,377 197,011 1,356,377 197,011

c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | b a l a n c e s h e e t


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O25

YEAR EnDED 30 JUnE 2007 issueD capitalaccuMulateD

lOssestOtal

bAlAnCE AT bEGInnInG Of THE fInAnCIAl YEAR 239,312 (42,301) 197,011

IssUEs Of sHARE CAPITAl, nET Of CAPITAl RAIsInG COsTs 1,940,575 - 1,940,575

lOss fOR THE YEAR - (781,209) (781,209)

2,179,887 (823,510) 1,356,377

YEAR EnDED 30 JUnE 2006 issueD capitalaccuMulateD

lOssestOtal

bAlAnCE AT bEGInnInG Of THE fInAnCIAl YEAR 30,062 3,656 33,718

IssUEs Of sHARE CAPITAl, nET Of CAPITAl RAIsInG COsTs 209,250 - 209,250

lOss fOR THE YEAR - (45,957) (45,957)

239,312 (42,301) 197,011

c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | s t a t e m e n t i n c h a n g e s o f e q u i t y

Statement of changes in equity for the year ended 30 June 2007

cOnsOliDateD anD cOMpany

cOnsOliDateD anD cOMpany


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nOte 2007 2006 2007 2006

$ $ $ $

cash flOws frOM Operating activities

RECEIPTs fROM CUsTOMERs 874,435 509,367 874,435 509,367

PAYMEnTs TO sUPPlIERs AnD EMPlOYEEs (1,515,222) (701,205) (1,515,222) (701,205)

InTEREsT RECEIVED 31,002 97 31,002 97

InCOME TAx REfUnD 7,322 5,985 7,322 5,985

PROCEEDs fROM GRAnTs RECEIVED 45,887 26,357 45,887 26,357

OTHER InCOME 326 - 326 -

sECURITY DEPOsIT MADE (6,336) - (6,336) -

InTEREsT PAID (25,550) (896) (25,550) (896)

net cash flOws useD in Operating activities 5(b) (588,136) (160,295) (588,136) (160,295)

cash flOws frOM investing activities

PAYMEnTs fOR PROPERTY, PlAnT & EqUIPMEnT (99,273) (22,094) (99,273) (22,094)

InVEsTMEnT In AssOCIATED EnTITY - - (1) -

net cash flOws useD in investing activities (99,273) (22,094) (99,274) (22,094)

cash flOws frOM financing activities

PROCEEDs fROM bORROWInGs 297,225 106,898 297,225 106,898

PROCEEDS FROM ISSUE OF SHARES, NET OF CAPITAL RAISING COSTS 1,740,575 209,250 1,740,575 209,250

REPAYMENT OF BORROwINGS (441,578) (6,821) (441,578) (6,821)

net cash flOws prOviDeD frOM financing activities 1,596,222 309,327 1,596,222 309,327

net Decrease in cash anD cash equivalents helD 908,813 126,938 908,812 126,938

CASH AND CASH EqUIvALENTS AT THE BEGINNING OF THE FINANCIAL YEAR 147,290 20,532 147,290 20,532

cash anD cash equivalents at the enD Of the financial year 5(a) 1,056,103 147,290 1,056,102 147,290

Cash flow statement for the year ended 30 June 2007

c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | c a s h f l o w s t a t e m e n t


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NOTES TO THE FINANCIAL STATEMENTS

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O291 . SUMMARY OF ACCOUNTING POLICIES

GENERAL INFORMATION

Costarella Design Limited (the Company) is a listed public

Company, incorporated in Australia.

Costarella Design Limited’s registered office and principal

place of business is:

23 View Street, North Perth 6006, Western Australia

ADOPTION OF NEw AND REvISED ACCOUNTING

STANDARDS

In the current year, the Company has adopted all of the new

and revised Standards and Interpretations issued by the

Australian Accounting Standards Board (the AASB) that are

relevant to its operations and effective for the current annual

reporting period. The adoption of these new and revised

Standards and Interpretations has not resulted in changes to

the Company’s accounting policies.

At the date of authorization of the financial report, the

following Standards and Interpretations were in issue but

not yet effective:

EffECTIVE fOR AnnUAl REPORTInG PERIODs bEGInnInG On OR AfTER

AAsb 7 ‘fInAnCIAl InsTRUMEnTs: DIsClOsUREs’

1 JAnUARY 2007

AAsb 8 ‘OPERATInG sEGMEnTs’ 1 JAnUARY 2009

AAsb 101 ‘PREsEnTATIOn Of fInAnCIAl sTATEMEnTs’ – REVIsED sTAnDARD

1 JAnUARY 2007

AAsb 123 ‘bORROWInG COsTs’ REVIsED sTAnDARDs

1 JAnUARY 2009

AAsb 2007-4 ‘AMEnDMEnTs TO AUsTRAlIAn ACCOUnTInG sTAnDARDs ARIsInG fROM ED 151 AnD OTHER AMEnDMEnTs

1 JUlY 2007

AAsb 2007-7 ‘AMEnDMEnTs TO AUsTRAlIAn ACCOUnTInG sTAnDARDs’

1 JUlY 2007

InTERPRETATIOn 10 ‘InTERIM fInAnCIAl REPORTInG AnD IMPAIRMEnT’

1 nOVEMbER 2006

InTERPRETATIOn 11 ‘AAsb 2 – GROUP AnD TREAsURY sHARE TRAnsACTIOns’

1 MARCH 2007

InTERPRETATIOn 12 ‘sERVICE COnCEssIOn ARRAnGEMEnTs’

1 JAnUARY 2008

IfRIC 13 ‘CUsTOMER lOYAlTY PROGRAMMEs’

1 JUlY 2008

IfRIC 14’IAs 19 – THE lIMIT On A DEfInED bEnEfIT AssET, MInIMUM fUnDInG REqUIREMEnTs AnD THEIR InTERACTIOn’

1 JAnUARY 2008

The Directors anticipate that the adoption of these

Standards and Interpretations in future periods will have no

material financial impact on the financial statements of the

Company. The circumstances addressed by Interpretation

10, which prohibits the reversal of certain impairment

losses, do not affect the Company’s previously reported

results and accordingly, there will be no impact to these

financial statements on adoption of the Interpretation.

The application of AASB 101 (revised), AASB 7 and AASB

2005-10 will not affect any of the amounts recognized in the

financial statements, but will change the disclosures

presently made in relation to the Company’s financial

instruments and the objectives, policies and processes for

managing capital.

These Standards and Interpretations will be first applied in

the financial report of the Company that relates to the annual

reporting period beginning after the effective date of each

pronouncement, which will be the Company’s annual

reporting period beginning on 1 July 2007.

c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | n o t e s t o a n d f o r m i n g p a r t o f t h e f i n a n c i a l s t a t e m e n t s

Notes to and forming part of the financial statements

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1. SUMMARY OF ACCOUNTING POLICIES CONTINUED

STATEMENT OF COMPLIANCE

The financial report is a general purpose financial report

which has been prepared in accordance with the Corporations

Act 2001, Accounting Standards and Interpretations, and

complies with other requirements of the law. Accounting

Standards include Australian equivalents to International

Financial Reporting Standards (‘A-IFRS’). Compliance with the

A-IFRS ensures that the consolidated financial statements

and notes of the Consolidated Entity comply with

International Financial Reporting Standards (‘IFRS’).

The Parent Entity financial statements and notes also comply

with IFRS except for the disclosure requirements in IAS 32

‘Financial Instruments: Disclosure and Presentation’ as the

Australian equivalent Accounting Standard, AASB 132

‘Financial Instruments: Disclosure and Presentation’ does

not require such disclosures to be presented by the Parent

Entity where its separate financial statements are presented

together with the consolidated financial statements of the

Consolidated Entity.

The financial statements were authorised for issue by the

Directors on 26 September 2007.

BASIS OF PREPARATION

The financial report has been prepared on the basis of

historical cost, except for the revaluation of certain non-current

assets and financial instruments. Cost is based on the fair

values of the consideration given in exchange for assets.

Accounting policies are selected and applied in a manner

which ensures that the resulting financial information satisfies

the concepts of relevance and reliability, thereby ensuring

that the substance of the underlying transactions or other

events is reported.

The accounting policies set out below have been applied in

preparing the financial statements for the year ended 30 June

2007 and the comparative information presented in these

financial statements for the year ended 30 June 2006.

The following significant accounting policies have been

adopted in the preparation and presentation of the

financial report:

(A) CASH AND CASH EqUIvALENTS

Cash and cash equivalents comprise cash on hand, cash

in banks and investments in money market instruments,

net of outstanding bank overdrafts. Bank overdrafts are

shown within borrowings in current liabilities in the

balance sheet.

(B) EMPLOYEE BENEFITS

Wages, salaries and annual leave

Liabilities for wages and salaries, including non-monetary

benefits, and annual leave expected to be settled

within 12 months of the reporting date are recognised

in other payables in respect of employees’ services up

to the reporting date and are measured at the amounts

expected to be paid when the liabilities are settled.

Long service leave

The liability for long service leave is recognised in the

provision for employee benefits and measured as the

present value of expected future payments to be made

in respect of services provided by employees up to the

reporting date using the projected unit credit method.

Consideration is given to expected future salaries,

experience of employee departures and periods of

service. Expected future payments are discounted

using market yields at the reporting date on national

government bonds with terms to maturity and currency

that match, as closely as possible, the estimated future

cash outflows.

(C) FINANCIAL ASSETS

Investments are recognised and derecognised on trade

date where purchase or sale of an investment is under a

contract whose terms require delivery of the investment

within the timeframe established by the market

concerned, and are initially measured at fair value, net

of transaction costs.

Subsequent to initial recognition, investments in

subsidiaries are measured at cost. Subsequent to initial

recognition, investments in associates are accounted for

under the equity method in the consolidated financial

statements and the cost method in the Company


Other financial assets are classified into the following

specified categories: financial assets ‘at fair value

through profit or loss’, ‘held-to-maturity ’ investments,

‘available-for-sale’ financial assets, and ‘loans and

receivables’. The classification depends on the nature and

purpose of the financial assets and is determined at the

time of initial recognition.

Loans and receivables

Trade receivables, loans, and other receivables are

recorded at amortised cost less impairment.


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O311. SUMMARY OF ACCOUNTING POLICIES CONTINUED

(D) FOREIGN CURRENCY

All foreign currency transactions during the financial year

are brought to account using the exchange rate in effect

at the date of the transaction. Foreign currency monetary

items at reporting date are translated at the exchange

rate existing at reporting date. Non-monetary assets and

liabilities carried at fair value that are denominated in

foreign currencies are translated at the rates prevailing

at the date when the fair value was determined.

Exchange differences are recognised in profit or loss in

the period in which they arise.

(E) GOODS AND SERvICES TAX

Revenues, expenses and assets are recognised net of

the amount of goods and services tax (GST ), except:

i) where the amount of GST incurred is not recoverable

from the taxation authority, it is recognised as part of

the acquisition of an asset or as part of an item or

expense; or

ii) for receivables and payables which are recognised

inclusive of GST.

The net amount of GST recoverable from, or payable to,

the taxation authority is included as part of receivables

or payables.

Cash flows are included in the cash flow statement on a

gross basis. The GST component of cash flows arising

from investing and financing activities which is

recoverable from, or payable to, the taxation authority

is classified as operating cash flows.

(F) GOvERNMENT GRANTS

Government grants are assistance by the government in

the form of transfers of resources to the Consolidated

Entity in return for past or future compliance with certain

conditions relating to the operating activities of the

entity. Government grants include government

assistance where there are no conditions specifically

relating to the operating activities of the Consolidated

Entity other than the requirement to operate in certain

regions or industry sectors.

Government grants relating to income are recognised as

income over the periods necessary to match them with

the related costs on a systematic basis. Government

grants that are receivable as compensation for expenses

or losses already incurred or for the purpose of giving

immediate financial support to the Consolidated Entity

with no future related costs are recognised as income

of the period in which it becomes receivable.

(G) IMPAIRMENT OF ASSETS

At each reporting date, the Consolidated Entity reviews

the carrying amounts of its tangible and intangible

assets to determine whether there is any indication that

those assets have suffered an impairment loss. I f any

such indication exists, the recoverable amount of the

asset is estimated in order to determine the extent of

the impairment loss (if any). Where the asset does not

generate cash flows that are independent from other

assets, the Consolidated Entity estimates the recoverable

amount of the cash-generating unit to which the asset

belongs.

Recoverable amount is the higher of fair value less costs

to sell and value in use. In assessing value in use, the

estimated future cash flows are discounted to their

present value using a pre-tax discount rate that reflects

current market assessments of the time value of money

and the risks specific to the asset for which the estimates

of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating

unit) is estimated to be less than its carrying amount,

the carrying amount of the asset (cash-generating unit)

is reduced to its recoverable amount. An impairment

loss is recognised in profit or loss immediately.

Where an impairment loss subsequently reverses, the

carrying amount of the asset (cash-generating unit) is

increased to the revised estimate of its recoverable

amount, but only to the extent that the increased

carrying amount does not exceed the carrying amount

that would have been determined had no impairment

loss been recognised for the asset (cash-generating

unit) in prior years. A reversal of an impairment loss is

recognised in profit or loss immediately.

(H) INCOME TAX

Current Tax

Current tax is calculated by reference to the amount of

income taxes payable or recoverable in respect of the

taxable profit or tax loss for the period. It is calculated

using tax rates and tax laws that have been enacted or

substantively enacted by reporting date. Current tax for

current and prior periods is recognised as a liability (or

asset) to the extent that it is unpaid (or refundable).


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(H) INCOME TAX CONTINUED

Deferred Tax

Given the current activities that the Company continues

to undertake, the Directors have determined that it is

not yet probable that the Consolidated Entity will

generate sufficient taxable profits to obtain benefit from

the net tax assets and have not recognised any deferred

tax assets.

Current and deferred tax for the period

The Company does not generate sufficient revenue to

create current tax liabilities and the Directors have

determined that it is not yet probable that the

Consolidated Entity will generate sufficient revenue to

obtain benefit from the net tax assets and have not

recognised any deferred tax assets or liabilities and

their fair value can be measured reliably.

(I) TRADE AND OTHER RECEIvABLES

Trade receivables are recognised initially at fair value and

subsequently measured at amortised cost, less provision

for doubtful debts.

Collectibility of trade receivables is reviewed on an

ongoing basis. Debts which are known to be uncollectible

are written off. A provision for doubtful receivables is

established when there is objective evidence that the

Group will not be able to collect all amounts due

according to the original terms of present value of

estimated future cash flows, discounted at the original

effective interest rate. Cash flows relating to short-term

receivables are not discounted if the effect of discounting

is immaterial. The amount of the provision is

recognised in the income statement.

(j) TRADE AND OTHER PAYABLES

Trade payables and other accounts payable are recognised

when the Consolidated Entity becomes obliged to make

future payments resulting from the purchase of goods

and services.

(K) SEGMENT REPORTING

A business segment is a group of assets and operations

engaged in providing products or services that are

subject to risks and returns that are different to those of

other business segments. A geographical segment is

engaged in providing products or services within a

particular economic environment and is subject to risks

and returns that are different from those of segments

operating in other economic environments.

(L) RECOvERABLE AMOUNT OF NON-CURRENT

ASSETS

The carrying amounts of non-current assets are

reviewed annually by Directors to ensure they are not in

excess of the recoverable amounts from those assets.

The recoverable amount is assessed on the basis of the

expected net cash flows, which will be received from

the assets employed and subsequent disposal. The

expected net cash flows are discounted to present

values in determining recoverable amounts.

(M) PRINCIPLES OF CONSOLIDATION

The consolidated financial statements incorporate the

assets and liabilities of all subsidiaries of Costarella Design

Limited (“Company” or “Parent Entity”) as at 30 June 2007

and the results of all subsidiaries for the year then ended.

Costarella Design Limited and its subsidiaries together

are referred to in this financial report as the Group or

the Consolidated Entity.

Subsidiaries are all those entities (including special

purpose entities) over which the Group has the power

to govern the financial and operating policies, generally

accompanying a shareholding of more than one-half of

the voting rights. The existence and effect of potential

voting rights that are currently exercisable or convertible

are considered when assessing whether the Group

controls another entity.

Subsidiaries are fully consolidated from the date on

which control is transferred to the Group. They are

de-consolidated from the date that control ceases.

Intercompany transactions, balances and unrealised

gains on transactions between Group companies are

eliminated. Unrealised losses are also eliminated unless

the transaction provides evidence of the impairment of

the asset transferred. Accounting policies of subsidiaries

have been changed where necessary to ensure consistency

with the policies adopted by the Group.

Investments in subsidiaries are accounted for at cost

in the individual financial statements of Costarella

Design Limited.

(N) PROPERTY, PLANT AND EqUIPMENT

Each class of property, plant and equipment is carried at

cost or fair value less, where applicable, any accumulated

depreciation and impairment losses. The carrying

amount of plant and equipment is reviewed annually by

Directors to ensure it is not in excess of the recoverable

amount from these assets.


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(N) PROPERTY, PLANT AND EqUIPMENT

Depreciation

The depreciable amount of all fixed assets is depreciated

on a straight line basis over their useful lives to the

Company commencing from the time the asset is held

ready for use. The depreciation rates used for each class

of depreciable assets are:

class Of fixeD asset DepreciatiOn rate

PlAnT AnD EqUIPMEnT 25%

MOTOR VEHIClEs 12.5%

lEAsEHOlD IMPROVEMEnTs 20%

OffICE EqUIPMEnT 25%

COMPUTER sOfTWARE 50%

(O) BORROwINGS

Borrowings are initially recognised at fair value, net of

transaction costs incurred. Borrowings are subsequently

measured at amortised cost. Any difference between the

proceeds (net of transaction costs) and the redemption

amount is recognised in the income statement over the

period of the borrowings using the effective interest

method.

The fair value of the liability portion of a convertible

note is determined using a market interest rate for an

equivalent non-convertible bond. This amount is

recorded as a liability on an amortised cost basis until

extinguished on conversion or maturity of the notes.

The remainder of the proceeds is allocated to the

conversion option. This is recognised and included in

shareholder’s equity, net of income tax effects.

Borrowings are classified as current liabilities unless the

Group has an unconditional right to defer settlement of

the liability for at least 12 months after the balance

sheet date.

(P) BORROwING COSTS

Borrowing costs are recognised as an expense when

incurred except if costs were incurred for the construction

of any qualifying asset, where the costs are capitalised

over the period that is required to complete and prepare

the asset for its intended use or sale.

(q) PROvISIONS

Provision is made for employee entitlement benefits as

a result of employees rendering services up to balance

date. These benefits include salary and wages, annual

leave and long service leave, liabilities in respect of

salary and wages and annual leave expected to be settled

within 12 months of the reporting date are measured at

their nominal value. The liability for long service leave is

measured at the present value of expected future outflows

to be made in respect of services provided by employees

up to the reporting date.

Provisions are recognized when the Group has a present

obligation (legal or constructive) as a result of a past

event, it is probable that an outflow of resources

embodying economic benefits will be required to settle

the obligation and a reliable estimate can be made of

the amount of the obligation.

Where the Group expects some or all of a provision to

be reimbursed, for example under an insurance contract,

the reimbursement is recognized as a separate asset

but only when the reimbursement is virtually certain.

The expense relating to any provision is presented in

the income statement net of any reimbursement.

If the effect of the time value of money is material,

provisions are determined by discounting the expected

future cash flows at a pre-tax rate that reflects current

market assessments of the time value of money and,

where appropriate, the risks specific to the liability.

Where discounting is used, the increase in the provision

due to the passage of time is recognized as a finance cost.

(R) INvENTORIES

Inventories comprise of raw materials, work in progress

and finished goods and are valued at the lower of cost

and net realisable value. Costs are allocated on a first in

first out basis or average cost basis. Costs include direct

labour, direct materials and an appropriate amount of

fixed and variable overhead expenses. Stock of finished

clothing is written off over a three year period from the

time of manufacture. Certain inventories are held for

long term for future fashion displays and presentations

and have been treated as Non-Current. Stocks of sample

collections are considered to have a five year life and

are held in inventory for two years and then written off

over the remaining three years.

(S) REvENUE RECOGNITION

Revenue representing interest income is recognised on

a proportional basis tak ing into account the interest

rates applicable to financial assets. Revenue from the

sale of inventories is recognised when the goods are


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(S) REvENUE RECOGNITION CONTINUED

delivered to the customer and title passes to the

customer. Refer note (f ) relating to recognition of grant

income.

(T) LEASES

Leases in which a significant portion of the risks and

rewards of ownership are retained by the lessor are

classified as operating leases. Payments made under

operating leases (net of any incentives received from

the lessor) are charged to the income statement on a

straight line basis over the period of the lease.

(U) EqUITY BASED COMPENSATION

The Company has an incentive option scheme which

provides benefits to employees, Directors and consultants

of the Company. The cost of these equity-settled

transactions with employees is measured by reference

to the fair value at the date at which they are granted.

The fair value is determined by an external valuer using

a binomial model. In valuing equity-settled transactions,

no account is taken of any performance conditions,

other than conditions linked to the price of shares of

Costarella Design Ltd (‘market conditions’). The cost of

equity-settled transactions is recognised, together with

a corresponding increase in equity over the period in

which the performance conditions are fulfilled, ending

on the date on which the relevant employees become

fully entitled to the award (‘vesting date’). The cumulative

expense recognised for equity-settled transactions at

each reporting date until vesting date reflects (i) the extent

to which the vesting period has expired and (ii) the

number of awards that, in the opinion of the Directors

of the Company, will ultimately vest. This opinion is

formed based on the best available information at

balance date. No adjustment is made for the likelihood

of market performance conditions being made as the

effect of these conditions is included in the determination

of fair value at grant date. No expense is recognised for

awards that do not ultimately vest, except for awards

where vesting is conditional upon a market condition.

(v) RESEARCH, DESIGN AND DEvELOPMENT

COSTS

Research, Design and Development costs are expensed

as incurred.

(w) ISSUED CAPITAL

Issued capital is recognised at the fair value of the

consideration received by the Company. Any transaction

costs on the issue of shares are recognised directly in

equity as a reduction of the share proceeds received.

(X) EARNINGS PER SHARE

Basic earnings per share

Basic earnings per share is calculated by dividing the

profit attr ibutable to equity holders of the Company,

excluding any costs of servicing equity other than

ordinary shares, by the weighted average number of

ordinary shares outstanding during the financial year,

adjusted for bonus elements in ordinary shares issued

during the year.

Diluted earnings per share

Diluted earnings per share adjusts the figures used in

the determination of basic earnings per share to take into

account the after income tax effect of interest and other

financing costs associated with dilutive potential

ordinary share and the weighted average number of

shares assumed to have been issued for no consideration

in relation to dilutive potential ordinary shares.

(Y) GOING CONCERN BASIS

The financial statements of the Company have been

prepared on a going concern basis which anticipates the

ability of the Company to meet its obligations in the

normal course of the business.

The Company needs to raise capital to enable it to

continue its activities as in the past. It is considered that

the Company should achieve sufficient funds from

capital raising to enable it to meet its obligation. If the

Company is unable to continue as going concern then

it may be required to realise its assets and extinguish its

liabilities, other than in the normal course of business

and at amounts different from those stated in the


(z) SIGNIFICANT ACCOUNTING jUDGEMENTS,

ESTIMATES AND ASSUMPTIONS

In the application of A-IFRS management is required to

make judgements, estimates and assumptions about

carrying values of assets and liabilities that are not

readily apparent from other sources.

The estimates and associated assumptions are based on

historical experience and various other factors that are

believed to be reasonable under the circumstance, the


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results of which form the basis of making the judgments.

Actual results may differ from these estimates.

The estimates and underlying assumptions are reviewed

on an ongoing basis. Revisions to accounting estimates

are recognised in the period in which the estimate is

(z) SIGNIFICANT ACCOUNTING jUDGEMENTS,

ESTIMATES AND ASSUMPTIONS(CONTINUED)

revised if the revision affects only that period, or in the

period of the revision and future periods if the revision

affects both current and future periods.

Judgements made by management in the application of

A-IFRS that have significant effects on the financial

statements and estimates with a significant risk of

material adjustments in the next year are disclosed,

where applicable, in the relevant notes to the financial

statements.

In particular, information about significant areas of

estimation uncertainty and critical judgements in applying

accounting policies that have the most significant effect

on the amount recognised in the financial statements

are described in the following notes:

Note 4 – Income tax

Note 13 – Provisions

Note 25 – Share based payments.

2. SEGMENT REPORTING

The Company operates in Australia in the fashion wholesale

and retail sector. There were no trading activities during the

financial year in the subsidiary Costarella Design Asia Pte Ltd.


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a) revenue. 2007 2006 2007 2006

$ $ $ $

revenue frOM Operating activities:

sAlEs Of GOODs AnD sERVICEs 837,660 612,895 837,660 612,895

TOTAl REVEnUE fROM OPERATInG ACTIVITIEs 837,660 612,895 837,660 612,895

revenue frOM nOn-Operating activities:

InTEREsT REVEnUE 31,002 97 31,002 97

GOVERnMEnT GRAnT RECEIVED 45,887 26,997 45,887 26,997

sPOnsORsHIP RECEIVED - 5,000 - 5,000

OTHER REVEnUE 500 4,638 500 4,638

TOTAl REVEnUE fROM nOn-OPERATInG ACTIVITIEs 77,839 36,732 77,389 36,732

lOss befOre incOMe tax frOM Operating activities has been arriveD at after charging the fOllOwing expenses:

COsT Of sAlEs 580,069 271,720 580,069 271,720

DEPRECIATIOn Of nOn-CURREnT AssETs 30,386 17,278 30,386 17,278

OPERATInG lEAsE REnTAl ExPEnsEs 28,047 15,772 28,047 15,772

PROVIsIOn fOR nOn-RECOVERAbIlITY Of InTERCOMPAnY lOAns - - 1,588 -

EMPlOYEE bEnEfIT ExPEnsE:

AnnUAl lEAVE PROVIsIOn 48,382 - 48,382 -

lOnG sERVICE lEAVE PROVIsIOn 15,702 - 15,702 -

64,084 - 64,084 -


3. LOSS FROM OPERATIONS

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2007 2006 2007 2006

$ $ $ $

(b) finance cOsts

InTEREsT On bAnk OVERDRAfTs AnD lOAns 10,429 5,437 10,429 5,437

InTEREsT On CHATTEl MORTGAGE 3,549 4,176 3,549 4,176

InTEREsT On UnsECURED fInAnCE 10,000 - 10,000 -

INTEREST ON UNSECURED FINANCE 1,572 1,170 1,572 1,170

25,550 10,783 25,550 10,783

4. INCOME TAX

InCOME TAx bEnEfIT - - - -

nuMerical recOnciliatiOn between tax benefit anD pre-tax net lOsslOss fROM COnTInUInG OPERATIOns bEfORE InCOME TAx bEnEfIT:

(781,209) (45,957) (781,209) (45,957)

InCOME TAx bEnEfIT CAlCUlATED AT 30% (234,363) (13,787) (234,363) (13,787)

TAx EffECT On AMOUnTs WHICH ARE nOT TAx DEDUCTIblE/(AssEssAblE):

EnTERTAInMEnT 1,407 - 1,407 -

fInEs AnD PEnAlTIEs 233 - 233 -

PROVIsIOn fOR nOn-RECOVERY Of lOAn - - 476 -

ACCRUED ExPEnsEs 16,058 - 16,058 -

EMPlOYEE EnTITlEMEnTs 19,225 - 19,225 -

ACCRUED sUPERAnnUATIOn 4,704 - 4,704 -

MOVEMEnT In TRADE PAYAblEs 16,199 25,289 16,199 25,289

ExCEss Of TAx DEPRECIATIOn OVER ACCOUnTInG DEPRECIATIOn (4,542) (31) (4,542) (31)

MOVEMEnT In TRADE RECEIVAblEs 11,509 (10,081) 11,509 (10,801)

MOVEMEnT In PREPAYMEnTs (4,580) (674) (4,580) (674)

bOROWInG ExPEnsEs (478) 548 (478) 548

CAPITAl RAIsInG COsTs (40,817) (753) (40,817) (753)

PRIOR YEAR TAx lOssEs RECOUPED - (7,266) - (7,266)

3. LOSS FROM OPERATIONS CONTINUED


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2007 2006 2007 2006

$ $ $ $

PRIOR YEAR ADJUsTMEnT - 6,755 - 6,755

TAx bEnEfIT nOT bROUGHT TO ACCOUnT 215,445 - 214,969 -

- - - -

DeferreD tax balances

DEFERRED TAX ASSETS: - - - -

PROVIsIOn fOR nOn-RECOVERY Of lOAn - - 476 -

ACCRUED ExPEnsEs 16,058 - 16,058 -

EMPlOYEE EnTITlEMEnTs 19,225 - 19,225 -

ACCRUED sUPERAnnUATIOn 4,704 - 15,679 -

TRADE PAYAblEs 46,634 30,436 46,634 30,436

bORROWInG ExPEnsEs 70 548 70 548

CAPITAl RAIsInG COsTs 167,282 1,004 167,282 1,004

UnUsED TAx lOssEs 237,552 22,106 237,076 22,106

DEfERRED TAx AssETs nOT RECOGnIsED 491,525 54,094 502,500 54,094

DEfERRED TAx lIAbIlITIEs:

ExCEss Of ACCOUnTInG WRITTEn DOWn VAlUE OVER TAx WRITTEn DOWn VAlUE (12,290) (7,894) (12,290) (7,894)

TRADE RECEIvABLES (7,175) (18,683) (7,175) (18,683)

PREPAYMENTS (5,253) (674) (5,253) (674)

DEfERRED TAx lIAbIlITIEs nOT RECOGnIsED (24,718) (27,251) (24,718) (27,251)

nET DEfERRED TAx AssETs nOT RECOGnIsED 466,807 26,843 477,782 26,843

THE COMPAnY WAs An sTs TAxPAYER In THE YEAR EnDED 30 JUnE 2006. THIs nOTE Is PREPARED On THE bAsIs THAT THE COMPAnY REMAIns An sTs TAxPAYER fOR THE YEAR EnDED 30 JUnE 2007.


4. INCOME TAX CONTINUED

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nOte 2007 2006 2007 2006

$ $ $ $

5. NOTES TO THE CASH FLOw STATEMENT

(a) recOnciliatiOn Of cash anD cash equivalentfOR THE PURPOsEs Of THE CAsH flOW sTATEMEnT, CAsH AnD CAsH EqUIVAlEnTs InClUDEs CAsH On HAnD AnD In bAnks AnD InVEsTMEnTs In MOnEY MARkET InsTRUMEnTs. CAsH AnD CAsH EqUIVAlEnTs AT THE EnD Of THE fInAnCIAl YEAR As sHOWn In THE CAsH flOW sTATEMEnT Is RECOnCIlED TO THE RElATED ITEMs In THE bAlAnCE sHEET As fOllOWs:

CAsH On HAnD 564 83 564 83

CAsH AT bAnk 1,055,539 147,207 1,055,538 147,207

1,056,103 147,290 1,056,102 147,290

(b) recOnciliatiOn Of lOss fOr the periOD tO net cash flOws frOM Operating activities

lOss fOR THE PERIOD (781,209) (45,957) (781,209) (45,957)

nOn CAsH flOWs In lOss fROM COnTInUInG OPERATIOns;

DEPRECIATIOn AnD AMORTIsATIOn 30,386 16,005 30,386 16,005

InCOME TAx REfUnD 7,322 5,985 7,322 5,985

(GAIn)/lOss On DIsPOsAl Of nOn- CURREnT AssETs 485 - 485 -

sHARE bAsED PAYMEnTs 200,000 - 200,000 -

CHAnGEs In nET AssETs AnD lIAbIlITIEs, nET Of EffECTs fROM ACqUIsITIOn AnD DIsPOsAl Of bUsInEssEs

(InCREAsE) / DECREAsE In AssETs:

RECEIVAblEs 29,029 (38,197) 27,441 (38,197)

InVEnTORIEs (251,624) (189,470) (251,624) (189,470)

PREPAYMENTS (15,266) 88 (15,266) 88

SECURITY DEPOSITS MADE (6,336) - (6,336) -

InTAnGIblE AssETs - 835 - 835

InCREAsE / (DECREAsE) In lIAbIlITIEs:

PAYAblEs 134,993 90,416 134,993 90,416

PROvISIONS 64,084 - 65,672 -

NET CASH FLOwS USED IN OPERATING ACTIvITIES (588,136) (160,295) (588,136) (160,295)


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2007 2006 2007 2006

$ $ $ $

6. CURRENT TRADE AND OTHER RECEIvABLES

TRADE AnD OTHER RECEIVAblEs 23,916 62,278 23,916 62,278

sECURITY DEPOsITs MADE 6,336 - 6,336 -

InCOME TAx REfUnDAblE - 7,322 - 7,322

GST RECEIvABLE (NET) 15,055 5,721 15,055 5,721

45,307 75,321 45,307 75,321

7. OTHER CURRENT ASSETS

PREPAYMEnTs 17,511 2,245 17,511 2,245

8. INvENTORIES

InVEnTORY – CURREnT WORk In PROGREss 93,840 - 93,840 -

InVEnTORY – CURREnT OTHER 255,620 151,185 255,620 151,185

349,460 151,185 349,460 151,185

InVEnTORY – nOn-CURREnT 118,135 64,786 118,135 64,786

467,595 215,971 467,595 215,971

9. OTHER NON-CURRENT FINANCIAL ASSETS

InVEsTMEnT In COnTROllED EnTITIEs - - 1 -

IMPAIRMEnT lOss On InVEsTMEnT In COnTROllED EnTITIEs - - - -

LOANS TO CONTROLLED ENTITIES - - 1,588 -

PROvISION FOR NON-RECOvERABILITY - - (1,588) -

- - 1 -

THE IMPAIRMENT LOSS ON INvESTMENT IN CONTROLLED ENTITIES RECOGNISES A REDUCTION IN THE RECOvERABLE AMOUNT OF NET ASSETS HELD BY THE SUBSIDIARY ENTITIES.


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2007 2006 2007 2006

$ $ $ $

10. PROPERTY, PLANT AND EqUIPMENT

plant anD equipMent

grOss carrying aMOunt

balance at the beginning Of the financial year at cOst 111,853 98,906 111,853 98,906

ADDITIONS 121,171 14,161 121,171 14,161

DIsPOsAls (12,202) (1,214) (12,202) (1,214)

balance at the enD Of the financial year at cOst 220,822 111,853 220,822 111,853

accuMulateD DepreciatiOn

balance at the beginning Of the financial year 35,536 19,472 35,536 19,472

DIsPOsAls (9,819) (1,214) (9,819) (1,214)

DEPRECIATIOn ExPEnsE 30,386 17,278 30,386 17,278

balance at the enD Of the financial year 56,103 35,536 56,103 35,536

net bOOk value

balance at the enD Of the financial year 164,719 76,317 164,719 76,317

AGGREGATE DEPRECIATIOn AllOCATED DURInG THE YEAR Is RECOGnIsED As An ExPEnsE AnD DIsClOsED In nOTE 3 TO THE fInAnCIAl sTATEMEnTs.

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2007 2006 2007 2006

$ $ $ $

1 1 . CURRENT TRADE AND OTHER PAYABLES

TRADE PAYAblEs 155,447 101,452 155,447 101,452

ACCRUAls 53,527 - 53,527 -

OTHER PAYAblEs 85,775 49,758 85,775 49,758

294,749 151,210 294,749 151,210

12 . BORROwINGS

CURREnT

CHATTEl MORTGAGE lIAbIlITY 8,112 7,428 8,112 7,428

UnsECURED lOAns - 25,000 - 25,000

bAnk OVERDRAfTs - 11 - 11

tOtal current bOrrOwings 8,112 32,439 8,112 32,439

nOn-CURREnT

CHATTEl MORTGAGE lIAbIlITY 27,913 36,028 27,913 36,028

bAnk OVERDRAfTs - 100,456 - 100,456

tOtal nOn-current bOrrOwings 27,913 136,484 27,913 136,484

36,025 168,923 36,025 168,923

terMs anD cOnDitiOns


CHATTEl MORTGAGE lIAbIlITY The chattel mortgage liability is secured by a fixed charge over an asset that is financed. The carrying value of the asset

as at 30 June 2007 was $43,288. The chattel mortgage commenced in June 2005 and is repayable in 47 equal instalments of $914.73 with a final

repayment of $27,914.73 due in July 2008. The fixed interest rate is 8.85%.

bAnk OVERDRAfT During the financial year ended 30 June 2006 the Company had an overdraft facility with a limit of $100,000. During the financial

year ended 30 June 2007 this limit was temporarily increased to $350,000 and repaid from the proceeds from l ist ing on the ASX in Apr i l 2007. The

overdraft faci l ity was secured by personal guarantees and supported by registered mortgages over properties owned by Aurelio Costarella, Paul

O’Connor and Antonio Costarella. The average interest rate during the year was 7.57%.

UnsECURED lOAns During the financial year ended 30 June 2006 temporary loan funds of $25,000 were provided by a member of key management

personnel Paul O’Connor. This loan was interest f ree and repaid dur ing the f inancial year ended 30 June 2007. Aurelio Costarella, a member of

key management personnel, incurs expenditure on behalf of the company and is repaid on demand from time to time. These amounts are interest free

and due to the nature of the expenditure incurred on the company’s behalf, are recorded as part of other payables in note 11 to the financial statements.

The balance owed at 30 June 2007 was $29,511. During the financial year end 30 June 2007, shareholders of the company Brian and Audrey Lee

provided a temporary loan of $50,000 to the Company. This loan was also repaid during the financial year including a fixed interest payment of $10,000.

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2007 2006 2007 2006

$ $ $ $

13 . PROvISIONS

CURREnT

EMPlOYEE bEnEfITs 48,382 - 48,382 -

nOn CURREnT

EMPlOYEE bEnEfITs 15,702 - 15,702 -

64,084 - 64,084 -

14. ISSUED CAPITAL

44,860,415 fully paiD OrDinary shares (2006: 27,612,500) 2,719,887 239,312 2,719,887 239,312

2007 2006

nO $ nO $

fully paiD OrDinary shares

bAlAnCE AT bEGInnInG Of fInAnCIAl YEAR 27,612,500 239,312 102 30,062

sHAREs IssUED DURInG THE PERIOD:

ORDInARY sHAREs IssUED @ 0.00001CEnTs - - 24,999,898 250

ORDInARY sHAREs IssUED @ 0.08 CEnTs 6,787,500 543,000 2,612,500 209,000

ORDInARY sHAREs IssUED fOR COnsUlTInG sERVICEs (I) 487,500 100,000 - -

ORDInARY sHAREs IssUED fOR MARkETInG sERVICEs (II) 500,000 100,000 - -

ORDInARY sHAREs IssUED @ 0.20 CEnTs 9,472,915 1,894,585 - -

IssUE COsTs - (697,010) - -

bAlAnCE AT EnD Of fInAnCIAl YEAR 44,860,415 2,179,887 27,612,500 239,312

Changes to the then Corporations Law abolished the authorised capital and par value concept in relation to share capital from 1 July 1998.

Therefore the Company does not have a limited amount of share capital and issued shares do not have a par value. Fully paid ordinary shares carry

one vote per share and carry the right to dividends.

(i) The fair value was determined by reference to the going market rate for similar consulting services as referred to in note 25 to the financial statements.

(ii) The fair value was determined by reference to the going market rate for similar marketing services as referred to in note 25 to the financial statements.


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2007 2006 2007 2006

$ $ $ $

15 . ACCUMULATED LOSSES

bAlAnCE AT THE bEGInnInG Of YEAR (42,301) 3,565 (42,301) 3,565

nET lOss ATTRIbUTAblE TO MEMbERs Of THE PAREnT EnTITY (781,209) (45,957) (781,209) (45,957)

bAlAnCE AT EnD Of YEAR (823,510) (42,301) (823,510) (42,301)

cOnsOliDateD

2007 2006

cents per share cents per share

16 . EARNINGS PER SHARE

basic earnings per share:

fROM COnTInUInG OPERATIOns (2.16) (1.03)

fROM DIsCOnTInUED OPERATIOns - -

TOTAl bAsIC EARnInGs PER sHARE (2.16) (1.03)

basic earnings per share

THE EARnInGs AnD WEIGHTED AVERAGE nUMbER OR ORDInARY sHAREs UsED In THE CAlCUlATIOn Of bAsIC EARnInGs PER sHARE ARE As fOllOWs:

2007 2006

$ $

EARnInGs (781,209) (45,957)

EARnInGs fROM COnTInUInG OPERATIOns (781,209) (45,957)


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O45 cOnsOliDateD

2007 2006

nO nO

THE WEIGHTED AVERAGE nUMbER Of ORDInARY sHAREs fOR THE PURPOsEs Of DIlUTED EARnInGs PER sHARE RECOnCIlEs TO THE WEIGHTED AVERAGE nUMbER Of ORDInARY sHAREs UsED In THE CAlCUlATIOn Of bAsIC EARnInGs PER sHARE As fOllOWs:

WEIGHTED AVERAGE nUMbER Of ORDInARY sHAREs UsED In THE CAlCUlATIOn Of bAsIC EPs 36,246,993 4,459,296

DIlUTED EARnInGs PER sHARE HAVE nOT bEEn DIsClOsED, As IT REsUlTs In A MORE fAVOURAblE lOss PER sHARE THAn THAT Of bAsIC lOss PER sHARE.


cOuntry Of incOrpOratiOn Ownership interest

2007 2006

% %

17. SUBSIDIARIES

naMe Of entity

parent entity

COsTAREllA DEsIGn lIMITED (I) AUsTRAlIA 100 100

cOntrOlleD entities

COsTAREllA DEsIGn AsIA PTE. lTD. sInGAPORE 100 0

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18. KEY MANAGEMENT PERSONNEL REMUNERATION

The key management of Costarella Design Limited during

the year was made of:

Patti Chong (Chairperson, Non-Executive Director)

Aurelio Costarella (Managing Director, Creative Director)

Sam Di Giacomo (Non-Executive Director)

Cathryn Curtin (Non-Executive Director)

Paul O’Connor (Public relations and sales manager)

Donna Greenwood (Retail manager)

(A) CONTRACTS FOR SERvICES

As at the date of this report, the following contracts exist

with key management personnel:

EMPLOYMENT CONTRACTS

Aurelio Costarella

The Company has an Executive services agreement with

Aurelio Costarella pursuant to which Mr Costarella has

agreed to serve the Company as Managing Director for a term

of five years commencing 4 October 2006. Mr Costarella may

extend the term for a period of three years by giving notice

to the Company. The Company pays Mr Costarella a salary

of $120,000 per year for his services (inclusive of

superannuation). The Company or the Executive may

terminate the employment by giving 3 months written

notice. The Company also provides Mr Costarella with a

mobile telephone and motor vehicle. Mr Costarella’s key

responsibilities include the promoting and directing the

per formance, organisation and growth of the Company ’s

business. The agreement is otherwise on usual commercial

terms.

Paul O’Connor

The Company has an employment agreement with Paul

O’Connor pursuant to which Mr O’Connor has agreed to

serve the Company as Public Relations and Sales Manager

for a term of two years commencing 2 October 2006.

The Company will pay to Mr O’Connor a salary of $70,000

per year (exclusive of superannuation). The Company or the

Executive may terminate the employment by giving 3 months

written notice. The agreement is otherwise on usual

commercial terms.

OTHER CONTRACTS OF SERvICE

Sam Di Giacomo

The Company has entered into a corporate services

agreement with Sam Di Giacomo.

The Company has agreed to pay a consulting fee to

Mr Di Giacomo of $6,000 per month.


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O47

COMPANY AND CONSOLIDATED

shOrt-terM pOst eMplOyMent equity tOtal


$ $ $ $ $ $

PATTI CHOnG 2007 25,000 - - 2,250 - 27,250

2006 - - - - - -

AURElIO COsTAREllA 2007 90,047 - 825 8,140 - 99,012

2006 60,000 - - 5,400 - 65,400

sAM DI GIACOMO 2007 40,965 - - 1,800 - 42,765

2006 - - - - - -

CATHRYn CURTIn 2007 54,252 - - 1,800 - 56,052

2006 5,000 - - - - 5,000

PAUl O’COnnOR 2007 54,166 - - 4,335 - 58,501

2006 24,400 - - - - 24,400

DOnnA GREEnWOOD 2007 30,257 4,306 - 3,111 - 37,674

2006 - - - - - -

tOtal reMuneratiOn 2007 294,687 4,306 825 21,436 - 321,254

2006 89,400 - - 5,400 - 94,800

THE COMPAnY DID nOT PROVIDE AnY EqUITY bAsED COMPEnsATIOn TO DIRECTORs OR ExECUTIVEs DURInG THE YEAR EnDED 30 JUnE 2007.


18. KEY MANAGEMENT PERSONNEL REMUNERATION CONTINUED

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COMPAnY AnD COnsOlIDATED

bAlAnCE AT bEGInnInG Of PERIOD

InTEREsT CHARGED WRITE OffbAlAnCE

AT EnD Of PERIODnUMbER In GROUP

$ $ $ $ $

2007 56,637 - - 29,511 1

2006 14,455 - - 56,537 2


(ii) There were no loans from key management personnel above $100,000 during the financial year ended 30 June 2007.

(iii) Terms and conditions of loans from key management personnel are disclosed in note 12 to the financial statements.

(F) OTHER TRANSACTIONS wITH KEY MANAGEMENT PERSONNEL

Consultancy fees of $34,252 were paid at normal commercial rates to Eladin Pty Ltd, a company controlled by Ms Cathryn

Curtin, and fees of $20,965 were paid at normal commercial rates to Mr Sam Di Giacomo in addition to his director ’s fees.

The above fees have been included in directors’ remuneration summary on page 11.

The terms and conditions of the transactions with directors and director-related entities were no more favourable than those

available, or which might be reasonable be expected to be available, on similar transactions to non-director related entities

on arms length basis.

No amounts were receivable or payable to directors or director-related entities at balance date arising from these transactions.

(C) OPTION HOLDINGS OF KEY MANAGEMENT PERSONNEL

No options were held by key management personnel at 30 June 2007.

(D) SHARE HOLDINGS OF KEY MANAGEMENT PERSONNEL

Share holdings of key management personnel are disclosed in Note 19(c) to the financial statements.

(E) LOANS FROM KEY MANAGEMENT PERSONNEL

(i) Details of loans from key management personnel are:

18 . KEY MANAGEMENT PERSONNEL REMUNERATION CONTINUED

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FULLY PAID ORDINARY SHARES:

bAlAnCE AT 1 JUlY 2006 bAlAnCE AT 30 JUnE 2007 bAlAnCE HElD nOMInAllY

nO. nO. nO.

PATTI CHOnG - 65,400 65,400

AURElIO COsTAREllA 18,000,000 18,000,000 18,000,000

sAM DI GIACOMO - 578,500 -

CATHRYn CURTIn 2,026,667 2,026,667 2,026,667

PAUl O’COnnOR - 250,000 -

DOnnA GREEnWOOD - - -

20,026,667 20,920,567 20,092,067


19. RELATED PARTY DISCLOSURES

(A) EqUITY INTERESTS IN SUBSIDIARIES

Details of the percentage of ordinary shares held in subsidiaries are disclosed in note 17 to the financial statements.

(B) KEY MANAGEMENT PERSONNEL REMUNERATION

Details of key management personnel remuneration are disclosed in note 18 to the financial statements.

(C) KEY MANAGEMENT PERSONNEL EqUITY HOLDINGS

TRANSACTIONS wITH RELATED PARTIES

During the financial year ended 30 June 2007, the company lent monies to its subsidiary totalling $1,588.

Transactions with key management personnel are disclosed in note 18.

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2007 2006 2007 2006

$ $ $ $

20. REMUNERATION OF AUDITORS

auDitOr Of the parent entity

AUDIT OR REVIEW Of THE fInAnCIAl REPORT 30,000 - 30,000 -

OTHER nOn-AUDIT sERVICEs 7,511 - 7,511 -

37,511 - 37,511 -

Other auDitOrs

AUDIT Of APPlICATIOn Of GRAnT fUnDs 4,070 -

THE AUDITOR Of COsTAREllA DEsIGn lIMITED Is sTAnTOn’s InTERnATIOnAl

21 . FINANCIAL INSTRUMENTS

(A) SIGNIFICANT ACCOUNTING POLICIES

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses

are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.

(B) INTEREST RATE RISK MANAGEMENT

The Consolidated Entity is exposed to interest rate risk as it invests funds at both fixed and floating interest rates. The risk is managed by maintaining an appropriate mix between fixed

and floating rate deposits. The following table details the Consolidated Entity ’s exposure to interest rate risk as at 30 June 2007:

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O51VARIAblE InTEREsT RATE

fIxED MATURITY DATEs – 1 YEAR OR lEss

nOn-InTEREsT bEARInG TOTAl

2007 $ $ $ $

financial assets

CAsH AnD CAsH EqUIVAlEnTs 975,327 - 80,776 1,056,103

RECEIVAblEs - - 45,307 45,307

975,327 - 126,083 1,101,410

WEIGHTED AVERAGE EffECTIVE InTEREsT RATE

6.15%

financial liabilities

bORROWInGs - 36,025 - 36,025

PAYAblEs - - 294,749 294,749

- 36,025 294,749 330,774


8.55%

net financial assets 975,327 (36,025) (168,666) 770,636

2006

financial assets

CAsH AnD CAsH EqUIVAlEnTs - - 147,290 147,290

RECEIVAblEs - - 75,321 75,321

- - 222,611 222,611


-

financial liabilities

bORROWInGs 100,456 43,456 - 143,912

PAYAblEs - - 151,210 151,210

100,456 43,456 151,210 295,122

net financial assets (100,456) (43,456) 58,358 (85,554)


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21 . FINANCIAL INSTRUMENTS CONTINUED

(C) FAIR vALUE OF FINANCIAL INSTRUMENTS

The Directors consider that the carrying amount of financial

assets and f inancial l iabi l i t ies recorded in the f inancial

statements approximates their fair values.

The fair values and net fair values of financial assets and

financial liabilities are determined as follows:

The fair value of financial assets and financial liabilities

with standard terms and conditions and traded on

active liquid markets are determined with reference to

quoted market prices; and

The fair value of other financial assets and financial

liabilites are determined in accordance with generally

accepted pricing models based on discounted cash flow

analysis.

Transaction costs are included in the determination of net

fair value.

(D) CREDIT RISK EXPOSURE

Credit risk refers to the risk that a counterparty will default on

its contractual obligations resulting in financial loss to the

Consolidated Entity. The Consolidated Entity has adopted a

policy of only dealing with creditworthy counterparties and

obtaining sufficient collateral where appropriate, as a means

of mitigating the risk of financial loss from defaults. The

Consolidated Entity exposure and the credit ratings of its

counterparties are continuously monitored and the aggregate

value of transactions concluded are spread amongst approved

counterparties. The Consolidated Entity measures credit risk

on a fair value basis.

The Consolidated Entity does not have any significant credit

risk exposure to any single counterparty or any Group of

counterparties having similar characteristics.

(E) LIqUIDITY RISK MANAGEMENT

The Consolidated Entity manages liquidity risk by

maintaining adequate reserves, banking facilities and reserve

borrowing facil ities by continuously monitoring forecast

and actual cash flows and matching the maturity profiles of

financial assets and liabilities.

(F) FOREIGN CURRENCY RISK

The Group has transactional foreign currency exposures.

Such exposure arises from the sales or purchases by the

operating entity in currencies other than Australian dollars.

Approximately 12% of the Group’s sales are denominated in

currencies other than Australian dollars. Minimal costs of

the group are denominated in currencies other than Australian

dollars. The related foreign currency exposures during the

financial year ended 30 June 2007 are not material. The Group

intends to hedge its foreign currency risk through the use of

forward currency contracts and foreign currency bank

accounts to eliminate material foreign currency exposure.

22. CONTINGENT LIABILITIES

There are no material contingent liabilities.

23. SUBSEqUENT EvENTS

Pursuant to an entitlement issue to shareholders of one

option for every two shares held, the company will issue a

maximum of 22,430,208 options at an issue price of $0.015

per option. Each option has an exercise price of $0.20 per

option exercisable on or before 30 September 2010.

The entitlements issue Prospectus was lodged with the

Australian Securities and Investments Commission on 17

August 2007. The options issue is fully underwritten.

Options holdings registered in Directors names are recorded

at page 8.


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2007 2006 2007 2006

$ $ $ $

24. EXPENDITURE COMMITMENTS

(a) Operating lease cOMMitMents

THE OPERATInG lEAsE COMMITMEnT RElATEs TO THE lEAsE Of OffICE sPACE fOR THE COMPAnY’s HEAD OffICE WHICH COMMEnCED On 1 MARCH 2006.

nOT lOnGER THAn OnE YEAR 26,400 26,400 26,400 26,400

lOnGER THAn OnE YEAR bUT nO lOnGER THAn fIVE YEARs 70,400 96,800 70,400 96,800

96,800 123,200 96,800 123,200

(b) chattel MOrtgage cOMMitMents

THE CHATTEl MORTGAGE COMMITMEnT RElATEs TO THE CAR PROVIDED TO COMPAnY’s MAnAGInG DIRECTOR WHICH Is DUE TO bE fInAlIsED In JUlY 2008.



38,890 49,867 38,890 49,867

(c) service agreeMents

In TERMs Of sERVICE AGREEMEnTs, THE COMPAnY AnD GROUP HAVE A COMMITMEnT TO THE fOllOWInG ExPEnDITUREs:

aureliO cOstarella



lOnGER THAn fIVE YEARs - 30,000 - 30,000

530,000 629,012 530,000 629,012

paul O’cOnnOr



95,375 153,876 95,375 153,876

saM Di giacOMO


lOnGER THAn OnE YEAR bUT nO lOnGER THAn fIVE YEARs - 18,000 - 18,000

18,000 38,965 18,000 38,965

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24. EXPENDITURE COMMITMENTS CONTINUED cOnsOliDateD cOMpany

2007 2006 2007 2006

$ $ $ $

elaDin pty ltD

nOT lOnGER THAn OnE YEAR - 34,252 - 34,252

hellO lOlly pty ltD



206,250 267,273 206,250 267,273

slr cOnsulting


lOnGER THAn OnE YEAR bUT nO lOnGER THAn fIVE YEARs - 37,503 - 37,503

37,503 86,191 37,503 86,191

25. SHARE BASED PAYMENTS

The following share based payment arrangements existed at 30 June 2007:

On 10 November 2006, 487,500 ordinary shares were granted to Moses and Singer. The shares were issued at a

value of $0.205 each to make a total payment of $100,000. The value was determined on the basis of equating

the value of each ordinary share to the shares issued under the Prospectus for the Initial Public Offering on the

ASX. The payment was for legal services provided to the Company for the preparation of a US Private Placement

Memorandum offered concurrently with the Prospectus for the Initial Public Offering on the ASX.

On 10 November 2006, 500,000 ordinary shares were granted to Melissa George. The shares were issued at a

value of $0.20 each to make a total payment of $100,000. The value was determined on the basis of equating

the value of each ordinary share to the shares issued under the Prospectus for the Initial Public Offering on the

ASX. The payment was for marketing services provided to the Company in relation to the Prospectus for the

Initial Public Offering on the ASX. On 15 March 2007 the Group established an Incentive Options Scheme to attract,

motivate and retain key management personnel and employees of the Company. Under the Scheme, the Board

may offer options to key management personnel and employees for no consideration having regarded their

length of service, contribution to the Group, or any other matter the Board considers relevant.

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c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | d i r e c t o r ’s d e c l a r a t i o n

In accordance with a resolution of the Directors of

Costarella Design Limited, I state that:

(1) IN THE OPINION OF THE DIRECTORS:

(a) the financial statements and notes of the Company

and of the Consolidated Entity are in accordance

with the Corporations Act 2001 including:

(i) giving a true and fair view of the Company’s and

Consolidated Entity ’s financial position as at 30

June 2007 and of their performance for the year

ended on that date; and

(i i) complying with accounting standards and the

Corporations Act 2001; and

(b) there are reasonable grounds to believe that the

Consolidated Entity will be able to pay its debts as

and when they become due and payable.

(2) THIS DECLARATION HAS BEEN MADE AFTER

RECEIvING THE DECLARATIONS REqUIRED TO BE

MADE TO THE DIRECTORS IN ACCORDANCE wITH

SECTION 295A OF THE CORPORATIONS ACT 2001,

FOR THE FINANCIAL PERIOD ENDING 30 jUNE 2007.

On behalf of the Board.

Sam Di Giacomo


Perth, 27 September 2007

Directors’ Declaration

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AUDITOR’S INDEPENDENCE

DECLARATION AND INDEPENDENT

AUDITOR’S REPORT

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O5727 September 2007

Board of Directors

Costarella Design Limited

23 View Street

North Perth WA 6006

Dear Directors

RE: COSTARELLA DESIGN LIMITED

In accordance with section 307C of the Corporations Act 2001, I am pleased to provide the following declaration of

independence to the directors of Costarella Design Limited. As Audit Director for the audit of the financial statements of

Costarella Design Limited for the year ended 30 June 2007, I declare that to the best of my knowledge and belief, there

have been no contraventions of :

(i) the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and

(ii) any applicable code of professional conduct in relation to the audit.

Yours sincerely

STANTONS INTERNATIONAL

(Authorised Audit Company)

J P Van Dieren

Director

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REPORT ON THE FINANCIAL REPORT

We have audited the accompanying financial report of

Costarella Design Limited, which comprises the balance sheet

as at 30 June 2007, and the income statement, statement of

changes in equity and cash flow statement for the year ended

on that date, a summary of significant accounting policies

and other explanatory notes and the directors’ declaration of

the consolidated entity comprising the Company and the

entities it controlled at the year ’s end or from time to time

during the financial year.

DIRECTORS’ RESPONSIBILITY FOR THE

FINANCIAL REPORT

The directors of the Company are responsible for the

preparation and fair presentation of the financial report in

accordance with Australian Accounting Standards (including

the Australian Accounting Interpretations) and the

Corporations Act 2001. This responsibility includes designing,

implementing and maintaining internal control relevant to

the preparation and fair presentation of the financial report

that is free from material misstatement, whether due to fraud

or error; selecting and applying appropriate accounting

policies; and making accounting estimates that are

reasonable in the circumstances. In note 1, the directors also

state, in accordance with Australian Accounting Standard

AASB 101 Presentation of Financial Statements, that the

financial report of the Group, comprising the financial

statements and notes, complies with International Financial

Reporting Standards, but that the financial report of the

Company does not comply.

AUDITOR’S RESPONSIBILITY

Our responsibility is to express an opinion on the financial

report based on our audit. We conducted our audit in

accordance with Australian Auditing Standards.

These Auditing Standards require that we comply with

relevant ethical requirements relating to audit engagements

and plan and perform the audit to obtain reasonable

assurance whether the financial report is free from material

misstatement.

An audit involves performing procedures to obtain audit

evidence about the amounts and disclosures in the financial

report. The procedures selected depend on the auditor ’s

judgement, including the assessment of the risks of material

misstatement of the financial report, whether due to fraud or

error. In making those risk assessments, the auditor considers

internal control relevant to the entity ’s preparation and fair

presentation of the financial report in order to design audit

procedures that are appropriate in the circumstances, but not

for the purpose of expressing an opinion on the effectiveness

of the entity’s internal control. An audit also includes

evaluating the appropriateness of accounting policies used

and the reasonableness of accounting estimates made by the

directors, as well as evaluating the overall presentation of the

financial report.

We believe that the audit evidence we have obtained is

sufficient and appropriate to provide a basis for our audit

opinion.

INDEPENDENCE

In conducting our audit, we have complied with the

independence requirements of the Corporations Act 2001.

Independent Auditor’s Report to the Members of Costarella Design Limited

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O59BASIS FOR qUALIFIED AUDITOR’S OPINION

As this is the first year that Costarella Design Limited is

required to prepare an annual financial report and have it

audited, the balance sheet, income statement, statement of

changes in equity, cash flow statement, description of

accounting policies and other selected explanatory notes for

the preceding financial year have not been audited.

Accordingly, we are not in a position to and do not express

any assurance in respect of the comparative information for

the year ended 30 June 2006. We did not observe the

counting of the physical inventory stated at $215,971 as at

30 June 2006, since that date was prior to our appointment

as auditors. We were unable to satisfy ourselves as to the

inventory quantities at that date by other audit procedures.

Inventories which are recorded at $215,971 at 30 June 2006

represents 42% of the company’s recorded assets at that date.

qUALIFIED AUDIT OPINION

In our opinion, because of the existence of the limitation of

scope of our work as described in the qualification paragraph,

and the effects, if any, as might have been necessary had the

limitation in scope not existed, we are unable and do not

express an opinion on whether the comparatives for 2006

and the results of the Company and Group operations and

cash flows for the year ended 30 June 2007 present fairly in

accordance with applicable accounting standards and other

mandatory professional reporting standards. In our opinion,

the balance sheet of the Company and the Group presents

fairly in accordance with applicable accounting standards

and other mandatory professional reporting requirements

the financial position of the Company and the Group as at

30 June 2007. Except for the effect, if any, on the limitation

of the scope of our work referred to above, the financial report

of the Group complies with International Financial Reporting

Standards as disclosed in note 1.

STANTONS INTERNATIONAL

(An Authorised Audit Company)

John Van Dieren

Director

West Perth, Western Australia

27 September 2007

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CORPORATE GOvERNANCE

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O61

c o s t a r e l l a a n n u a l r e p o r t 2 0 0 7 | c o r p o r a t e g o v e r n a n c e

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Corporate Governance

The Board of Directors of Costarella Design Limited (“the Company”) is responsible for its corporate governance, that is, the system by which the Company and its controlled entity (“the Group”) is managed.

1 . BOARD OF DIRECTORS

1.1 ROLE OF THE BOARD AND MANAGEMENT

The Board represents shareholders’ interests in developing

and then continuing a successful business, which seeks to

optimise medium to long-term financial gains for shareholders.

By not focusing on short-term gains for shareholders, the

Board believes that this will ultimately result in the interests

of all stakeholders being appropriately addressed when

making business decisions.

The Board is responsible for ensuring that the Group is

managed in such a way to best achieve this desired result.

Given the early development stage of this business, the

Board currently undertakes an active, not passive role.

The Board is responsible for evaluating and setting the

strategic directions for the Group, establishing goals for

management and monitoring the achievement of these

goals. The Managing Director is responsible to the Board for

the day-to-day management of the Group.

The Board has sole responsibility for the following:

Protection and enhancement of shareholder value.

Formulation, review and approval of the objectives and

strategic direction of the Group.

Monitoring the financial performance of the Group by

reviewing and approving budgets and monitoring results.

Approving all significant business transactions including

acquisitions, divestments and capital expenditure.

Ensuring that adequate internal control systems and

procedures exist and that compliance with these

systems and procedures is maintained.

The identification of significant business risks and

ensuring that such risks are adequately managed.

The review of performance and remuneration of

executive directors and key staff.

The establishment and maintenance of appropriate

ethical standards.

Evaluating and, where appropriate, adopting with or

without modification the ASX Corporate Governance

Council’s Principles of Good Corporate Governance and

Best Practice Recommendations.

The Board recognises the need for the Group to operate

with the highest standards of behaviour and accountability.

The Company seeks to follow the best practice

recommendations for listed companies as outlined in the ASX

Corporate Governance Council’s Principles of Good Corporate

Governance and Best Practice Recommendations where

appropriate for its size and the complexity of its operations.

The majority of the members of the board are considered

independent in terms of the ASX Corporate Governance

Council’s definition of independent director.

As the Group’s activities increase in size, scope and/or

nature the Group’s corporate governance principles will be

reviewed by the Board and amended as appropriate.

1 .2 COMPOSITION OF THE BOARD AND NEw

APPOINTMENTS

The Group currently has the following Board members:

Aurelio Costarella

Sam Di-Giacomo

Cathryn Curtin

The Company ’s Constitution provides that the number of

Directors shall not be less than three and not more than ten.

There is no requirement for any share holding qualification.

As the Group’s activities increase in size, nature and scope,


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O63the size of the Board will be reviewed and the optimum

number of Directors required for the Board to properly

perform its responsibilities and functions assigned.

The membership of the Board, its activities and composition

is subject to periodic review. The criteria for determining the

identification and appointment of a suitable candidate for

the Board shall include quality of the individual, background

of experience and achievement, compatibility with other

Board members, credibility within the Group’s scope of

activities, intellectual ability to contribute to Board duties and

physical ability to undertake Board duties and responsibilities.

Directors are initially appointed by the full Board subject to

election by shareholders at the next annual general meeting.

Under the Group’s Constitution the tenure of Directors

(other than Managing Director, regardless of whether this is

a joint or singular position) is subject to reappointment by

shareholders not later than the third anniversary following

his last appointment. Subject to the requirements of the

Corporations Act 2001, the Board does not subscribe to the

principle of retirement age and there is no maximum period

of service as a Director. A Managing Director may be

appointed for any period and on any terms the Directors think

fit and, subject to the terms of any agreement entered into,

the Board may revoke any appointment.

1 .3 COMMITTEES OF THE BOARD

The Board considers that the Group is not currently of a size,

nor are its affairs of such complexity to justify the formation

of separate or special committees including audit,

remuneration or nomination committees, preferring at this

stage to manage the Group through the full board of Directors

at this time. The Board as a whole is able to address the

governance aspects of the full scope of the Group’s

activities and to ensure that it adheres to appropriate

ethical standards. The full Board currently holds meetings at

such times as may be necessary to address any general or

specific matters as required.

If the Group’s activities increase in size, scope and nature,

the appointment of separate or special committees will be

reviewed by the Board and implemented if appropriate.

1 .4 CONFLICTS OF INTEREST

In accordance with the Corporations Act 2001 and the Group’s

Constitution, Directors must keep the Board advised, on an

ongoing basis, of any interest that could potentially conflict

with those of the Group. Where the Board believes that a

significant conflict exists the Director concerned does not

receive the relevant board papers and is not present at the

meeting whilst the item is considered.

1 .5 INDEPENDENT PROFESSIONAL ADvICE

The Board has determined that individual Directors have the

right in connection with their duties and responsibilities as

Directors, to seek independent professional advice at the

Group’s expense. The engagement of an outside adviser is

subject to prior approval of the Chairman and this will not be

withheld unreasonably. If appropriate, any advice so received

will be made available to all Board members.

2. ETHICAL STANDARDS

The Board acknowledges the need for continued

maintenance of the highest standard of corporate

governance practice and ethical conduct by all Directors

and employees of the Group.

2.1 CODE OF CONDUCT FOR DIRECTORS

The Board has adopted a Code of Conduct for Directors and

executive officers to promote ethical and responsible

decision making by the Directors. The Code covers the

following broad principles:

i. Honesty and integrity;

ii. Confidentiality of information;

iii. Disclosure of interests;

iv. Disclosure of information;

v. Abiding by the law;

vi. Payments, gifts, entertainment and travel;

2.2 CODE OF ETHICS AND CONDUCT

The Company has established a Code of Business Conduct

(Code) which aims to develop a consistent understanding of,

and approach to, the desired standards of conduct and

behavior of the directors, officers, employees and contractors

(collectively, the Employees) in carrying out their roles for the

Group. Through this Code, the Group seeks to encourage

and develop a culture of professionalism, honesty and

responsibility in order to maintain and enhance our reputation

as a valued employer, business operator and “corporate

citizen”. The Code is designed to broadly outline the ways in

which the Group wishes to conduct its business. The Code

does not cover every possible situation that Employees may

face, but is intended to provide Employees with a guide to

taking a commonsense approach to any given situation,

within an overall framework.

2.3 DEALINGS IN GROUP SECURITIES

The Company has established Dealing in Securities Policy

that is provided to all Directors and employees on

commencement.


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2.3 DEALINGS IN GROUP SECURITIES CONTINUED

The constitution permits Directors to acquire shares and

options in the Company. The Company’s policy prohibits

Directors from dealing in shares whilst in possession of price

sensitive information. Directors must notify the company

secretary once they have bought or sold shares in the

Company or exercised options over ordinary shares.

In accordance with the provisions of the Corporations Act

2001 and the Listing Rules of the Australian Securities

Exchange, the Company on behalf of the directors must

advise the Australian Securities Exchange of any transactions

conducted by them in shares and / or options in the Company.

3. DISCLOSURE OF INFORMATION

3.1 DISCLOSURE POLICY

The Disclosure Policy requires all executives and Directors to

inform the Managing Director or the company secretary

when the Managing Director is not available, of any

potentially material information as soon as practicable after

they become aware of that information.

Information is material if it is likely that the information

would influence investors who commonly acquire securities

on ASX in deciding whether to buy, sell or hold the

Company’s securities.

Information is not material and need not be disclosed if :

a) A reasonable person would not expect the information

to be disclosed or is material but due to a specific valid

commercial reason is not to be disclosed; and

b) The information is confidential; and

c) One of the following applies:

i. It would breach a law or regulation to disclose the

information;

ii. The information concerns an incomplete

proposal or negotiation;

iii. The information comprises matters of supposition

or is insufficiently definite to warrant disclosure;

iv. The information is generated for internal

management purposes;

v. The information is a trade secret;

vi. It would breach a material term of an agreement, to

which the Group is a party, to disclose the information;

vii. It would harm the Group’s potential application or

possible patent application; or

viii. The information is scientific data that release of

which may benefit the Group’s potential competitors.

The Managing Director is responsible for interpreting and

monitoring the Company’s disclosure policy and where

necessary informing the Board. The company secretary is

responsible for all communications with ASX.

3.2 COMMUNICATION wITH SHAREHOLDERS

The Company’s communication strategy requires

communication with shareholders and other stakeholders

in an open, regular and timely manner so that the market

has sufficient information to make informed investment

decisions on the operations and results of the Group.

The strategy provides for the use of systems that ensure a

regular and timely release of information about the Group

is provided to shareholders. Mechanisms employed include:

Announcements lodged with ASX;

ASX Quarterly Cash Flow Reports;

Half Yearly Report;

Presentations at the Annual General Meeting/General

Meetings; and

Annual Report.

The Board encourages full participation of shareholders at

the Annual General Meeting to ensure a high level of

accountability and understanding of the Group’s strategy

and goals.

4. RISK MANAGEMENT

4.1 OvERvIEw OF THE RISK MANAGEMENT SYSTEM

The Board adopts practices designed to identify significant

areas of business risk and to effectively manage those risks

in accordance with the Group’s risk profile. This includes

assessing, monitoring and managing operational, financial

reporting, and compliance risks for the consolidated entity.

The consolidated entity is not of a size nor is its affairs of such

complexity to justify the establishment of a formal system

for reporting risk management and associated compliance

and controls. Instead, a Director, in accordance with company

policy, approves all expenditure, is intimately acquainted

with all operations and reports all relevant issues to the other

Directors at the Directors’ meetings.

4.2 RISK PROFILE

The Group is not currently considered to be of a size, nor is

its affairs of such complexity to justify the establishment of

a separate Risk Management Committee. Instead, the

Board, as part of its usual role and through direct

involvement in the management of the Group’s operations

ensures risks are identified, assessed and appropriately

managed. Where necessary, the Board draws on the

expertise of appropriate external consultants to assist in

dealing with or mitigating risk.


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O65Major risks arise from such matters as actions by

competitors, government policy changes, difficulties in

sourcing raw materials, the robustness of the technologies

being used or proposed to be used, environment,

occupational health and safety, financial reporting and the

purchase, development and use of information systems.

4.3 RISK MANAGEMENT, COMPLIANCE AND CONTROL

The board acknowledges that it is responsible for the overall

internal control framework, but recognises that no cost

effective internal control system will preclude all errors and

irregularities.

4.4 INTEGRITY OF FINANCIAL REPORTING

The Group’s Managing Director and Chief Financial Officer

(or equivalent) report in writing to the Board that:

the consolidated financial statements of the Group for

each half and full year present a true and fair view, in all

material aspects, of the Group’s financial condition and

operational results and are in accordance with

accounting standards;

the above statement is founded on a sound system of

risk management and internal compliance and control

which implements the policies adopted by the Board; and

the Group’s risk management and internal compliance

and control framework is operating efficiently and

effectively in all material respects.

4.5 ROLE OF AUDITOR

The Group’s practice is to invite the auditor to attend the

annual general meeting and be available to answer

shareholder questions about the conduct of the audit and

the preparation and content of the auditor ’s report.


2.4A sEPARATE nOMInATIOn COMMITTEE HAs nOT bEEn fORMED.

THE bOARD COnsIDERs THAT THE GROUP Is nOT CURREnTlY Of A sIzE TO JUsTIfY THE fORMATIOn Of A nOMInATIOn COMMITTEE. THE bOARD As A WHOlE UnDERTAkEs THE PROCEss Of REVIEWInG THE skIll bAsE AnD ExPERIEnCE Of ExIsTInG DIRECTORs TO EnAblE IDEnTIfICATIOn OR ATTRIbUTEs REqUIRED In nEW DIRECTORs. WHERE APPROPRIATE InDEPEnDEnT COnsUlTAnTs ARE EnGAGED TO IDEnTIfY POssIblE nEW CAnDIDATEs fOR THE bOARD.

4.2, 4.3A sEPARATE AUDIT COMMITTEE HAs nOT bEEn fORMED.

THE bOARD COnsIDERs THAT THE GROUP Is nOT CURREnTlY Of A sIzE, nOR ARE ITs AffAIRs Of sUCH COMPlExITY TO JUsTIfY THE fORMATIOn Of An AUDIT COMMITTEE. THE bOARD As A WHOlE UnDERTAkEs THE sElECTIOn AnD PROPER APPlICATIOn Of ACCOUnTInG POlICIEs, THE IDEnTIfICATIOn AnD MAnAGEMEnT Of RIsk AnD THE REVIEW Of THE OPERATIOn Of THE InTERnAl COnTROl sYsTEMs.

9.2THERE Is nO sEPARATE REMUnERATIOn COMMITTEE.

THE bOARD COnsIDERs THAT THE GROUP Is nOT CURREnTlY Of A sIzE, nOR ARE ITs AffAIRs Of sUCH COMPlExITY TO JUsTIfY THE fORMATIOn Of A REMUnERATIOn COMMITTEE. THE bOARD As A WHOlE Is REsPOnsIblE fOR THE REMUnERATIOn ARRAnGEMEnTs fOR DIRECTORs AnD ExECUTIVEs Of THE GROUP.

5. PERFORMANCE REvIEw

The Board has adopted a self-evaluation process to measure its own per formance during each financial year.

Arrangements are in place by the Board to monitor the performance of the Group’s executives to include:

a review by the Board of the Group’s financial performance; and

performance appraisal meetings incorporating analysis of key performance indicators with individuals.

6. REMUNERATION ARRANGEMENTS

The Group’s Remuneration Policy is set out in the Remuneration Report Section of the Director ’s Report, and also included

in the 2007 Financial Statements.

COMPLIANCE wITH ASX CORPORATE GOvERNANCE

Recommendations During the 2007 financial year (“Reporting Period”) the Group complied with the ASX Principles and

Recommendations other than in relation to the matters specified below.

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Additional informationThe shareholder information set out below was applicable as at 28/09/07

1 . TwENTY LARGEST SHAREHOLDERS

The names of the twenty largest holders of each class of listed securities are listed below:

ORDINARY SHARES

naMenO Of OrDinary

shares helDpercentage Of issueD shares

MR AURElIO COsTAREllA < COsTAREllA InVEsTMEnTs A/C > 18,000,000 40.12

MR PETER fRAnCIs CAUGHEY < MERCURY bUsInEss sERVICEs A/C> 1,566,666 3.49

ElADIn PTY lTD < ElADIn fAMIlY A/C> 1,083,333 2.41

RIMOH PTY lTD < CORsAIRE A/C > 1,083,333 2.41

ElADIn PTY lTD < GTG sUPERAnnUATIOn fUnD > 943,334 2.10

VERsAIllEs HOlDInGs lTD < THE AlMOnTE fAMIlY A/C > 800,000 1.78

MR RAVInDAn GOVInDAn 750,000 1.67

RIMOH PTY lTD < sURCOUf sUPER fUnD A/C > 693,334 1.55

blACkMORT nOMInEEs PTY lTD < 45697 A/C > 625,000 1.39

MR bRIAn lEE AnD Ms AUDREY lEE 625,000 1.39

PRIMEbAsE nOMInEEs PTY lTD 600,000 1.34

Ms kAREn JUlIE bEAzlEY < THE kAREn JUlIE bEAzlEY fAMIlY A/C> 550,000 1.23

MR sAnTInO DI-GIACOMO 538,500 1.20

MR CHAn sInG En 500,000 1.11

Ms MEllIssA GEORGE 500,000 1.11

nObEl InTERnATIOnAl lIMITED 500,000 1.11

MR IR lOnnIE < IR lOnnIE fAMIlY A/C > 487,500 1.09

MOsEs AnD sInGER llC 487,500 1.09

MR blAIR EDWARD sERGEAnT & MRs bROnWYn GAYE lUkIC < RIO GRAnDE DO nORTE s/f A/C > 485,000 1.08

PIAnMOOR InVEsTMEnTs PTY lTD 450,000 1.00

TOTAl TOP 20 31,268,500 69.67

OTHER sHAREHOlDERs 14,591,915 30.33

TOTAl ORDInARY sHAREs 44,860,415 100.00

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$0.20 OPTIONS EXPIRING 30/09/10

naMenO Of $0.20

OptiOns helDpercentage Of issueD OptiOns

MR AURElIO COsTAREllA < COsTAREllA InVEsTMEnTs A/C > 2,000,000 26.15

ElADIn PTY lTD < ElADIn fAMIlY A/C > 541,667 7.08

MR PETER fRAnCIs CAUGHEY < MERCURY bUsInEss sERVICEs A/C> 483,333 6.32

ElADIn PTY lTD < GTG sUPERAnnUATIOn fUnD A/C > 471,667 6.17

blACkMORT nOMInEEs PTY lTD < 45697 A/C > 406,250 5.31

MR bRIAn lEE AnD Ms AUDREY lEE 312,500 4.09

MR MARk WIllIAM sWAn < THE EMEss A/C > 300,000 3.92

MR sAnTInO DI-GIACOMO 269,250 3.52

MR IR lOnnIE < IR lOnnIE fAMIlY A/C > 243,750 3.19


MR blAIR EDWARD sERGEAnT & MRs bROnWYn GAYE lUkIC <RIO GRAnDE DO nORTE s/f A/C > 217,500 2.84

CElTIC CAPITAl PTY lTD < THE CElTIC CAPITAl A/C > 182,500 2.39

MR AnTHOnY DE nICOlA AnD MRs TAnYA lOUIsE DE nICOlA < DE nICOlA fAMIlY s/f A/C > 162,500 2.12

MR sIMOn lEE RObERTsOn AnD MYfAnWY lYnETTE EDWARDs < RObWARD InVEsTMEnT A/C > 143,750 1.88

MR lEsTER GREIVE 137,500 1.80

VfT InVEsTMEnTs PTY lTD 130,000 1.70

MR IAn RAlPH lOnnIE AnD MRs MARGARET ROsE lOnnIE < M I sUPERAnnUATIOn fUnD > 104,250 1.36


MR kEVIn GlEn CROsbY & Ms bEVERlY AnnE CROsbY GlEnORMAn 62,500 0.82

MR kIM sTEVEn WIlHElM 62,500 0.82

TOTAl TOP 20 6,553,917 85.69

OTHERs 1,089,913 14.31

TOTAl OPTIOns 7,648,830 100.00%


Additional information

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2. DISTRIBUTION OF EqUITY SECURITIES

(A). ANALYSIS OF SHARES BY SIzE HOLDING AS AT 28/09/07

OrDinary shares OptiOns

nUMbER Of sECURITY HOlDERs nUMbER Of sECURITIEs HElD nUMbER Of sECURITY HOlDERs nUMbER Of sECURITIEs HElD

1 – 1,000 2 407 0 0

1,001 – 5,000 20 74,937 46 211,050

5,001 – 10,000 199 1,981,858 9 65,663

10,001 – 100,000 112 4,441,295 31 1,040,700

100,001 – AnD OVER 57 38,361,918 17 6,331,417

390 44,860,415 103 7,648,830


(B). NUMBER OF HOLDERS OF UNMARKETABLE PARCELS – ORDINARY SHARES

Unmarketable Parcels – 22

3. SUBSTANTIAL SHAREHOLDERS

The names of the substantial shareholders listed in the company’s register at 27/09/07 are:

naMe nO Of shares helD

MR AURElIO COsTAREllA < COsTAREllA InVEsTMEnTs A/C > 18,000,000

4. UNqUOTED SECURITIES

As at 28/09/07 the following there no unquoted securities are on issue.

5. RESTRICTED SECURITIES

As at 28/09/07, there are 27,207,500 securities subject to escrow restrictions. 1,057,500 Shares were released from

escrow on 13/10/2007 with the balance escrowed for a period of 24 months from the date of Official Quotation on ASX.

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O696. vOTING RIGHTS

The voting rights of the ordinary shares are as follows:

Subject to any rights or restrictions for the time being attached

to any shares or class of shares of the Group, each member

of the Group is entitled to receive notice of, attend and vote

at a general meeting. Resolutions of members will be decided

by a show of hands unless a poll is demanded. On a show of

hands each eligible voter present has one vote. However,

where a person present at a general meeting represents

personally or by proxy, attorney or representation more than

one member, on a show of hands the person is entitled to one

vote only despite the number of members the person

represents. On a poll each eligible member has one vote for

each fully paid share held.

There are no voting rights attached to any of the options that

the Group currently has on issue. Upon exercise of these

options, the shares issued will have the same voting rights

as existing ordinary shares.

7. ON-MARKET BUY BACK

There is currently no on-market buy back program for any

of Costarella Design Limited’s listed securities.


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www.aureliocostarella.com.au | ASX Code: CDL

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Documents

For personal use only - ASX2007/10/31 · Sam Di Giacomo. Non-Executive Director COMPANY SECRETARY Simon Robertson REGISTERED AND PRINCIPAL OFFICE: 23 View Street North Perth, Western