Biotron Limited Annual Report 2006

FY2006 Annual Report · Biotron Limited

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Level 8, 261 George Street
Sydney NSW 2000
Tel: (61-2) 9247 8212
Fax: (61-2) 9247 3932
E-mail: pnightingale@biotron.com.au
Website: www.biotron.com.au

(47 pages by email)

21 September 2006

The Manager Companies
Australian Stock Exchange Limited
20 Bridge Street
SYDNEY NSW 2000

Dear Madam

RE: ANNUAL REPORT

In accordance with Listing Rule 4.7, I attach the Company's Annual Report for the year ended 30 June 2005.

I also attach a copy of the Company's Notice of Annual General Meeting to be held on 20 October 2006.

Yours sincerely

Peter J. Nightingale
Company Secretary

pjn3631

Biotron Limited ABN 60 086 399 144

Biotron Limited Annual Report 2006

CONTENTS

Chairman’s Report

Operating and Financial Review

Statement of Corporate Governance

Directors’ Report

Income Statement

Statement of Recognised Income and Expenses

Balance Sheet

Statement of Cash Flows

Notes to the Financial Statements

Directors’ Declaration

Independent Audit Report

Additional Stock Exchange Information

Corporate Directory

2 – 6

7 – 8

9 – 14

19 – 31

34 – 35

Chairman’s Report

I am pleased to present Biotron’s Annual Report for
the year ended 30 June 2006. The last twelve months
have seen major advances in progression of the
Company’s projects – particularly the Virion anti-HIV drug
development program. This program has made excellent
progress, to the point where we are now approaching a
human clinical trial with Biotron’s anti-HIV drug BIT225.
This represents a ﬁ rst-in-class, new mode of action drug
for treatment of HIV.

New approaches to HIV therapy are needed to counteract
the development of drug resistance that occurs with
current therapies. Studies conducted during the last
12 months have demonstrated that BIT225 is active in
vitro against strains of HIV that are resistant to other HIV
drugs.

Biotron’s BIT225 speciﬁ cally targets HIV in the viral
reservoirs – immune cells where the virus hides for long
periods when the patient otherwise seems to be carrying
negligible viral loads. Existing HIV drugs have no effect on
the underlying reservoir, which contributes to production
of drug resistant virus and long term disease.

Since selection of BIT225 as the Company’s anti-HIV lead
compound in the second half of 2005, the Company’s
drug development program has progressed through
adaptation of the manufacturing process from the
previous bench top scale to kilo-scale reactors at audited
international regulatory standard, producing high grade
BIT225 which will be used for the upcoming Phase I/IIa
human clinical trial. Final preclinical safety and toxicology
studies are in progress and are due to conclude before

the end of 2006. The data from these preclinical
studies will be submitted to appropriate hospital, ethics
and regulatory authorities to support approval for
commencement of a Phase I/IIa clinical trial early in 2007.

Biotron’s Board is mindful of the need to realise the value
of its wider antiviral drug portfolio. While the anti-HIV
program remains the major focus of Company activities,
the Virion technology has the potential to treat a wider
range of viral diseases, substantially adding further to its
value. Development of a lead compound for treatment of
Hepatitis C virus (HCV) is following fast on the heels of the
HIV program.

During the year, Biotron raised $4.3 million (net)
through an underwritten rights issue. These funds
will support the Phase I/IIa human trial for BIT225,
advance the Company’s HCV antiviral program through
preclinical development towards the clinic and progress
development of therapeutics for other viral diseases
of interest. The Board is appreciative of the support
of shareholders who participated in this recent capital
raising.

During the year, Biotron also received funds awarded
under a number of competitive grants, including a
grant from the ACT government to facilitate further
commercial development of the Company’s cancer
diagnostic program. Biotron has continued to optimise
its assay methods and to identify differences in the
free oligosaccharide and glycolipid expression proﬁ les
between prostate and colorectal cancer patients and
normal individuals. Analysis of a larger data set is currently
in progress to validate earlier results.

Biotron is also currently investigating the potential
application of the C-Test diagnostic technology to a
wider range of cancer types and other diseases including
diabetes.

The last ﬁ nancial year could be summed up as one of
challenges and achievements. The next year offers
immense hope and opportunity.

On behalf of the shareholders and Directors, I would like
to thank all Biotron staff for their untiring efforts during
the year. Thanks to their commitment and dedication,
your Company is well placed to meet the next stage of its
development.

Yours sincerely

Michael J. Hoy
Chairman

Biotron Limited Annual Report 2006 1

Operating and Financial Review

Overview

During the year ended 30 June 2006 there has been
a major focus on Biotron’s antiviral drug development
program, with a particular emphasis on clinical
development of its anti-HIV therapeutic candidate BIT225.

The following signiﬁ cant events were achieved during the
year under review:

(cid:129) Selection of an anti-HIV lead compound, BIT225, for

progression to manufacture and formal safety studies.
A clinical development plan has been implemented for
this drug, with the aim of commencing human clinical
trials in early 2007.

(cid:129) Review of the Company’s anti-HIV development

program with BIT225, including clinical trial design, in
the USA by a panel of eminent international HIV expert
clinicians.

(cid:129) BIT225 was shown to have activity against strains of

HIV that are resistant to existing HIV drugs.

(cid:129) BIT225 was shown to improve the activity of existing

HIV therapies.

(cid:129) Commencement and continuation of formal preclinical
safety and toxicology studies for BIT225 at a leading
European contract research organisation.

30 June 2006, BIT225 has progressed through a series
of rigorous preclinical safety tests that are required before
human clinical trials can be commenced. The program
is on track for initiation of the ﬁ rst human testing in early
2007.

Biotron has continued to receive funds from successful
grant applications under the Federal Government’s
BIF and Start grant programs. The Company also
received funds under a $200,000 Knowledge Fund
grant from the ACT Government for progressing the
C-Test cancer diagnostic technology. Biotron’s success
in obtaining these independently reviewed, competitive
grants demonstrates the international competitiveness,
innovation and commercial potential of the Company’s
projects.

In April 2006, the Company raised $4.3 million, after
costs of the issue, by an underwritten rights issue of 19.9
million new fully paid ordinary shares. These funds will
enable the Company to:

(cid:129) Complete the pre-clinical development studies for the
Company’s anti-HIV lead compound, BIT225. These
safety studies are currently underway and due for
completion before the end of 2006.

(cid:129) Selection of a contract manufacturer for clinical

(cid:129) Undertake a Phase I/IIa clinical trial for Biotron’s

grade (GMP) BIT225, including scale-up and process
development and the manufacture and supply of 2.5
kilograms of GMP grade BIT225.

(cid:129) Initiation and continuation of chemical stability studies

of BIT225.

(cid:129) Development of numerous compound analogues to
enhance Biotron’s library of compounds and further
strengthen the Company’s patent position over the
BIT225 structure.

(cid:129) Demonstration of efﬁ cacy of several Biotron

compounds against Inﬂ uenza A, including the H5N1
(bird ﬂ u) strain, and Inﬂ uenza B viruses.

(cid:129) Continued development of the Company’s Hepatitis C

antiviral development program.

(cid:129) Further strengthening of the Company’s intellectual
property portfolio through ﬁ ling of additional patent
applications.

(cid:129) Completion of an underwritten rights issue, raising

$4.3 million (net) from the issue of 19.9 million shares.

The Company’s efforts have been focused on commercial
development of the Virion and C-Test Projects, with a
speciﬁ c emphasis on development of the Company’s
Virion antiviral platform. Excellent progress has been
made with the anti-HIV development program, with a lead
compound, BIT225, selected to progress into a clinical
development program. During this 12 month period to

anti-HIV candidate BIT225, due to commence early
in 2007. The trial design and location are currently
being ﬁ nalised, and discussions are underway with
regulatory authorities.

(cid:129) Progress the Company’s Hepatitis C antiviral program
through preclinical development towards a clinical
development program. This program has substantial
commercial potential, based on the Company’s
antiviral platform technology, can be fast tracked
because of the work already done to progress the
Company’s anti-HIV lead compound.

(cid:129) Expand the Company’s Virion antiviral platform

technology into other viruses of interest. Several
Biotron compounds have been shown to have
activity against other viruses including the H5N1 (bird
ﬂ u) strain of the inﬂ uenza A virus, SARS and dengue
fever. Funds will be allocated to further characterise
the antiviral activity of the Company’s library of
compounds and progression of these compounds
towards clinical development.

(cid:129) Screening, testing and development of the

Company’s library of compounds against a number
of other viruses will be continued.

(cid:129) Progress the Company’s C-Test project to a stage

suitable for partnering.

Operating and Financial Review

Biotron’s model is to take projects such as Virion and
C-Test through proof of concept studies into preclinical
and early stage clinical development. The Company then
aims to form partnerships and alliances with international
pharmaceutical or biotechnology companies for further
late stage clinical development and marketing of
products.

During the year under review, on-going discussions have
been held with potential partners regarding the Virion
technology and the C-Test project.

Whilst keen to secure a partner to take the Company’s
Virion compounds through into clinical development,
Biotron can signiﬁ cantly increase the value of the
technology by undertaking the proposed Phase I/IIa
clinical trial with BIT225 before forming an alliance. This
will translate into much higher returns to the Company
in the form of upfront payments as well as increased
milestone and royalty payments in the future.

Biotron’s Projects

Virion Project
Human Immunodeﬁ ciency Virus
Biotron’s Virion project has seen signiﬁ cant progress
during the 12 months to 30 June 2006. In September
2005 Biotron announced that it had selected a
lead compound, BIT225, to progress into a clinical
development program heading towards clinical trials for
treatment of HIV. This is a very signiﬁ cant milestone for
the Company, and was the culmination of many months
of robust testing of several lead candidate compounds,
each of which had favourable characteristics in terms of
safety, bioavailability and efﬁ cacy.

Biotron’s Drug Development Pathway for BIT225

BIT225 represents a novel, ﬁ rst in class approach to the
treatment of HIV. BIT225 targets a different HIV protein,
Vpu, than those targeted by other existing HIV therapies.
It is well recognised that new approaches to HIV therapy
are needed to counteract the development of drug
resistance that occurs with current therapies. By blocking
a new pathway in HIV infectivity, BIT225 has the potential
to combat drug resistant viral strains, in combination
with highly active antiretroviral therapies (‘HAART’) and
in monotherapy. Studies conducted during the last 12
months have demonstrated that BIT225 is active in vitro
against strains of HIV that are resistant to other HIV
drugs.

BIT225 targets a different stage of the HIV life cycle

Critically, BIT225 speciﬁ cally targets HIV in reservoir cells,
in contrast to current therapies that work by reducing the
levels of HIV in the blood to undetectable levels. However,
these drugs have no effect on the underlying reservoir
of infected cells where the HIV hides from the immune
system. Over the lifetime of a patient virus from these
reservoir cells rebounds into the blood, necessitating on-
going treatment with antiretroviral drugs.

Biotron Limited Annual Report 2006 3

Operating and Financial Review

Electron micrographs of human cells infected with HIV
A. Untreated B. Treated with BIT225

Currently, no therapies are active in these latent cells and
elimination of this reservoir of HIV is essential if the virus
is to be completely eliminated from the body. BIT225 is
speciﬁ cally active in these reservoir cells and represents
an opportunity to attack HIV at its source. BIT225
could be used in combination with existing antiretroviral
therapies to achieve the dual effect of arresting viral
replication and eliminating the viral reservoir to achieve
total elimination of HIV in the body.

Recent in vitro studies have demonstrated that BIT225
is able to improve the activity of current HIV therapies,
further supporting the use of BIT225 in combination with
other existing HIV drugs.

Early in 2006, after a period of extensive review of
quotations and capabilities of chemical manufacturers,
Dr Reddy’s Laboratories Ltd, Hyderabad, India was
contracted to manufacture and supply 5 kilograms of
GMP-grade BIT225. The 5 kilograms of BIT225 will
be manufactured in two batches of 2.5 kilograms, to
minimise any risk associated with the manufacturing
process and to validate the process.

The manufacturing is being done to audited international
regulatory standards and will be suitable for use in
human clinical trials. The contract includes process
development and scale up of the manufacturing process
from the previous bench top scale to kilo-scale reactors.
Process development and scale up has been successfully
completed, and Biotron has received the ﬁ rst of two 2.5
kilogram batches of BIT225 made to GMP standards.

Excellent results have been achieved in terms of product
quality, demonstrating that BIT225 may be successfully
scaled up from lab to commercial scale. Stability studies
on the ﬁ nal product are in progress, and results to date
have indicated that the product has good stability proﬁ les.
The manufacturing is being done to audited international
regulatory standards and will be suitable for use in human
clinical trials.

Biotron selected an international contract research
organisation (‘CRO’) to undertake the ﬁ nal preclinical
safety studies that must be completed before a human
trial can commence. These studies will comply with
international regulatory standards, and the results will
form the basis of future regulatory approvals for Biotron’s
drug with organisations including the Therapeutic Goods
Administration (‘TGA’) in Australia and the Food and Drug
Administration (‘FDA’) in the USA, which control approvals
for new drugs in humans. These safety studies are being
completed using the batches of BIT225 manufactured by
Dr Reddy’s Laboratories.

Final preclinical safety and toxicology studies are in
progress with a leading European CRO and are due to
conclude before the end of 2006. These have included a
range of cell and animal-based studies to determine the
safety proﬁ le and potential toxicities of the compound.
Speciﬁ c tests have monitored cardiovascular, respiratory
and neurological functions. The preclinical testing
program is progressing very smoothly, with good results
in the various pharmacokinetic, toxicology and safety
studies performed to date. The success of BIT225 is
largely due to the rigorous lead selection program that

Operating and Financial Review

was implemented by Biotron in the selection of BIT225
as the lead candidate compound. The data from these
preclinical studies will be submitted to appropriate
hospital, ethics and regulatory authorities to support
approval for commencement of a Phase I/IIa clinical trial,
and will be used to determine the starting dosage for the
human studies.

Biotron is in the ﬁ nal stages of design of the human
trial and is in discussions with doctors specialising
in treatment of HIV as well as a site for the trial. The
Investigators Brochure for BIT225, which is the prime
document that forms the basis for ethics and regulatory
approvals, is currently being ﬁ nalised. It is expected
that the human trial will commence in early 2007 with
commencement dependent on receipt of ﬁ nal reports
from the CRO completing the preclinical studies and the
ethics and regulatory approval process.

Hepatitis C and Other Viruses
Whilst Biotron’s prime focus is on its anti-HIV drug
development program, speciﬁ cally with progression
of BIT225 into a human clinical trial, development of
therapeutics for viruses other than HIV continue with a
focus on Hepatitis C virus (‘HCV’). Biotron has identiﬁ ed
several compounds with activity against the HCV virus
through screening of its rationally designed compound
library in the Company’s proprietary assays.

Lead optimisation is in process to identify a lead
compound suitable for progression into clinical trials for
HCV.

HCV is a very attractive target for Biotron. It is estimated
that in the US alone some 4 million people have been
infected with Hepatitis C, with 2.7 million suffering from
chronic infection. Worldwide, 170 million people are
infected. Existing drugs for HCV are ineffective and toxic,
leaving an unmet need for new therapies. The worldwide
market is currently almost US$3 billion, but is estimated
that this market will expand to over US$10 billion as
safe, effective therapies enter the market. In addition to
HCV, several Biotron compounds have been shown to be
active against other commercially relevant viruses, from
in-house assays as well as assays done in conjunction
with overseas screening programs. The aim is to
progress lead compounds from these other viral drug
development programs into clinical trials.

Earlier this year a number of Biotron’s proprietary
antiviral compounds were tested against various strains
of inﬂ uenza A and B viruses. Several compounds had
activity against various inﬂ uenza A subtypes whilst one
compound was shown to have good activity against a
broad range of inﬂ uenza A subtypes, including the H5N1
strain, as well as against inﬂ uenza B. Further tests are
being expedited.

The H5N1 strain of inﬂ uenza A is a highly pathogenic
avian inﬂ uenza subtype that is becoming endemic in Asia.
In recent months several human cases of the disease

have occurred with a high fatality rate. Countries around
the world are currently stockpiling existing ﬂ u drugs in
case of a worldwide pandemic of a human form of H5N1.

Inﬂ uenza B is less common than type A, but also causes
epidemics. The disease is milder than that produced
by inﬂ uenza A, but is potentially more serious in elderly
patients. Current inﬂ uenza drugs are ineffective against
inﬂ uenza B. The broad range of activity of Biotron
compounds against inﬂ uenza A and B suggests a new
mode of action for Biotron’s drugs.

In addition, Biotron has developed a high throughput
assay to rapidly screen compound libraries for activity
against drug resistant strains of inﬂ uenza A. This test will
be a valuable tool in development of the next generation
of inﬂ uenza drugs.

C-Test
Cancer cells have a number of characteristics that
distinguish them from normal cells. Most tumour markers
are neither sensitive nor speciﬁ c enough to screen for
cancer or to diagnose the type of cancer without the
support of other clinical tests. While a number of tumour
markers have been identiﬁ ed in the past, they have
generally been found to lack sensitivity and speciﬁ city for
different types of cancers.

There is a real need for new tests that allow unambiguous
cancer diagnoses to be made at an early stage. The best
tests will be simple and non-invasive assays that allow
rapid and accurate diagnosis of the type of cancer and its
stage.

To address this need, Biotron is developing sensitive,
rapid, non-invasive assays to detect and diagnose
speciﬁ c types of cancer. Research undertaken by the
C-Test project team has led to the proﬁ ling of sera from
patients with different types of cancer, showing that the
glycolipid expression pattern is unique between cancer
types.

The Company has developed proprietary technology for
extraction and analysis of carbohydrates from blood, and
has developed algorithms for analysing the expression
proﬁ le of these molecules. Trials have been undertaken
to demonstrate the utility of this glycomics approach for
diagnosis of prostate and colorectal cancers.

In 2005 Biotron was awarded a competitive grant of
$200,000 from the ACT Government to facilitate further
commercial development of C-Test for these diseases.
During the last 12 months, Biotron has continued to
optimise its assay methods and identify differences in the
free oligosaccharide and glycolipid expression proﬁ les
between cancer patients and normal individuals. Analysis
of a larger data set is currently in progress to validate
earlier results.

Biotron Limited Annual Report 2006 5

Operating and Financial Review

Biotron is currently investigating wider applications for
its C-Test technology. The methodology has potential
application for a wider range of diseases than cancer,
including various immune based disorders such as
diabetes.

Muscion and Other Tier 2 Projects
Muscion is a tier two project that is at an earlier stage of
development compared to Virion and C-Test.

Contraction of muscle, including heart muscle, depends
on release of calcium from stores inside cells through
calcium channels called ryanodine receptors. The
Muscion project team is identifying compounds that
selectively target ryanodine receptors in heart, skeletal
and insect muscle. Biotron researchers are developing
drugs to boost the output of a damaged or failing heart
muscle and, as part of this process, have identiﬁ ed
peptides that stimulate heart muscle contraction in vitro.

During the past year, work has continued to be focused
on characterisation of small molecule compounds,
identiﬁ ed in collaboration with researchers at the
Australian National University, which target the human
ryanodine receptor. These compounds are potential
therapeutics for cardiovascular disease, and are being
assessed for their ability to reverse heart failure in
appropriate disease models.

The remaining projects are underpinned by a platform
technology, research on ion channels in membranes.
These projects are at an earlier stage of development
than the Virion and C-Test projects and, as such, limited
resources are committed due to the Company’s focus
on commercial development of the Virion and C-Test
projects.

The Hypoxion project is focused on identifying
compounds that prevent the symptoms of stroke and
heart attack. Animal models of the diseases are being
established. The GeneTrans project has generated a
novel cell line that may have utility in drug screening
tests to check the safety of new pharmaceutical drugs.
The Gabion project is investigating compounds that act
on the GABA receptor, which has been implicated in
numerous neurological disorders.

Patent Update
Biotron recognises that the key to establishment
of partnerships is the expansion and continued
strengthening of Biotron’s intellectual property (IP)
portfolio. Strong, defensible, international patents are
essential to attract partners and to ensure a competitive
advantage for our products in the marketplace. Biotron
continues to build a strong defensible wall of patents
around the Company’s intellectual property to maximise
the value of the technology and to ensure Biotron’s
competitive position.

During the past year, Biotron expanded its compound
library and generated a large number of analogues of
BIT225 to further strengthen its patent position. In
addition, an application was ﬁ led over a new surrogate
assay for screening compounds for antiviral activity.

A summary of Biotron’s patent portfolio is set out in the
table below.

TITLE

STATUS

PCT/AU99/00872
A method of modulating ion channel functional activity

Granted in Australia, New Zealand and China.
Under examination elsewhere.

PCT/AU97/00638
A method of determining ion channel activity of a substance

Granted in Australia and USA
Under examination elsewhere.

PCT/AU2004/000866
Antiviral compounds and methods

PCT/AU2006/000800
Antiviral compounds and methods

Entered into National Phase in all jurisdictions.

International PCT application ﬁ led June 2006.

Constructs and methods of identifying anti-viral agents

Provisional patent application ﬁ led April 2006.

PCT/AU01/00877
Method of identifying cancer markers and uses therefore in the
diagnosis of cancer

PCT/AU02/01113
A novel cancer marker and uses
therefore in the diagnosis of cancer

PCT/AU01/01093
Modiﬁ ed proteins, isolated novel peptides, and uses therefore

PCT/AU02/00608
Method of modulating the activity of calcium channels in
cardiac cells and reagents therefore

Granted in Australia, Singapore and South
Africa.
Under examination elsewhere.

Granted in South Africa.
Under examination elsewhere.

Under examination in all jurisdictions.

Granted in South Africa.
Under examination elsewhere.

Statement of Corporate Governance

This statement outlines the main Corporate Governance
practices that were in place throughout the ﬁ nancial year,
which comply with the Australian Stock Exchange (‘ASX’)
Corporate Governance Council recommendations, unless
otherwise stated.

Having regard to the current membership of the board
and the size, organisational complexity and scope of
operations of the consolidated entity, a Nomination
Committee, a Remuneration Committee and an Audit
Committee have not been established.

Board of Directors
The board of directors is responsible for the overall
corporate governance of the Company including its
strategic direction, setting remuneration, establishing
goals for management and monitoring the achievement
of these goals and ensuring the integrity of internal
control and management information systems. It is also
responsible for approving and monitoring ﬁ nancial and
other reporting.

The composition of the board has been determined on
the basis of providing the Company with the beneﬁ t of
a broad range of technical, administrative and ﬁ nancial
skills, combined with an appropriate level of experience
at a senior corporate level. The names and further
information regarding the skills, experience, qualiﬁ cations
and relevant expertise of the directors are set out in the
Directors’ Report. The board is composed of a minimum
of three directors.

The composition of the board is monitored constantly to
ensure that it provides the Company with the appropriate
levels of both expertise and experience. The board
comprises a majority of independent, non-executive
directors including the Chairperson. The independence
of directors is based on their capacity to put the best
interests of the Company and its shareholders ahead of
all other interests.

When a board vacancy exists, through whatever cause,
or where it is considered that the board would beneﬁ t
from the services of a new director with particular skills,
the board identiﬁ es a panel of candidates with appropriate
expertise and experience. A selection procedure is then
completed and the board appoints the most suitable
candidate who must stand for election at the next general
meeting of shareholders.

Directors, other than the Managing Director, are subject
to re-election by the shareholders at least every three
years.

Each director has the right to seek independent
professional advice at the Company’s expense. Prior
approval of the Chairman is required, but such approval is
not unreasonably withheld. A copy of the advice received
by the director is made available to all other members of
the board.

In the event that a potential conﬂ ict of interest may arise,
involved directors must withdraw from all deliberations
concerning the matter.

Remuneration
The remuneration of the directors is determined by the
board as a whole, with the director to whom a particular
decision relates being absent from the meeting during the
time that the remuneration level is discussed and decided
upon.

For details on the amount of remuneration for each
director, refer to the Key Management Personnel note to
the ﬁ nancial statements and the Remuneration Report in
the Directors’ Report.

Internal Controls
The board of directors 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. The system of internal control
adopted by the Company seeks to provide an appropriate
division of responsibility and careful selection and training
of personnel relative to the level of activities and size of
the Company.

The full board takes responsibility for reviewing
ﬁ nancial reporting procedures, internal controls and the
performance of the ﬁ nancial management. Selected
internal control mechanisms employed to support the
business include:

(cid:129) Investment appraisal – the Company has

documented guidelines for capital expenditure
and investment appraisals. These include annual
budgets, expenditure review procedures and
appropriate levels of authority.

(cid:129) Business planning, budgeting and reporting – a

comprehensive business planning process includes
evaluation of strategies, objectives, and risks
resulting in an annual budget approved by the
board. Monthly actual performance is reported
against budget and revised forecasts for the year are
prepared regularly.

(cid:129) Quality and integrity of employees – there are clearly
deﬁ ned accountabilities, performance measures, and
reinforcement of values and ethics by management.

Biotron Limited Annual Report 2006 7

Statement of Corporate Governance

The CEO and CFO state in writing to the board that the
Company’s ﬁ nancial statements present a true and fair
view, in all material respects, of the Company’s ﬁ nancial
condition and operational results and are in accordance
with relevant accounting standards.

External Auditors
Board nominees review the performance of the external
auditors and meet with them during the half yearly review
and annual audit to discuss any issues that have arisen
with respect to accounting policies, any signiﬁ cant
operational issues and the level of proposed audit fees.

KPMG, the Company’s auditors, were appointed on 20
November 2001.

Ethical Standards
All directors, managers and employees are expected to
act with the utmost integrity and objectivity, endeavouring
at all times to enhance the performance and reputation
of the Company. Every employee has direct access to a
director to whom they may refer any ethical issues that
may arise from their employment.

Directors, ofﬁ cers and employees are permitted to trade
in the Company’s securities only in accordance with
the provisions of the Corporations Act and ASX Listing
Rules. The directors are under an obligation to report any
dealings by them in the Company’s securities.

The Role of Shareholders
The board ensures that the shareholders are informed
of all major developments affecting the Company by the
following means:

(cid:129) Distribution of the annual report to all shareholders
which contains relevant information about the
operations of the Company during the year in
addition to disclosures required by the Corporations
Act 2001.

(cid:129) Lodgement of quarterly reports with the ASX which
show summarised ﬁ nancial information for the
quarter. Copies of these reports are available to
shareholders on request.

(cid:129) Lodgement of the half yearly report with the ASX
which contains summarised and audit reviewed
ﬁ nancial information. Copies of half yearly ﬁ nancial
statements prepared in accordance with the
Corporations Act are available to any shareholder on
request.

(cid:129) Lodgement of the annual report with the ASX which
contains full audited ﬁ nancial information prepared in
accordance with the Corporations Act. The annual
report is distributed to all shareholders (unless a
shareholder has speciﬁ cally requested not to receive
the document).

(cid:129) Announcements to the ASX concerning any

signiﬁ cant development in the Company’s operations,
ﬁ nancing and administration. All announcements are
immediately available to the general public.

(cid:129) Disclosure of all major announcements to the ASX on

the Company’s website.

(cid:129) The Annual General Meeting is the main opportunity
for the shareholders to hear the Managing Director
and Chairman provide updates on the Company’s
performance, ask questions of the board and
to express views and vote on various matters of
business on the agenda.

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

Risk Management
The full board oversees the establishment,
implementation and ongoing review of the Company’s
risk management and internal control system. The
internal control system covers ﬁ nancial, operational and
compliance risks.

Recommendations made by external auditors and
other external advisers are investigated by the board,
and, where necessary, appropriate action is taken
to ensure that the Company has the internal control
environment to manage the key risks identiﬁ ed. Ways of
enhancing existing risk management strategies, including
segregation of duties, employment and training of suitably
qualiﬁ ed and experienced personnel are investigated by
the board.

Each director reviews the business risks affecting his
particular area of expertise annually and reports to the
board. The board then determines the appropriate
actions to eliminate or minimise the identiﬁ ed business
risks. The full board oversees the establishment,
implementation and ongoing review of the Company’s
risk management and internal control system. The
internal control system covers ﬁ nancial, operational and
compliance risks.

Recommendations made by external auditors and
other external advisers are investigated by the board
and, where necessary, appropriate action is taken
to ensure that the Company has the internal control
environment to manage the key risks identiﬁ ed. Ways of
enhancing existing risk management strategies, including
segregation of duties, employment and training of suitably
qualiﬁ ed and experienced personnel are investigated by
the board.

Performance
Given the size and nature of the Company and the
number of key executives, the board has adopted an
informal and continuous performance evaluation process
of its key executives.

Directors’ Report

The directors present their report together with the
ﬁ nancial report of Biotron Limited (‘the Company’) for
the year ended 30 June 2006 and the auditor’s report
thereon.

Directors
The names and particulars of the directors of the
Company at any time during or since the end of the
ﬁ nancial year are:

Mr Michael J. Hoy
Independent and Non-Executive Chairman
Mr Hoy has more than 30 years’ corporate experience
in Australia, the United Kingdom, USA and Asia. He is
Chairman of CityPrint Holdings Pty Limited, a director of
Eiffel Technologies Limited and a former director of John
Fairfax Holdings Limited and FXF Trust.

He has been a director since 7 February 2000 and
Chairman since 16 March 2000.

Dr Michelle Miller
BSc, MSc, PhD, GCertAppFin (Finsia)
Managing Director
Dr Miller has worked for over 20 years in the bioscience
industry, with extensive experience in managing
commercial bioscience research. She completed her
PhD in the Faculty of Medicine at Sydney University
investigating molecular models of cancer development.
Her experience includes a number of years at Johnson
and Johnson developing anti-HIV gene therapeutics
through preclinical research to clinical trials. She has
experience in early-stage start-ups from time spent as
Investment Manager with a specialist bioscience venture
capital fund.

She was appointed as Managing Director on 21 June
2002.

Dr Michael S. Hirshorn
MBA, MB, BS
Independent and Non-Executive Director
Dr Hirshorn has over 20 years’ experience in the
commercialisation of Australian Technology, particularly in
the medical device industry, and extensive experience in
collaboration with Australian research institutes.

He played a major role in all commercial aspects of
Cochlear Limited’s development, was a founding director
of Resmed Inc., and Chief Executive Marketing for
Polartechnics Limited.

He has served on numerous government advisory
committees, including the Start IT and T Committee,
the Start Grants Biological Sciences Committee of the
Department of Industry, Science and Resources and is
currently an Investment Manager with a venture capital
ﬁ rm, Nanyang Ventures.

Dr Hirshorn was appointed as a director on 16 March
2000.

Mr Bruce Hundertmark
Independent and Non-Executive Director
Mr Hundertmark is an independent businessman and
company director with a wide range of experience in
high technology based company start-up operations and
promoting the formation of venture capital companies,
including News Datacom Limited in Israel and PT Indo Bio
Products in Indonesia.

He is a director of Eiffel Technologies Limited and has
been a director of News International PLC, Prudential
Cornhill Insurance Limited and was Managing Director of
IMFC Limited, a merchant bank.

Mr Hundertmark was appointed as a director on 16
March 2000.

Mr Peter G. Scott
Non-Executive Director
Mr Scott is a founding director of Biotron Limited with
more than 30 years of commercial and entrepreneurial
experience in Australia.

He is a director of Scott’s Acorn Pty Ltd and was formerly
Chairman and Managing Director of Scottcom Pty Ltd
and Managing Director of ICAM Pty Ltd, audio visual and
multimedia companies.

Mr Scott has been a director since 23 February 1999.

Professor Peter W. Gage
MB ChB, PhD, DSc FAA
Research Director
Professor Gage was professor of Physiology at the John
Curtin School of Medical Research at the Australian
National University and President of the Australian
Physiological and Pharmacological Society.

He had more than 35 years’ experience in medical
research, including training medical researchers,
particularly PhD students. For the past 25 years his
research focus had been on ion channels.

Professor Gage was admitted as a fellow of the Australian
Academy of Science in 1977 and was the recipient of an
Award of a Special Research Centre by the government
in 1982 for research on nerve and muscle ion channels.

We were all saddened by the death during the ﬁ nancial
year of Professor Peter Gage. He was an internationally
acclaimed pioneer of the use of ion channels as a
treatment for viral diseases and the Company is
now privileged to have the opportunity to develop
the outcomes of his research into treatments for life
threatening diseases such as HIV and HCV.

He was a director from 23 February 1999 to 13 August
2005.

Biotron Limited Annual Report 2006 9

Directors’ Report

Peter J. Nightingale
Company Secretary
Mr Nightingale graduated with a Bachelor of Economics
degree from the University of Sydney and is a member of
the Institute of Chartered Accountants in Australia. He
has worked as a chartered accountant in both Australia
and the USA.

As a director or company secretary Mr Nightingale
has, for the past 19 years, been responsible for the
ﬁ nancial control, administration, secretarial and in-house
legal functions of a number of private and public listed
companies in Australia, the USA and Europe including
Pangea Resources Limited, Timberline Minerals Inc.,
Perseverance Corporation Limited, Valdora Minerals N.L.
and ETT Limited. Mr Nightingale is currently a director
or company secretary of Bolnisi Gold NL, Cockatoo Coal
Limited, IMD Group Limited, Planet Gas Limited and
Palmarejo Silver and Gold Corporation.

Directors’ Meetings
The number of directors’ meetings held and number
of meetings attended by each of the directors of the
Company, while they were a director, during the year are:

No. of
Meetings Held

No. of Meetings
Attended

Michael J. Hoy

Michelle Miller

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Peter W. Gage

Directors’ Interests
At the date of this report, the beneﬁ cial interests of each director of the Company in the issued share capital of the
Company and options, each exercisable to acquire one fully paid ordinary share of the Company are:

Michael J. Hoy

Michelle Miller

Michael S. Hirshorn

Bruce Hundertmark

Fully Paid Ordinary Shares

1,316,314

Peter G. Scott

8,895,014

Options

500,000

250,000

500,000

200,000

Option Terms
(Exercise Price and Term)

$0.35 at any time up to 30 September 2010

$0.60 at any time up to 14 January 2007

$0.75 at any time up to 14 January 2007

$1.00 at any time up to 14 January 2007

$0.35 at any time up to 30 September 2010

$0.40 at any time from 30 September 2006 up to 30
September 2010

$0.45 at any time from 30 September 2006 up to 30
September 2010

$0.35 at any time up to 30 September 2010

Directors’ Report

Option holdings
The movement during the reporting period in the number of options over ordinary shares in the Company held directly,
indirectly or beneﬁ cially, by each speciﬁ ed director, including their personally-related entities, is as follows

Michael J. Hoy

Michelle Miller

Peter W. Gage

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Held at
1 July 2005

500,000

1,250,000

200,000

Granted as
Remuneration

500,000

1,500,000

200,000

Expired

(500,000)

(200,000)

Held at
30 June 2006

Vested and
Exercisable
at 30 June 2006

500,000

2,750,000

200,000

500,000

1,750,000

200,000

Equity holdings and transactions
The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly or
beneﬁ cially, by each speciﬁ ed director, including their personally-related entities, is as follows

Held at
1 July 2005

Purchased

Received on
Exercise of Options

Sales

Michael J. Hoy

Michelle Miller

Peter W. Gage

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

1,023,800

292,514

9,400,000

8,573,800

321,214

Held at
30 June 2006

1,316,314

9,400,000

8,895,014

Biotron Limited Annual Report 2006 11

Directors’ Report

Remuneration Report
The policy of remuneration of directors and senior executives is to ensure the remuneration package properly reﬂ ects the
person’s duties and responsibilities, and that remuneration is competitive in attracting, retaining and motivating people
of the highest quality. The board is responsible for reviewing its own performance. The non-executive directors are
responsible for evaluating the performance of the executive directors who, in turn, evaluate the performance of all other
senior executives. The evaluation process is intended to assess the Company’s business performance, whether long
term strategic objectives are being achieved and the achievement of individual performance objectives

Remuneration generally comprises salary and superannuation. Longer term incentives are able to be provided through
the Company’s Incentive Option Plan which acts to align the directors and senior executives’ actions with the interests of
the shareholders. The remuneration disclosed below represent the cost to the Company for the services provided under
these arrangements.

No directors or senior executives receive performance related remuneration. No bonuses were paid during the year.

Details of director and senior executive remuneration and the nature and amount of each major element of the
remuneration of each director and senior executive of the Company are:

Directors

Non-executive

Michael J. Hoy

(Chairman)

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executive

Michelle Miller

(Managing Director)

Peter W. Gage

Total, all speciﬁ ed directors

Executives

Peter J. Nightingale

(Company Secretary)

Total, all speciﬁ ed directors

and executives

Year

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

Primary Salary
and Fees
$

Post-
Employment
Superannuation
Beneﬁ ts
$

Equity
Compensation
Value of Options
$

Total
$

Options
as a % of
Remuneration

60,000

30,000

5,000

19,583

155,000

150,000

5,000

70,000

285,000

359,583

60,000

345,000

419,583

5,400

2,700

27,700

13,117

25,873

13,500

450

2,700

64,823

40,117

64,823

40,117

24,016

9,606

46,361

89,589

9,606

99,195

89,416

65,400

42,306

32,700

42,306

32,700

227,234

163,500

5,450

72,700

439,412

399,700

69,606

60,000

509,018

459,700

27%

23%

20%

14%

19%

The fair value of the options at grant date was determined based on Black-Scholes formula. The model inputs were the
share price of $0.17, expected volatility (based on historic volatility) of 50%, a nil dividend and risk-free interest rate of 5.25%.

Directors’ Report

Options
At the date of this report, unissued ordinary shares of the
Company under option are:

Number of Options

Exercise Price

Expiry Date

250,000

500,000

3,600,000

$0.60

$0.75

$1.00

$0.35

14 January 2007

30 September 2010

The options do not entitle the holder to participate in any
share issue of the Company or any other body corporate.

Principal Activities
The principal activities of the Company during the
ﬁ nancial year were the funding and management of
intermediate and early applied biotechnology research
and development projects.

Financial Result and Review of Operations
The operating loss of the Company for the ﬁ nancial year
after income tax was $2,198,973 (2005 - $1,883,575).

A review of the Company’s operations for the year is set
out in the Operating and Financial Review.

Impact of Legislation and Other External
Requirements
There were no changes in environmental or other
legislative requirements during the year that have
signiﬁ cantly impacted the results or operations of the
consolidated entity.

Dividends
The directors recommend that no dividend be paid by the
Company. No dividend has been paid or declared since
the end of the previous ﬁ nancial year.

State of Affairs
In the opinion of the directors, signiﬁ cant changes in the
state of affairs of the Company that occurred during the
ﬁ nancial year under review were as follows:

(cid:129) The continued advancement of the Company’s

projects, particularly the Virion project.

(cid:129) Completion of an underwritten rights issue, raising
$4.3 million (net) from the issue of 19.9 million
shares.

Environmental Regulation
The Company’s operations are not subject to signiﬁ cant
environmental regulations under Commonwealth or State
legislation in relation to its research projects.

Events Subsequent to Balance Date
There has not arisen in the interval between the end of
the ﬁ nancial year and the date of this report any item,
transaction or event of a material and unusual nature
likely, in the opinion of the directors of the Company, to
affect signiﬁ cantly the operations of the Company, the
results of those operations, or the state of affairs of the
Company, in future ﬁ nancial years.

Likely Developments
During the year ended 30 June 2006, the Company
continued to fund and manage its research and
development projects. The success of these research
projects, which cannot be assessed on the same
fundamentals as trading and manufacturing enterprises,
will determine future likely developments.

In the opinion of the directors, it would prejudice
the interests of the Company to provide additional
information, except as reported in this Annual Report,
relating to likely developments in the operations of the
Company.

Indemniﬁ cation of Ofﬁ cers and Auditors
During or since the end of the ﬁ nancial year, the Company
has not indemniﬁ ed or made a relevant agreement to
indemnify an ofﬁ cer or auditor of the Company against a
liability incurred by such an ofﬁ cer or auditor. In addition,
the Company has not paid or agreed to pay, a premium in
respect of a contract insuring against a liability incurred by
an ofﬁ cer or auditor.

Non-audit Services
During the year KPMG, the Company’s auditor, has
performed certain other services in addition to their
statutory duties.

Biotron Limited Annual Report 2006 13

Directors’ Report

The board has considered the non-audit services
provided during the year by the auditor and is satisﬁ ed
that the provision of those non-audit services during
the year by the auditor is compatible with, and did not
compromise, the auditor independence requirements of
the Corporations Act 2001 for the following reasons:

(cid:129) all non-audit services were subject to the corporate
governance procedures adopted by the Company
and have been reviewed by the board to ensure
they do not impact the integrity and objectivity of the
auditor; and

(cid:129) the non-audit services provided do not undermine

the general principles relating to auditor
independence as set out in Professional Statement
F1 Professional independence, as they did not
involve 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 risks and rewards.

A copy of the auditors’ independence declaration as
required under Section 307C of the Corporations Act
2001 is included in the directors’ report.

Details of the amounts paid to the auditor of the
Company, KPMG, and its related practices for audit and
non-audit services provided during the year are set out
below.

Statutory audit
Auditors of the Company
- audit and review of ﬁ nancial reports
(KPMG Australia)

Services other than statutory audit
- Grant audit (KPMG Australia)

2006
$

2005
$

17,782

15,614

4,750

3,000

Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
The lead auditor’s independence declaration is set out
below and forms part of the directors’ report for the year
ended 30 June 2006.

This report has been signed in accordance with a
resolution of the directors and dated 13 September 2006:

Michael J. Hoy
Chairman

Michelle Miller
Managing Director

Lead Auditor’s Independence Declaration under
Section 307C of the Corporations Act 2001
To the Directors of Biotron Limited:

I declare that, to the best of my knowledge and belief, in
relation to the audit for the ﬁ nancial year ended 30 June
2006, there have been:

(i) no contravention of the auditor independence

requirements as set out in the Corporations Act
2001 in relation to the audit, and

(ii) no contraventions of any applicable code of
professional conduct in relation to the audit.

KPMG

13 September 2006

S.J. Board
Partner

Income Statement

FOR THE YEAR ENDED 30 JUNE 2006

Other income

794,862

621,099

Notes

2006
$

2005
$

Administration and consultants’ expenses

Depreciation

Employee and director expenses

Direct research and development expenses

Rent and outgoings expenses

Legal expenses

Other expenses from ordinary activities

Operating loss before ﬁ nancing income

Interest income

Net ﬁ nancing income

Loss before tax

Income tax expense

Loss for the year

Basic loss per share attributable to ordinary equity shareholders

Diluted loss per share attributable to ordinary equity shareholders

(311,452)

(83,040)

(514,001)

(327,995)

(137,662)

(446,669)

(1,875,449)

(1,404,084)

(44,649)

(16,584)

(248,559)

(82,641)

(9,894)

(228,674)

(2,298,872)

(2,016,520)

99,899

132,945

(2,198,973)

(1,883,575)

(2,198,973)

(1,883,575)

(3.00) cents

(2.81) cents

(3.00) cents

(2.81) cents

Biotron Limited Annual Report 2006 15

Statement of Recognised Income
and Expenses

FOR THE YEAR ENDED 30 JUNE 2006

2006
$

2005
$

Loss for the year

(2,198,973)

(1,883,575)

Total recognised income and expense for the year

(2,198,973)

(1,883,575)

Other movements in equity arising from transactions with owners as owners are set out in note 12.

Balance Sheet

AS AT 30 JUNE 2006

Current assets

Cash and cash equivalents

Trade and other receivables

Inventories

Other

Total current assets

Non-current assets

Property, plant and equipment

Other

Total non-current assets

Total assets

Current liabilities

Trade and other payables

Employee entitlements

Total current liabilities

Total liabilities

Net assets

Equity

Issued capital

Reserves

Accumulated losses

Total equity

Notes

2006
$

2005
$

4,623,586

2,112,796

4,824

21,538

19,040

45,729

38,781

6,909

4,668,988

2,204,215

142,565

2,403

144,968

4,813,956

270,788

47,320

318,108

224,393

2,428,608

118,440

31,438

149,878

4,495,848

2,278,730

16,865,134

12,651,368

251,076

110,850

(12,620,362)

(10,483,488)

4,495,848

2,278,730

Biotron Limited Annual Report 2006 17

Statement of Cash Flows

FOR THE YEAR ENDED 30 JUNE 2006

Cash ﬂ ows from operating activities

Cash receipts in the course of operations

Payments for research and development

Cash payments in the course of operations

Cash generated from operations

Interest received

Net cash from operating activities

Cash ﬂ ows from investing activities

Payments for plant and equipment

Net cash from investing activities

Cash ﬂ ows from ﬁ nancing activities

Proceeds from issue of shares

Net cash from ﬁ nancing activities

Net increase/(decrease) in cash and cash equivalents held

Cash and cash equivalents at the beginning of the ﬁ nancial year

Notes

2006
$

2005
$

874,347

669,528

(2,044,239)

(1,530,451)

(712,608)

(982,718)

(1,882,500)

(1,843,641)

95,076

132,946

(1,787,424)

(1,710,695)

(1,212)

(546)

4,299,426

2,510,790

2,112,796

1,206,408

(504,833)

2,617,629

Cash and cash equivalents at the end of the ﬁ nancial year

4,623,586

2,112,796

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

1. Statement of Signiﬁ cant Accounting Policies
Biotron Limited (the ‘Company’) is a company domiciled
in Australia.

The ﬁ nancial report was authorised for issue by the
directors on 13 September 2006

Statement of compliance
This general purpose ﬁ nancial report has been prepared
in accordance with Australian Accounting Standards
(‘AASBs’), which are called the Australian equivalents to
International Financial Reporting Standards (‘AIFRSs’) and
the Corporations Act 2001.

This is the Company’s ﬁ rst ﬁ nancial report prepared in
accordance with AIFRS and AASB 1 ‘First Time Adoption
of Australian Equivalents to International Financial
Reporting Standards’ has been applied. An explanation
of how the transition to AIFRS has affected the reported
ﬁ nancial position, ﬁ nancial performance and cash ﬂ ows of
the Company is provided in note 20.

Basis of preparation
The ﬁ nancial report is presented in Australian dollars and
is prepared on the historical cost basis. The Company
has elected to early adopt the following standards and
amendments:

(cid:129) AASB 119 Employee Beneﬁ ts (December 2004).

(cid:129) AASB 2004-3 Amendments to Australian Accounting

Standards (December 2004) amending AASB
1 First time Adoption of Australian Equivalents
to International Financial Reporting Standards
(July 2004), AASB 101 Presentation of Financial
Statements and AASB 124 Related Party
Disclosures.

(cid:129) AASB 2005-1 Amendments to Australian Accounting
Standards (May 2005) amending AASB 139 Financial
Instruments: Recognition and Measurement.

(cid:129) AASB 2005-3 Amendments to Australian Accounting

Standards (June 2005) amending AASB 119
Employee Beneﬁ ts (either July or December 2004).

(cid:129) AASB 2005-4 Amendments to Australian

Accounting Standards (June 2005) amending
AASB 139 Financial Instruments: Recognition and
Measurement, AASB 132 Financial Instruments:
Disclosure and Presentation, AASB 1 First-time
Adoption of Australian Equivalents to International
Financial Reporting Standards (July 2004).

(cid:129) AASB 2005-5 Amendments to Australian Accounting
Standards (June 2005) amending AASB 1 First time
Adoption of Australian Equivalents to International
Financial Reporting Standards (July 2004), and
AASB 139 Financial Instruments: Recognition and
Measurement.

(cid:129) AASB 2005-6 Amendments to Australian Accounting
Standards (June 2005) amending AASB 3 Business
Combinations.

(cid:129) AASB 2006-1 Amendments to Australian Accounting
Standards (January 2006) amending AASB 121 The
Effects of Changes in Foreign Exchange Rates (July
2004).

(cid:129) UIG 4 Determining whether an Arrangement contains

a Lease.

(cid:129) UIG 5 Rights to Interests arising from

Decommissioning, Restoration and Environmental
Rehabilitation Funds.

(cid:129) UIG 8 Scope of AASB 2.

The following standards and amendments were available
for early adoption but have not been applied by the
consolidated entity in these ﬁ nancial statements:

(cid:129) AASB 7 Financial instruments: Disclosure (August
2005) replacing the presentation requirements
of ﬁ nancial instruments in AASB 132. AASB 7 is
applicable for annual reporting periods beginning on
or after 1 January 2007.

(cid:129) AASB 2005-9 Amendments to Australian Accounting
Standards (September 2005) requires that liabilities
arising from the issue of ﬁ nancial guarantee contracts
are recognised in the balance sheet. AASB 2005-9
is applicable for annual reporting periods beginning
on or after 1 January 2006.

(cid:129) AASB 2005-10 Amendments to Australian

Accounting Standards (September 2005) makes
consequential amendments to AASB 132 Financial
Instruments: Disclosures and Presentation, AASB
101 Presentation of Financial Statements, AASB 114
Segment Reporting, AASB 117 Leases, AASB 133
Earnings per Share, AASB 139 Financial Instruments:
Recognition and Measurement, AASB 1 First-time
Adoption of Australian Equivalents to International
Financial Reporting Standards, AASB 4 Insurance
Contracts, AASB 1023 General Insurance Contracts
and AASB 1038 Life Insurance Contracts, arising
from the release of AASB 7. AASB 2005-10 is
applicable for annual reporting periods beginning on
or after 1 January 2007.

Biotron Limited Annual Report 2006 19

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

Property, plant and equipment
Property plant and equipment are stated at their historical
cost and are depreciated over their estimated useful lives
using the reducing balance method from the date of
acquisition at rates between 13% and 40% per annum.

Research and development
Grants
Where a grant is received relating to research and
development costs that have been expensed, the grant
is recognised as revenue when there is reasonable
assurance it will be received.

Costs
Expenditure on research activities, undertaken with the
prospect of gaining new scientiﬁ c or technical knowledge
and understanding, is recognised in the income
statement as an expense as incurred.

Expenditure on development activities, whereby research
ﬁ ndings are applied to a plan or design for the production
of new or substantially improved products and processes,
is capitalised if the product or process is technically and
commercially feasible and the Company has sufﬁ cient
resources to complete development.

Trade and other payables
Trade and other payables are stated at their amortised
cost, are non-interest bearing and are normally settled
within 60 days.

Employee entitlements
Wages, salaries, annual leave and sick leave
Liabilities for employee entitlements for wages, salaries,
annual leave and sick leave represent present obligations
resulting from employees’ services provided to reporting
date, calculated at undiscounted amounts based on
remuneration wages and salary rates that the company
expect to pay as to reporting date including related
on-cost, such as workers compensation insurance and
superannuation.

The Company plans to adopt AASB 7, AASB 2005-9 and
AASB 2005-10 in the 2007 ﬁ nancial year.

The initial application of AASB 7 and AASB 2005-10 is
not expected to have an impact on the ﬁ nancial results
of the Company as the standard and the amendment are
concerned only with disclosures.

The initial application of AASB 2005-9 could have an
impact on the ﬁ nancial results of the Company as the
amendment could result in liabilities being recognised for
ﬁ nancial guarantee contracts that have been provided by
the Company. However, the quantiﬁ cation of the impact
is not known or reasonably estimable in the current
ﬁ nancial year as an exercise to quantify the ﬁ nancial
impact has not been undertaken by the Company to
date.

The preparation of a ﬁ nancial report in conformity with
Australian Accounting Standards requires management
to make judgments, estimates and assumptions that
affect the application of policies and reported amounts
of assets and liabilities, income and expenses. The
estimates and associated assumptions are based on
historical experience and various other factors that are
believed to be reasonable under the circumstances, the
results of which form the basis of making the judgments
about carrying values of assets and liabilities that are
not readily apparent from other sources. 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 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.

The accounting policies set out below have been applied
consistently to all periods presented in the ﬁ nancial report
and in preparing an opening AIFRS balance sheet at 1
July 2004 for the purposes of the transition to AIFRSs.

Cash and cash equivalents
Cash and cash equivalents comprise cash balances and
call deposits.

Trade and other receivables
Trade and other receivables are stated at their amortised
cost less impairment losses.

Inventory
Inventory is carried at the lower of cost and net realisable
value.

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

Taxation
Income tax
Income tax on the proﬁ t or loss for the year comprises
current and deferred tax. Income tax is recognised in
the income statement except to the extent that it relates
to items recognised directly in equity, in which case it is
recognised in equity.

Current tax is the expected tax payable on the taxable
income for the year, using tax rates enacted or
substantially enacted at the balance sheet date, and any
adjustment to tax payable in respect of previous years.

Deferred tax is provided using the balance sheet liability
method, providing for temporary differences between
the carrying amounts of assets and liabilities for ﬁ nancial
reporting purposes and the amounts used for taxation
purposes. The initial recognition of assets or liabilities that
affect neither accounting nor taxable proﬁ t and differences
relating to investments in subsidiaries to the extent that
they will probably not reverse in the foreseeable future are
temporary differences are not provided for. The amount
of deferred tax provided is based on the expected
manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or
substantively enacted at the balance sheet date.

A deferred tax asset is recognised only to the extent that
it is probable that future taxable proﬁ ts will be available
against which the asset can be utilised. Deferred tax
assets are reduced to the extent that it is no longer
probable that the related tax beneﬁ t will be realised.

Goods and services tax
Revenue, expenses and assets are recognised net of the
amount of goods and services tax (‘GST’), except where
the amount of GST incurred is not recoverable from the
taxation authority. In these circumstances, the GST is
recognised as part of the cost of acquisition of the asset
or as part of the expense.

Receivables and payables are stated with the amount of
GST included. The net amount of GST recoverable from,
or payable to, the ATO is included as a current asset or
liability in the balance sheet.

Cash ﬂ ows are included in the statement of cash ﬂ ows
on a gross basis. The GST components of cash ﬂ ows
arising from investing and ﬁ nancing activities which are
recoverable from, or payable to, the ATO are classiﬁ ed as
operating cash ﬂ ows.

Revenue recognition
Interest revenue
Interest revenue is recognised as it accrues using the
effective interest rate method.

Earnings per share
Basic earnings per share are calculated by dividing
the net loss of the Company by the weighted average
number of ordinary shares outstanding during the
ﬁ nancial year.

Incentive option plan
The Incentive Option Plan allows the Company’s
employees or directors, or individuals whom the Plan
Committee determine to be employees for the purposes
of the Plan, with the opportunity to acquire options
over unissued shares in the Company. The fair value
of options granted is measured at grant date and
spread as an expense over the period during which the
employees or directors become unconditionally entitled
to the options. The fair value of the options granted
is measured using Black-Scholes formula, taking into
account the terms and conditions upon which the options
were granted. The amount recognised as an expense is
adjusted to reﬂ ect the actual number of options that vest
except where forfeiture is only due to share prices not
achieving the threshold for vesting.

Impairment
The carrying amounts of the Company’s assets, other
than deferred tax assets and inventories, are reviewed at
each balance sheet date to determine whether there is
any indication of impairment. If any such indication exists,
the asset’s recoverable amount is estimated.

An impairment loss is recognised whenever the carrying
amount of an asset or its cash-generating unit exceeds its
recoverable amount. Impairment losses are recognised
in the income statement, unless an asset has previously
been revalued, in which case the impairment loss is
recognised as a reversal to the extent of that previous
revaluation with any excess recognised through the
income statement.

The recoverable amount of assets is the greater of their
fair value less costs to sell and value in use. In assessing
value in use, the estimated future cash ﬂ ows are
discounted to their present value using a pre-tax discount
rate that reﬂ ects current market assessments of the time
value of money and the risks speciﬁ c to the asset. For
an asset that does not generate largely independent cash
inﬂ ows, the recoverable amount is determined for the
cash-generating unit to which the asset belongs.

An impairment loss is reversed only to the extent that the
asset’s carrying amount does not exceed the carrying
amount that would have been determined, net of
depreciation or amortisation, if no impairment loss had
been recognised.

Biotron Limited Annual Report 2006 21

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

2006
$

2005
$

2. Other Income

Research and development grants

794,862

621,099

3. Loss From Operating Activities

Loss from ordinary activities has been arrived at after charging the following
items:

Auditors’ remuneration paid to KPMG

- Audit and review of ﬁ nancial reports

- Other audit services

Depreciation

- Ofﬁ ce equipment

- Plant and equipment

Direct research and development expenditure

expensed as incurred

Provision for employee entitlements

4. Loss Per Share

17,782

4,750

6,212

76,828

15,614

3,000

11,204

126,458

1,875,449

1,404,084

15,882

729

The calculation of basic loss per share at 30 June 2006 was based on the loss attributable to ordinary shareholders
of $2,198,973 (2005 - $1,883,575 loss) and a weighted average number of ordinary shares outstanding during the
ﬁ nancial year ended 30 June 2006 of 73,242,769 (2005 - 67,030,455), calculated as follows:

Net loss for the year

Issued ordinary shares at 1 July

Effect of shares issued on 31 December 2004

Effect of shares issued on 28 April 2006

2,198,973

1,883,575

2006
Number

2005
Number

69,800,550

64,055,750

2,974,705

3,442,219

Weighted average number of ordinary shares

73,242,769

67,030,455

Options disclosed in the Issued Capital note below are potential ordinary shares, but are not included in the calculation of
diluted loss per share as they are not dilutive.

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

2006
$

2005
$

5. Income Tax Expense

Numerical reconciliation between tax expense and pre-tax net proﬁ t

Loss before tax - continuing operations

(2,198,973)

(1,883,575)

Income tax using the domestic corporation tax rate of 30%

(659,692)

(565,072)

Increase in income tax expense due to:

- Non-deductible expenses

- Effect of tax losses not recognised

Income tax expense current and deferred

Deferred tax assets have not been recognised in respect of the
following items:

Deductible temporary differences (net)

Tax losses

Net

6. Receivables

Current

Other debtors

7. Inventories

Stores - at cost

8. Other

Current prepayments

Non-current prepayments

1,093

658,599

106,218

4,203,171

839

564,233

3,374,650

4,309,389

3,374,650

4,824

45,729

21,538

38,781

19,040

6,909

2,403

Biotron Limited Annual Report 2006 23

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

9. Plant and Equipment

Ofﬁ ce equipment - at cost

Accumulated depreciation

Plant and equipment - at cost

Accumulated depreciation

2006
$

2005
$

92,985

(80,435)

12,550

892,480

(762,465)

130,015

91,773

(74,223)

17,550

892,480

(685,637)

206,843

Total plant and equipment - net book value

142,565

224,393

Reconciliations

Reconciliations of the carrying amounts for each class of plant and equipment are set out below:

Ofﬁ ce equipment

Carrying amount at the beginning of the ﬁ nancial year

Additions

Depreciation

17,550

1,212

(6,212)

28,208

546

(11,204)

Carrying amount at the end of the ﬁ nancial year

12,550

17,550

Plant and equipment

Carrying amount at the beginning of the ﬁ nancial year

Depreciation

206,843

(76,828)

333,301

(126,458)

Carrying amount at the end of the ﬁ nancial year

130,015

206,843

10. Payables

Current

Other creditors and accruals

11. Employee Entitlements

Current

Employee annual leave provision

Number of employees at the end of the ﬁ nancial year

270,788

118,440

47,320

2006
Number

31,438

2005
Number

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

2006
$

2005
$

12. Issued Capital

Issued and paid up capital

89,743,565 (2005 - 69,800,550) fully paid ordinary shares

16,865,134

12,651,368

During the year ended 30 June 2006, in excess of 425 shareholders participated in a share rights issue, resulting in the
allotment of 19,943,015 new fully paid ordinary shares for a net cash consideration totalling $4,213,766 after issue cost
of $373,128.

Effective 1 July 1998, the Company Law Review Act abolished the concept of par value shares and the concept of
authorised capital. Accordingly, the Company does not have authorised capital or par value in respect of its issued
shares.

Holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per
share at shareholders’ meetings. In the event of winding up of the Company, ordinary shareholders rank after creditors
and are fully entitled to any proceeds of liquidation.

The following options were on issue at 30 June 2006, each exercisable to acquire one fully paid ordinary share:

Nil (2005 - 900,000) at $0.50 at any time up to 30 September 2005.
250,000 (2005 - 250,000) at $0.60 at any time up to 14 January 2007.
500,000 (2005 - 500,000) at $0.75 at any time up to 14 January 2007.
500,000 (2005 - 500,000) at $1.00 at any time up to 14 January 2007.
3,600,000 (2005 - nil) at $0.35 at any time up to 30 September 2010.
500,000 (2005 - nil) at $0.40 at any time from 30 September 2006 up to 30 September 2010.
500,000 (2005 - nil) at $0.45 at any time from 30 September 2007 up to 30 September 2010.

During the year ended 30 June 2006, 4,600,000 options were granted at a weighted average fair value at the grant
date of $0.044 per option. Included in these options are 2,600,000 options granted to directors and key executives as
described in note 17 and 2,000,000 options, each exercisable to acquire one fully paid ordinary share, with an exercise
price of $0.35 at any time up to 30 September 2010, which were issued to a third party in exchange for underwriting
the share rights issue. The fair value of these options at grant date, $85,660, which was determined based on Black-
Scholes formula, was charged against issued capital as a cost of the share rights issue. The model inputs were the share
price of $0.17, expected volatility (based on historic volatility) of 50%, a nil dividend and risk-free interest rate of 5.25%.

The weighted average exercise price of options was $0.62 for options outstanding at the beginning of the ﬁ nancial
year, $0.37 for options issued during the ﬁ nancial year, $0.50 for options that expired during the ﬁ nancial year, $0.46 for
options outstanding at the end of the ﬁ nancial year and $0.47 for options exercisable at the end of the ﬁ nancial year.

13. Reserves

Equity compensation

Balance at the beginning of the ﬁ nancial year

Issue of options

Transfer to accumulated losses on lapse of options

110,850

202,326

(62,100)

110,850

Balance at the end of the ﬁ nancial year

251,076

110,850

This reserve represents the fair value, at the date of issue, of options issued as compensation.

Biotron Limited Annual Report 2006 25

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

14. Accumulated Losses

Accumulated losses at the beginning of the ﬁ nancial year

Transfer from reserve

Net loss attributable to members of the Company

2006
$

2005
$

10,483,488

8,599,913

(62,100)

2,198,973

1,883,575

Accumulated losses at the end of the ﬁ nancial year

12,620,361

10,483,488

15. Statement of Cash Flows

Reconciliation of net loss from operating activities to net cash used in
operating activities

Loss from operating activities after tax

(2,198,973)

(1,883,575)

Non-cash items

Depreciation of plant and equipment

Provisions

Equity compensation

Changes in assets and liabilities

Decrease in receivables

Decrease in inventories

(Increase)/decrease in prepayments

Increase/(decrease) in payables

83,040

15,882

99,195

40,906

2,936

17,243

152,347

137,662

(729)

19,773

25,809

(6,909)

(2,726)

Net cash used in operating activities

(1,787,424)

(1,710,695)

Reconciliation of cash

For the purposes of the Statement of Cash Flows, cash includes cash on hand and at bank and cash on deposit net
of bank overdrafts and excluding security deposits. Cash at the end of the ﬁ nancial year as shown in the Statement of
Cash Flows is reconciled to the related items in the Balance Sheet as follows:

Cash

4,623,586

2,112,796

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

16. Key Management Personnnel Disclosures
The following were key management personnel of the Company at any time during the reporting period:

Non-executive directors

Michael J. Hoy
(Chairman)

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executive directors

Michelle Miller
(Managing Director)

Peter W. Gage
(deceased on 13 August 2005)

Executive

Peter J. Nightingale
(Company Secretary)

The following table provides the details of all key management personnel of the Company for the entire reporting period.

Directors

Non-executive

Michael J. Hoy

(Chairman)

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executive

Michelle Miller

(Managing Director)

Peter W. Gage

Total, all speciﬁ ed directors

Executives

Peter J. Nightingale

(Company Secretary)

Total, all speciﬁ ed executives

Year

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

2006

2005

Primary salary
and fees
$

Post-employment
superannuation
beneﬁ ts
$

Equity
compensation
value of options
$

60,000

30,000

5,000

19,583

155,000

150,000

5,000

70,000

285,000

359,583

60,000

5,400

2,700

27,700

13,117

25,873

13,500

450

2,700

64,823

40,117

24,016

9,606

46,361

89,589

9,606

Total
$

89,416

65,400

42,306

32,700

42,306

32,700

227,234

163,500

5,450

72,700

439,412

399,700

69,606

60,000

69,606

60,000

Biotron Limited Annual Report 2006 27

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

Options and rights over equity instruments granted as remuneration
Details of relevant interests of key management personnel of the Company and their related entities in shares and options
of the Company at year end are as follows:

Fully paid ordinary shareholdings and transactions - 2006

Held at
1 July 2005

Purchased

Received on
exercise of
options

Sales

Held at
30 June 2006

Directors

Michael J. Hoy

Michelle Miller

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executives

1,023,800

292,514

8,573,800

321,214

Peter J. Nightingale

1,000,000

610,497

Fully paid ordinary shareholdings and transactions - 2005

1,316,314

8,895,014

1,610,497

Held at
1 July 2004

Purchased

Received on
exercise of
options

Sales

Held at
30 June 2005

Directors

Michael J. Hoy

Michelle Miller

Peter W. Gage

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executives

1,000,000

23,800

9,400,000

8,550,000

23,800

Peter J. Nightingale

1,000,000

1,023,800

9,400,000

8,573,800

1,000,000

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

Option holdings - 2006

Directors

Michael J. Hoy

Michelle Miller

Peter W. Gage

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executives

Peter J. Nightingale

Option holdings - 2005

Directors

Michael J. Hoy

Michelle Miller

Peter W. Gage

Michael S. Hirshorn

Bruce Hundertmark

Peter G. Scott

Executives

Peter J. Nightingale

Held at
1 July 2005

Granted as
remuneration

Expired

Held at
30 June 2006

Vested and
exercisable
at 30 June
2006

500,000

(500,000)

500,000

1,250,000

1,500,000

200,000

(200,000)

2,750,000

1,750,000

200,000

Held at
1 July 2004

Granted as
renumeration

Exercised

Held at
30 June 2005

Vested and
exercisable at
30 June 2005

500,000

1,250,000

200,000

500,000

1,250,000

200,000

During the year ended 30 June 2006, key management personnel purchased 1,224,225 fully paid ordinary shares for
total amount of $281,572 pursuant to the Company’s 2 for 7 Rights Issue and neither purchased nor sold any options in
the Company.

During the year ended 30 June 2006, Peter Gage ceased to be the director of the Company on 13 August 2005 and his
holding of Company shares was transferred to the Estate of Peter Gage.

During the year ended 30 June 2006, Michael J. Hoy had an interest in an entity, CityPrint Pty Limited, which provided
printing services to the Company. Payments to CityPrint Pty Limited, which were in the ordinary course of business and
on normal terms and conditions, amounted to $29,909 (2005 - $15,479).

During the year ended 30 June 2006, Peter J. Nightingale had an interest in an entity, Mining Services Trust, which
provided full administrative services, including rental accommodation, administrative staff, services and supplies, to the
consolidated entity. Fees paid to Mining Services Trust during the year, which were in the ordinary course of business
and on normal terms and conditions, amounted to $120,000 (2005 - $120,000).

Biotron Limited Annual Report 2006 29

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

During the year ended 30 June 2006, Peter J. Nightingale, had an interest in an entity, Rosignol Consultants Pty
Limited, which rendered ﬁ nancial and administrative services to the Company. Fees paid to Rosignol Consultants Pty
Limited during the year, which were in the ordinary course of business and on normal commercial terms and conditions,
amounted to $69,606 (2005 - $60,000).

17. Employee and Director Incentive Option Plan
At 30 June 2006, the Company had 8 employees (2005 - 10). All other personnel are contracted by the Company on a
consultancy basis.

The Company has an Incentive Option Plan to provide eligible persons, being employees or directors, or individuals
whom the Plan Committee determine to be employees for the purposes of the Plan, with the opportunity to acquire
options over unissued ordinary shares in the Company. The number of options granted or offered under the Plan will not
exceed 10% of the Company’s issued share capital and the exercise price of options will be the greater of the market
value of the Company’s shares as at the date of grant of the option or such amount as the Plan Committee determines.
Options have no voting or dividend rights.

In the event that the employment or ofﬁ ce of the optionholder is terminated, any options which have not reached their
exercise period will lapse and any options which have reached their exercise period may be exercised within three
months of the date of termination of employment. Any options not exercised within this three month period will lapse.

During the year ended 30 June 2006, 2,600,000 options were granted to directors and key executives. No ordinary
shares have been issued as a result of the exercise of any option granted pursuant to the Incentive Option Plan.

The fair value of the options at grant date, $116,666, was determined based on Black-Scholes formula. The model
inputs were the share price of $0.17, expected volatility (based on historic volatility) of 50%, a nil dividend and risk-free
interest rate of 5.25%.

These options are not listed and accordingly have no market value at year end. The market value of the ordinary shares
under option at 30 June 2006 was $0.195 (2005 - $0.13) each. The amount recognised in the ﬁ nancial statements in
relation options issued during the ﬁ nancial year was $99,195 (2005 - $0). Options issued are summarised below:

Number of Options

Grant Date

Exercise Date

Expiry Date

Exercise
Price

30 June 2005
On Issue

30 June 2006
On Issue

30 June 2006
Vested

06/02/02

28/06/03

14/10/05

06/02/02

30/06/03

30/06/04

14/10/05

30/09/06

30/09/07

14/01/07

30/09/10

$0.60

$0.75

$1.00

$0.35

$0.40

$0.45

250,000

500,000

900,000

250,000

500,000

250,000

500,000

1,600,000

500,000

Notes to the Financial Statements

FOR THE YEAR ENDED 30 JUNE 2006

18. Financial Instruments Disclosure
Interest rate risk
The Company’s exposure to interest rate risk and repricing periods are the effective weighted average interest rate for
classes of ﬁ nancial assets and ﬁ nancial liabilities as follows:

2006

Financial assets

Cash assets

Receivables

Financial liabilities

Payables and
employee beneﬁ ts

2005

Financial assets

Cash assets

Receivables

Financial liabilities

Payables and
employee beneﬁ ts

Note

10 and 11

Note

10 and 11

Effective
interest rate
%

Floating interest
rate 6 months
or less
$

Non-interest
bearing
$

Total
$

3.39

4,623,586

4,824

4,623,586

61,706

318,108

310,595

Effective
interest rate
%

Floating interest
rate 6 months
or less
$

Non-interest
bearing
$

Total
$

4.38

2,112,796

45,729

149,879

Credit risk exposure
The credit risk exposure on ﬁ nancial assets of the Company which have been recognised in the balance sheet is the
carrying amount, net of any impairment loss.

Credit risk on cash assets is minimised by dealing with Australian regulated banks.

Net fair values of ﬁ nancial assets and liabilities
The carrying amounts of ﬁ nancial assets and liabilities approximate their net fair values given the variable interest rates
and/or short term to maturity.

19. Financial Reporting by Segments
The Company operates in the biotechnology industry in Australia.

20. Impact of Adopting Australian Equivalents to International Financial Reporting Standards
As stated in note 1, these are the Company’s ﬁ rst annual ﬁ nancial Statements prepared in accordance with Australian
Accounting Standards – AIFRS.

The accounting policies in note 1 have been applied in preparing the ﬁ nancial statements for the year ended 30 June
2006, the comparative information for the year ended 30 June 2005, and the preparation of an opening AIFRS balance
sheet at 1 July 2004 (the Company’s date of transition).

The transition to AIFRS has no material impact on the Company’s ﬁ nancial position, ﬁ nancial performance or cash ﬂ ows;
hence the consolidated entity has made no adjustments to amounts reported previously in ﬁ nancial statements prepared
in accordance with its previous basis of accounting (previous GAAP).

Biotron Limited Annual Report 2006 31

Directors’ Declaration

Directors’ Declaration
In the opinion of the directors of Biotron Limited:

(a)

the ﬁ nancial statements and notes thereto, set out on pages 15 to 31, are in accordance with the Corporations Act
2001, including:

(i) giving a true and fair view of the ﬁ nancial position of the Company as at 30 June 2006 and of its performance, as

represented by the results of its operations and cash ﬂ ows for the year ended on that date; and

(ii) complying with Australian Accounting Standards and the Corporations Regulations 2001; and

(b)

there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become
due and payable.

chief executive ofﬁ cer and chief ﬁ nancial ofﬁ cer for the ﬁ nancial year ended 30 June 2006.

This report has been signed in accordance with a resolution

of the directors and is dated 13 September 2006:

Michael J. Hoy
Chairman

Michelle Miller
Managing Director

Independent Audit Report

We formed our audit opinion on the basis of these
procedures, which included:

(cid:129) examining, on a test basis, information to provide

evidence supporting the amounts and disclosures in
the ﬁ nancial report, and

(cid:129) assessing the appropriateness of the accounting

policies and disclosures used and the
reasonableness of signiﬁ cant accounting estimates
made by the directors.

While we considered the effectiveness of management’s
internal controls over ﬁ nancial reporting when determining
the nature and extent of our procedures, our audit was
not designed to provide assurance on internal controls.

Audit opinion
In our opinion, the ﬁ nancial report of Biotron Limited is in
accordance with:

(a) the Corporations Act 2001, including:

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

ﬁ nancial position as at 30 June 2006 and of its
performance for the year ended on that date;
and

(ii) complying with Australian Accounting Standards

the Corporations Regulations 2001; and

(b) other mandatory ﬁ nancial reporting requirements in
Australia.

KPMG

13 September 2006

S.J. Board
Partner

Independent Audit Report to the Members
of Biotron Limited
Scope
The ﬁ nancial report and directors’ responsibility

The ﬁ nancial report comprises the income statement,
balance sheet, statement of recognised income and
expense, statement of cash ﬂ ows, accompanying notes
1 to 20 to the ﬁ nancial statements, and the directors’
declaration for Biotron Limited for the year ended 30 June
2006.

The directors of the Company are responsible for
the preparation and true and fair presentation of the
ﬁ nancial report in accordance with the Corporations Act
2001. This includes responsibility for the maintenance
of adequate accounting records and internal controls
that are designed to prevent and detect fraud and
error, and for the accounting policies and accounting
estimates inherent in the ﬁ nancial report. The directors
are also responsible for preparing the relevant reconciling
information regarding the adjustments as required under
the Australian Accounting Standard AASB 1 “First-
time Adoption of Australian equivalents to International
Financial Reporting Standards”.

Audit approach

We conducted an independent audit in order to express
an opinion to the members of the Company. Our
audit was conducted in accordance with Australian
Auditing Standards in order to provide reasonable
assurance as to whether the ﬁ nancial report is free
of material misstatement. The nature of an audit is
inﬂ uenced by factors such as the use of professional
judgement, selective testing, the inherent limitations of
internal control, and the availability of persuasive rather
than conclusive evidence. Therefore, an audit cannot
guarantee that all material misstatements have been
detected.

We performed procedures to assess whether in all
material respects the ﬁ nancial report presents fairly, in
accordance with the Corporations Act 2001, Australian
Accounting Standards and other mandatory ﬁ nancial
reporting requirements in Australia, a view which is
consistent with our understanding of the Company’s
ﬁ nancial position, and of its performance as represented
by the results of its operations and cash ﬂ ows.

Biotron Limited Annual Report 2006 33

Additional Stock Exchange Information

Additional Stock Exchange Information
Home Exchange
The Company is listed on the Australian Stock Exchange Limited. The home exchange is Sydney.

Use of Cash and Assets
Since the Company’s listing on the Australian Stock Exchange, the Company has used its cash and assets in a way
consistent with its stated business objectives.

Class of Shares and Voting Rights
There is only one class of shares in the Company, fully paid ordinary shares.

The rights attaching to shares in the Company are set out in the Company’s Constitution. The following is a summary of
the principal rights of the holders of shares in the Company.

Every holder of shares present in person or by proxy, attorney or representative at a meeting of shareholders has one
vote on a vote taken by a show of hands, and, on a poll every holder of shares who is present in person or by proxy,
attorney or representative has one vote for every fully paid share registered in the shareholder’s name on the Company’s
share register.

A poll may be demanded by the chairperson of the meeting, by at least 5 shareholders entitled to vote on the resolution
or shareholders with at least 5% of the votes that may be cast on the resolution on a poll.

Substantial Shareholders
As at the date of the Directors’ Report, the Register of Substantial Shareholders showed the following:

Estate Late Peter Gage

Rigi Investment Pty Ltd

Peter G. Scott

Gail S. Scott

9,200,000 fully paid ordinary shares

4,380,145 fully paid ordinary shares

4,250,000 fully paid ordinary shares

4,249,550 fully paid ordinary shares

Australian National University

4,216,222 fully paid ordinary shares

Distribution of Equity Securityholders
As at 31 August 2006, the distribution of each class of equity was as follows:

Range

1- 1,000

1,001 - 5,000

5,001 - 10,000

10,001 - 100,000

100,001 and over

Fully Paid
Ordinary Shares

14 January
2007 $0.60
Options

14 January
2007 $0.75
Options

14 January
2007 $1.00
Options

30 September
2010 $0.35
Options

487

360

581

114

1,595

At 31 August 2006, 179 shareholders held less than a marketable parcel of 2,326 shares.

Lost Ark Nominees Pty Limited No 99 A/c is the holder of 2,000,000 30 September 2010 $0.35 options.

Additional Stock Exchange Information

Twenty Largest Quoted Shareholders
At 31 August 2006 the twenty largest fully paid ordinary shareholders held 48.27% of fully paid ordinary as follows:

Name

Estate Late Peter Gage

Rigi Investments Pty Ltd

Peter Scott

Gail Scott

Australian National University

Angela Dulhunty

Chris and Bhama Parish

Philip and Marylyn Board

Bray Chan

Michael John Hoy

Merrill Lynch (Australia) Nominees Pty Ltd Berndale A/c

Peter Nightingale

Jey Investments Pty Ltd

Lost Ark Nominees Pty Ltd MYA Super A/c

ANZ Nominees Limited Cash Income A/c

CBDF Pty Ltd Canberra Bus Dev Fund A/c

Forbar Custodians Limited

UOB Kay Hian Pte Ltd Clients A/c

Shano Developments Pty Ltd

Chiﬂ ey Portfolios Pty Ltd D&P Hannon Retirement A/c

There are no current on-market buy-backs.

Fully Paid Ordinary
Shares

9,200,000

4,380,145

4,250,000

4,249,550

4,124,700

2,400,000

2,100,000

1,799,950

1,400,000

1,316,314

1,206,159

1,175,714

849,656

842,319

826,294

737,743

676,286

642,857

570,000

561,546

10.25

4.88

4.74

4.60

2.67

2.34

2.01

1.56

1.47

1.34

1.31

0.95

0.94

0.91

0.82

0.75

0.72

0.64

0.63

Biotron Limited Annual Report 2006 35

Corporate Directory

Directors:
Mr Michael J. Hoy (Chairman)
Dr Michelle Miller (Managing Director)
Dr Michael S. Hirshorn
Mr Bruce Hundertmark
Mr Peter G. Scott

Company Secretary:
Mr Peter J. Nightingale

Registered Ofﬁ ce:
Level 8, 261 George Street
SYDNEY NSW 2000
Phone: 61-2 9247 8212 Fax: 61-2 9247 3932
E-mail: enquiries@biotron.com.au
Homepage: www.biotron.com.au

Share Registrar:
Computershare Investor Services Pty Limited
PO Box 523
BRISBANE QLD 4001
Phone: 61-7 3237 2100 Fax: 61-7 3229 9860

Auditors:
KPMG
Level 30, Central Plaza One
345 Queen Street
BRISBANE QLD 4000

Home Exchange:
Australian Stock Exchange Limited
20 Bridge Street SYDNEY NSW 2000

Solicitors:
Minter Ellison
88 Phillip Street
SYDNEY NSW 2000

Biotron Limited, incorporated and domiciled in Australia, is a publicly listed company limited by shares.

CONTENTS

Chairman’s Report

Operating and Financial Review

Statement of Corporate Governance

Directors’ Report

Income Statement

Statement of Recognised Income and Expenses

Balance Sheet

Statement of Cash Flows

Notes to the Financial Statements

Directors’ Declaration

Independent Audit Report

Additional Stock Exchange Information

Corporate Directory

2 – 6

7 – 8

9 – 14

19 – 31

34 – 35

Biotron Limited ABN 60 086 399 144

Biotron Limited Annual Report 2006

Level 8, 261 George Street
Sydney NSW 2000
Tel: (61-2) 9247 8212
Fax: (61-2) 9247 3932
E-mail: pnightingale@biotron.com.au
Website: www.biotron.com.au

NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the Annual General Meeting of members is to be convened at Level 15, 37 York Street,
Sydney, NSW, 2000 on 20 October 2006 at 9.00 am.

AGENDA

ORDINARY BUSINESS

To receive and consider the Company's annual financial report, the directors' report and the auditors' report for the
year ended 30 June 2006.

To consider and, if thought fit, pass the following resolutions, with or without amendment:

Resolution 1.

'That the Remuneration Report for the year ended 30 June 2006 be and is hereby adopted.'

Resolution 2.

'That Mr Michael J. Hoy be and is hereby re-elected as a Director.'

Resolution 3.

'That Mr Michael S. Hirshorn be and is hereby re-elected as a Director.'

Resolution 4.

'That the Biotron Incentive Option Plan is approved for the purposes of ASX Listing Rule 7.2,
Exception 9.'

To transact any other business that may be brought forward in accordance with the Company's Constitution.

By order of the Board

Peter J. Nightingale
Company Secretary

18 September 2006

Notes:

Voting Exclusion Statement

The Company will disregard any votes cast on Resolution 4 by:

•
•

any Directors of the Company; and
any associates of those persons.

However, the Company need not disregard a vote if:

•

it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the
proxy form; or
it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance
with a direction on the proxy form to vote as the proxy decides.

pjn3608

Level 8, 261 George Street
Sydney NSW 2000
Tel: (61-2) 9247 8212
Fax: (61-2) 9247 3932
E-mail: pnightingale@biotron.com.au
Website: www.biotron.com.au

EXPLANATORY MEMORANDUM

This is the Explanatory Memorandum Notice referred to in the Notice of Annual General Meeting of Biotron Limited to be
convened at Level 15, 37 York Street, Sydney, NSW, 2000 on 20 October 2006 at 9.00 am.

Resolution 1

Adoption of the Remuneration Report

The Remuneration Report, which can be found on page 12 of the Company's 2006 Annual Report, contains certain prescribed
details, sets out the policy adopted by the Board of Directors and discloses the payments to key management personnel,
Directors and senior executives.

In accordance with section 250R of the Corporations Act, a resolution that the Remuneration Report be adopted must be put to
the vote. The resolution is advisory only and does not bind Directors.

Resolution 2

Re-election of Michael J. Hoy as a Director

In accordance with Article 58 of the Company's Constitution and the Corporations Law, Michael J. Hoy retires as a Director by
rotation and, being eligible, offers himself for re-election.

Resolution 3

Re-election of Michael S. Hirshorn as a Director

In accordance with Article 58 of the Company's Constitution and the Corporations Law, Michael S. Hirshorn retires as a
Director by rotation and, being eligible, offers himself for re-election.

Resolution 4.

Approval of the Biotron Incentive Option Plan
for the purposes of ASX Listing Rule 7.2 Exception 9

The Biotron Incentive Option Plan ('Plan') has been in existence since before the listing of the Company on the ASX. The
terms of the Plan were disclosed in the Company's prospectus. The purpose of this resolution is to refresh the shareholder's
approval of the Plan.

ASX Listing Rule 7.2 Exception 9(b) provides that ASX Listing Rule 7.1, which prohibits the Company issuing equity
securities which in aggregate exceed 15% of the fully paid ordinary share capital of the Company in a 12 month period, does
not apply in respect of the issue of securities by the Company under an employee incentive scheme if, within 3 years before the
date of issue of the securities, the shareholders of the Company have approved the issue of securities under the plan.

The options which may be granted under the Plan will form part of eligible directors' and employees' remuneration packages
and are intended to provide an incentive to those eligible directors and employees and to recognise their contribution to the
Company's success. The Directors consider that the incentive represented by these options is a cost effective and efficient
incentive offered by the Company when compared with alternative forms of incentive such as cash bonuses or increased
remuneration.

From the inception of the Plan, a total of 3,650,000 options have been granted under the Plan and 2,400,000 of these options
expired unexercised.

A summary of the terms of the Plan is set out in Attachment A.

The Company will disregard any votes cast on Resolution 4 by:

•
•

any Directors of the Company; and
any associates of those persons.

However, the Company need not disregard a vote if:

•

it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy
form; or
it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a
direction on the proxy form to vote as the proxy decides.

Summary of the Terms of the Biotron Incentive Option Plan

Attachment A

The Biotron Incentive Option Plan ('Plan') is to provide an employee or a director of Biotron Limited ('Biotron'), or an
individual who at any time in the previous 6 months would have been an employee or a director ('Eligible Persons') with the
opportunity to acquire an option to subscribe for a share in the capital of Biotron ('Option') in accordance with the rules of the
Plan ('Rules'). The Rules are to be interpreted subject to the Company’s constitution, the ASX Listing Rules, the Corporations
Act and any other applicable laws.

The number of Options granted or offered under the Plan, or any other employee share or option scheme of Biotron, will not
exceed 10% of Biotron's issued share capital.

Subject to the Rules, the Board of Biotron or any committee of the Board to which power to administer the Plan has been
delegated ('Plan Committee') may from time to time make an offer of Options to any Eligible Person. The Options are
exercisable during the period:

(a)

(b)

commencing, unless otherwise specified in an offer, on the earlier of:
(i)
(ii)

the date which is 1 year from the date of the grant; and
the date of termination (other than by way of redundancy) or death or permanent disablement
('Special Circumstances') of the Option holder; and

ending, unless otherwise specified in an offer, the date which is 5 years from the date of the grant or, if
Special Circumstances arise in respect of the Option holder, then the date which is 8 months after such
Special Circumstances arise.

The exercise price in respect of an Option ('Exercise Price) will be an amount equal to the greater of:

(a)

(b)

the market value of a share as at the date of grant of that Option (as determined in a reasonable manner by
the Plan Committee): or
such amount as the Plan Committee determines before or at the time of the grant of the Option.

An Eligible Person may accept the invitation constituted by an offer by giving to Biotron an application form within the period
specified in the offer. An offer not accepted accordingly will lapse unless the Plan Committee determines otherwise.

Subject to the Rules, each Option confers on its holder the entitlement to subscribe for and be issued one fully paid ordinary
share ('Share') at the Exercise Price.

Subject to these Rules and the Listing Rules, Biotron must issue a Share on exercise of an Option. Shares issued on the
exercise of Options will rank equally with all existing Shares on and from the date of issue in respect of all rights issues, bonus
share issues and dividends which have a record date for determining entitlements on or after the date of issue of those Shares.

Biotron is not obliged to issue any Shares on exercise of any Options until a cheque received in payment of the Exercise Price
has been honoured on presentation.

Subject to the Corporations Act and the ASX Listing Rules, Options held by an Option holder are personal to him or her and
may not be transferred to or exercised by any other person.

Options granted under the Plan will lapse on the earlier of:

(a)

(b)

(c)

(i)

(ii)

(i)
(ii)

unless otherwise specified in an offer, the date which is 5 years from the date of grant of Options to that
Option holder;
a determination of the Plan Committee that an Option holder:

has been dismissed or removed from office for a reason which entitles Biotron or its group companies to
dismiss that person without notice or where that person has committed an act of fraud, defalcation or
gross misconduct in relation to the affairs of that body corporate; or
has done any act which brings Biotron or its group companies into disrepute;
unless otherwise determined by the Plan Committee, upon termination of employment:

three months after the date of termination if the Options have reached their exercise period; or
the date of termination if the Options have not reached their exercise period.

Biotron will not seek official quotation of any Options. Biotron must apply to the ASX for quotation of Shares issued on
exercise of Options if other Shares of Biotron are officially quoted by ASX at that time.

Level 8, 261 George Street
Sydney NSW 2000
Tel: (61-2) 9247 8212
Fax: (61-2) 9247 3932
E-mail: pnightingale@biotron.com.au
Website: www.biotron.com.au

FORM OF PROXY

I/we . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

being a member/members of Biotron Limited HEREBY APPOINT

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
or failing him, the Chairman of the Meeting, as my/our Proxy to vote for me/us and on my/our behalf at the Annual General
Meeting of Members of the Company to be held at 9.00 am on 20 October 2006 and at any adjournment thereof.

The Proxy is directed by me/us to vote as indicated by the marks in the appropriate boxes below:

RESOLUTION

1. Adoption of the Remuneration Report

2. Re-election of Michael J. Hoy as a Director

3. Re-election of Michael S. Hirshorn as a Director

4. Approval of the Biotron Incentive Option Plan

FOR
□
□
□
□

AGAINST
□
□
□
□

ABSTAIN
□
□
□
□

If no directions are given, the Proxy may vote as the Proxy thinks fit or may abstain.

If you do not wish to direct your Proxy how to vote, please place a mark in the box:
By marking this box, you acknowledge that the Chairman may exercise your proxy even if he has an interest in the outcome of
the resolution and votes cast by him other than as proxy holder will be disregarded because of that interest. The Chairman
intends to vote undirected proxies in favour of each item.

□

Dated this . . . . . . day of . . . . . . . . . . . . . . . . . . . . . . 2006

Signatures of Member(s) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

THE COMMON SEAL of . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . A.C.N. . . . . . . . . . . . . . . . . . . . .

was hereunto affixed in accordance with

its Constitution in the presence of: . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Director

Secretary

PROXY INSTRUCTIONS

A member entitled to attend and vote is entitled to appoint not more than 2 proxies.

1.
2. Where more than 1 proxy is appointed, each proxy must be appointment to represent a specified proportion of the

3.
4.
5.
6.
7.

member's voting rights.
A proxy need not be a member.
Companies must sign under seal.
All joint holders must sign.
All executors of deceased estates must sign.
The Company will disregard any votes cast on each of Resolution 4 by:

•
•

any Directors of the Company; and
any associates of those persons.

However, the Company need not disregard a vote if:

•

it is cast by a person as proxy for a person who is entitled to vote, in accordance with the directions on the proxy
form; or
it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a
direction on the proxy form to vote as the proxy decides.

The Company has determined, in accordance with regulation 7.11.37 of the Corporations Regulations 2001 (Cth),
that the Company's shares quoted on the Australian Stock Exchange Limited at 7.00 pm Sydney time on 18 October
2006 are taken, for the purposes of the Annual General Meeting to be held by the persons who held them at that
time. Accordingly, those persons are entitled to attend and vote (if not excluded) at the meeting.
Proxy forms must be received at the Company's registered office, Level 8, 261 George Street, Sydney, NSW, 2000,
or by facsimile on (61-2) 9247 3932, not less than 48 hours before the time appointed for holding the meeting.

pjn3608