Biotron Limited Annual Report 2010

Plain-text annual report

BIOTRON LIMITED ABN 60 086 399 144 ANNUAL REPORT 2010 CONTENTS Operating and Financial Review Statement of Corporate Governance Directors’ Report Statement of Comprehensive Income Statement of Financial Position Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements Directors’ Declaration Independent Auditor’s Report Additional Stock Exchange Information Corporate Directory 2 – 4 5 – 7 8 – 16 17 18 19 20 21 – 36 37 38 – 39 40 – 41 42 OPERATING AND FINANCIAL REVIEW Review of Operations The period under review has seen a continual focus on the clinical progression of Biotron’s antiviral drug development program, speciﬁcally on the clinical development of the Company’s lead drug, BIT225, in its HIV and Hepatitis C virus (HCV) programs. Signiﬁcant events achieved in this ﬁnancial year include: • Successful conclusion of a Phase Ib/IIa clinical trial of Biotron’s lead drug, BIT225, in HCV infected subjects. This marked a major milestone for the Company. • Finalisation of design of Phase IIa clinical trial of BIT225, completion of documentation for ethics and regulatory submissions, and submission of documentation to relevant authorities for approval for trial. • Appointment of an experienced CRO (contract research organisation) that specialises in HIV and HCV clinical trials, to manage the clinical trial at sites in South America and Asia. • Demonstration that BIT225 can limit the spread of HIV in cells taken from HIV infected patients. • Presentation of data from the Company’s HCV and HIV programs at international scientiﬁc conferences. • Initiation and successful completion of a $2.1 million capital raising via an option issue, which was fully underwritten by Bell Potter and Martin Place Securities. • A further $641,000 was raised from the early exercise of options at the end of March 2010. Clinical Development of BIT225 Biotron has an impressive pipeline of world class clinical programs developing new drugs to treat signiﬁcant viral diseases including HCV and HIV. To date, Biotron has successfully completed two human trials of its lead drug BIT225 - an investigational, orally-administered, novel antiviral compound in development by Biotron for treatment of HCV and HIV infections. These trials include a 48 person ﬁrst-in-human safety study in healthy volunteers in late 2007, and more recently a Phase Ib/IIa trial of the drug in people infected with HCV, completed in late 2009. BIT225 represents a ﬁrst-in-class drug for treatment of HCV, targeting the p7 protein of HCV. It is estimated that in the USA 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. HCV causes inﬂammation of the liver, which may lead to ﬁbrosis and cirrhosis, liver cancer and, ultimately, liver failure. Existing drugs which treat HCV have limited effectiveness and toxicity issues, leaving a signiﬁcant need for new therapies. Biotron’s Phase Ib/IIa trial was the ﬁrst study of the drug in a patient population. A total of 18 infected patients, randomly assigned to receive either one of two doses of BIT225, or placebo, taking the drug twice daily for 7 days. The study was successfully completed, with analysis indicating that within that trial design the drug appeared to be safe and well tolerated, and most importantly, showed that BIT225 can reduce levels of the HCV in a number of treated patients receiving the highest dose of drug, compared to those receiving placebo. This was an important and exciting result, and supports the on-going development of the Company’s drug. The next stage of development of BIT225 is to test it in combination with the currently approved HCV drugs in patients infected with HCV, which, given that antiviral drugs cannot be used on their own to treat chronic infections due to development of drug resistance, is how BIT225 will most likely to be used in a clinical setting. These existing drugs (interferon alpha and ribavirin) are often associated with severe side effects, and have limited beneﬁt in a large percentage of patients. BIT225 has been shown to be highly synergistic with these drugs in preclinical laboratory testing, which means that greater reductions in virus levels can be achieved using smaller quantities of the drugs in combination than if they were used individually. During the ﬁrst half of 2010, Biotron’s focus has been on ﬁnalising the design of this combination trial, and in preparing the detailed documentation required by ethics and regulatory authorities. The approval process is a multistep process, involving ethics committees and review boards overseeing the trial sites, and government authorities which are responsible for issuing permits to import drug and ﬁnal approvals to start the trial, progressing to the next stage of testing of BIT225 against the Hepatitis C virus. This trial will test the drug over a longer treatment period in combination with the approved drugs in patients infected with HCV genotype 1, the most common variant of the virus in the Western world. Not only is genotype 1 the most common type of HCV, but it is also the form that is most resistant to current approved drugs, with less than 50% of treated patients responding to treatment. Biotron’s application documentation has successfully passed the ﬁrst step in the ethics approval process, and is now progressing through the next stage of approvals. We anticipate the trial will conclude before the end of 2010. The worldwide market for HCV treatment is currently almost US$3.0 billion, but is estimated that this market will expand to over US$10.0 billion as safe, effective therapies enter the market. The pharmaceutical industry is particularly interested in new drugs that speciﬁcally target the replication cycle of the Hepatitis C virus, and there is considerable interest in the outcomes of Biotron’s Phase IIa combination trial. Biotron Annual Report 2010 2 OPERATING AND FINANCIAL REVIEW BIT225 also works against HIV, the virus that causes AIDS. BIT225 speciﬁcally targets HIV in reservoir cells and represents an opportunity to attack HIV at its source in the body. Current HIV therapies have little or no effect on HIV in the underlying reservoir of infected cells where the virus hides from the immune system. Late in 2009, Biotron scientists presented a paper at an international conference, reporting that BIT225 is able to limit the spread of virus in cells isolated from HIV-infected patients. The Company proposes to progress BIT225 into a proof-of- concept Phase Ib/IIa trial in HIV infected patients when funding permits. These trials in HCV and HIV patients are critical steps in the Company’s development. Demonstration that BIT225 can attack these viruses in patients will be a major advance in terms of Company and technology valuations. The Company is focused on achieving a successful outcome, and has been updating potential commercial partners on progress on a regular basis while progressing its clinical trial program. First-in-class drugs are often very attractive to pharmaceutical companies as they can provide an opportunity to secure the largest market share, in contrast with ‘me-too’ next generation of existing classes of drug. However, this beneﬁt is often linked to the need to provide evidence that the new class, with a new mode of action, has clinical beneﬁt. The HCV Phase IIa combination trial has been speciﬁcally designed with the aim of providing the information that potential partners are likely to require in order to form a partnership with an international pharmaceutical company for continued development. Other Viral Programs The Company has an impressive portfolio of clinical and preclinical antiviral programs developing drugs targeting HCV, HIV, Dengue virus and Inﬂuenza virus. At present, focus is on development of the HCV and HIV programs into trials in infected patient populations, and additional resources will be committed to these additional programs once the more advanced programs have been successfully commercialised or as resources become available. Right now, the clearer commercial path for Biotron is ﬁrstly focusing on its Hepatitis C program, and secondly, exploiting BIT225 to reduce the viral reservoirs in HIV infected patients. The level of interest by the international community in Biotron’s antiviral programs was reﬂected by the selection of Biotron to participate in prestigious international scientiﬁc conferences over the last 12 months. In December 2009, Biotron was selected to present at the biannual HepDART conference in the USA as well as the International Workshop on HIV Persistence. In May 2010, Biotron attended the annual international biotech industry partnering conference, BIO2010, in Chicago USA, and presented to an investor showcase preceding that conference. Patents Biotron is focused on progressing patents related to its antiviral programs through the international patenting process. The Company 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 the Company’s products in the marketplace. Biotron continues to build a strong wall of patents around its IP to maximise the value of the technologies and to ensure its competitive position. A summary of Biotron’s patent portfolio is set out below: TITLE STATUS WO0021538 Method of modulatingion channel functional activity Priority - 12 October 1998 WO9813514 Method of determining ion channel activity of a substance Priority - 27 September 1996 WO04112687 Antiviral compounds and methods Priority - 26 June 2003 Granted in India WO6135978 Antiviral compounds and methods Priority - 24 June 2005 WO2009/018609 Hepatitis C antiviral compounds and methods Priority - 3 August 2007 New Director Granted in Australia, Canada, China, New Zealand, and USA Under examination elsewhere Granted in Australia, Japan, Europe and USA Under examination elsewhere New Zealand, Singapore and South Africa Under examination elsewhere Granted in South Africa Waiting for or under examination elsewhere Waiting for examination in all jurisdictions This past year has seen the Company welcome a new director to Biotron’s board with credentials we believe will be important to further Biotron’s commercial success. Dr Denis Wade has been a director of several private and public companies in the pharmaceutical sector, including Heartware Limited and HeartWare International Inc. Among other stellar appointments, he has served as a managing director and chairman of Johnson and Johnson Research Pty Ltd, and is a former chairman of the Clinical Pharmacology Section of the International Union of Pharmacology. 3 Biotron Annual Report 2010 Capital Raising In December 2009, the Company initiated a capital raising via an option issue, which was fully underwritten by Bell Potter and Martin Place Securities. The issue closed, over-subscribed, in early January 2010, raising $2.1 million. A number of shareholders elected for early exercise of these options at the end of March 2010, raising an additional $641,000 in funds. The Directors would like to thank all those shareholders who supported the Company by participating in this capital raising. On behalf of the Board we would like to thank the dedicated Biotron staff for their commitment and efforts during the year. Biotron is poised to achieve the outcome that we have all been working towards – demonstration that its antiviral drug development program can produce new, novel drugs which can attack virus infections in humans, resulting in signiﬁcant clinical beneﬁt to patients, and generating major ﬁnancial beneﬁts to our shareholders. We look forward to the next year with conﬁdence. Michael J. Hoy Chairman Michelle Miller Managing Director Biotron Annual Report 2010 4 STATEMENT OF CORPORATE GOVERNANCE This statement outlines the main Corporate Governance practices that were in place throughout the ﬁnancial year, which comply with the Australian Stock Exchange (‘ASX’) Corporate Governance Council recommendations, unless otherwise stated. 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 ﬁnancial and other reporting. The composition of the board has been determined on the basis of providing the Company with the beneﬁt of a broad range of technical, administrative and ﬁnancial skills, combined with an appropriate level of experience at a senior corporate level. The names and further information regarding the skills, experience, qualiﬁcations 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 beneﬁt from the services of a new director with particular skills, the board identiﬁes 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. Having regard to the current membership of the board and the size, organisational complexity and scope of operations of the entity, a Nomination Committee, a Remuneration Committee and an Audit Committee have not been established. 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 conﬂict 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 and any amount of equity based executive remuneration payment for each director, refer to the Key Management Personnel note to the ﬁnancial 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 ﬁnancial reporting procedures, internal controls and the performance of the ﬁnancial management. Selected internal control mechanisms employed to support the business include: • Investment appraisal – the Company has documented guidelines for capital expenditure and investment appraisals. These review include annual budgets, expenditure procedures and appropriate levels of authority. • 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. • Quality and integrity of employees – there are clearly deﬁned accountabilities, performance measures, and reinforcement of values and ethics by management. The CEO and CFO state in writing to the board that the Company’s ﬁnancial statements present a true and fair view, in all material respects, of the Company’s ﬁnancial condition and operational results and are in accordance with relevant accounting standards. 5 Biotron Annual Report 2010 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 signiﬁcant operational issues and the level of proposed audit fees. The auditor is requested to attend the Annual General Meeting and be available to answer shareholder questions about the conduct of the audit and the preparation and content of the auditor’s report. 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, ofﬁcers 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: • Distribution of the annual report is made available to all shareholders containing relevant information about the operations of the Company during the year in addition to disclosures required by the Corporations Act 2001. • Lodgement of quarterly reports with the ASX which show summarised ﬁnancial information for the quarter. Copies of these reports are available to shareholders on request. summarised and audit • Lodgement of the half yearly report with the ASX which reviewed ﬁnancial contains information. Copies of half yearly ﬁnancial statements prepared in accordance with the Corporations Act are available to any shareholder on request. • Lodgement of the annual report with the ASX which contains full audited ﬁnancial information prepared in accordance with the Corporations Act. Distribution of the annual report is made available to all shareholders. • Announcements to the ASX concerning any signiﬁcant development in the Company’s operations, ﬁnancing and administration. All announcements are immediately available to the general public. • Disclosure of all major announcements to the ASX on the Company’s website. • 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 Due to the size of the Company, the number of ofﬁcers and employees and the nature of the Company’s business, a formal risk management policy and internal compliance and control system has not been implemented. The CEO and CFO declare, in writing, to the board that the system of risk management and internal compliance and control which implements the policies adopted by the board has been assessed and found to be operating efﬁciently and effectively in all material respects. 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 identiﬁed 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 ﬁnancial, 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 identiﬁed. Ways of enhancing existing risk management strategies, including segregation of duties, employment and training of suitably qualiﬁed and experienced personnel are investigated by the board. Biotron Annual Report 2010 6 STATEMENT OF CORPORATE GOVERNANCE Performance Evaluation of the Board and Key Executives Due to the size of the Company, the number of ofﬁcers and employees and the nature of the Company’s business, the board has adopted an informal and continuous performance evaluation process of the directors and key executives. The Company has not established formal performance review measures for the board or key executives nor has it established a nomination committee. Share Trading Policy The board restricts directors, executives and employees from acting on material information until it has been released to the market. Share trading by directors, executives or employees is not permitted at any time whilst in the possession of price sensitive information not already available to the market. In addition, the Corporations Act prohibits the purchase or sale of securities whilst a person is in possession of inside information. Restricted Persons can only trade the Company’s securities during speciﬁc trading windows. All periods outside the speciﬁc trading windows are closed periods where Restricted Persons are prohibited from trading in the Company’s securities unless in special circumstances and with the approval of the Chairman. Trading windows are the 60 days from the ﬁrst trading day after each of the following: • • • the day half year results are announced; the day full year results are announced; and the day of the Annual General Meeting. 7 Biotron Annual Report 2010 DIRECTORS’ REPORT The directors present their report together with the ﬁnancial report of Biotron Limited (‘the Company’) for the year ended 30 June 2010 and the auditor’s report thereon. Committee of the Department of Industry, Science and Resources. He is currently a director of Dynamic Hearing and TGR BioSciences. Dr Hirshorn was appointed as a director on 16 March 2000. Directors The names and particulars of the directors of the Company at any time during or since the end of the ﬁnancial year are: Mr Bruce Hundertmark Independent and Non-Executive Director 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, Chairman of Tellesso 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. Mr Hundertmark is an independent businessman and company director with a wide range of experience in diverse business operations. He has specialised in recent years in high technology based company start-up operations and in promoting the formation of venture capital companies including News Datacom Research Limited in Israel, News Datacom Limited in Hong Kong and both PT Indo Bio Products and PT Indo Bio Fuels in Indonesia. He has been a director of numerous private and publicly listed companies including News International PLC, Sky Television PLC, Prudential Cornhill Insurance Limited, Harris Scarfe Limited, Bernkastel Wines Limited, Codan Limited, Samic Limited and Investment & Merchant Finance Corporation Limited. Dr Michelle Miller, BSc, MSc, PhD, GCertAppFin (Finsia) Mr Hundertmark was appointed as a director on 16 March 2000. 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 30 years experience in founding, building, managing and investing in technology companies. 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 over eight years of private equity experience, raising funds, investing and developing companies. He has served on numerous government advisory committees, including the Start IT and T Committee, the Start Grants Biological Sciences Dr Denis N. Wade Non-Executive Director Dr Denis Wade has been involved for over 40 years with the development of research-based pharmaceuticals and medical devices in both industry and academia. He has been a director of several private and public companies in the Health-care sector, including Heartware Limited and subsequently HeartWare International Inc., since December 2004. He was a Director and Chairman of Gene Shears Pty Limited and, from 1987 until his retirement in 2002, Dr. Wade was Managing Director and Chairman of Johnson & Johnson Research Pty Ltd, a research and development company of Johnson and Johnson Inc. He was also a member of the J&J Corporate Ofﬁce of Science and Technology, Prior to that, Dr. Wade was the Foundation Professor of Clinical Pharmacology at the University of New South Wales and served as a member of a number of State and Federal bodies related to the drug industry, including the P3 Committee. He is a former Chairman of the Australian Academy National Committee for Pharmacology, the Australasian Society for Clinical and Experimental Pharmacology and Toxicology and a former Chairman of the Clinical Pharmacology Section of the International Union of Pharmacology. Biotron Annual Report 2010 8 DIRECTORS’ REPORT Dr Wade holds a First Class Honours degree in Medicine and Science from the University of Sydney and a Doctorate of Philosophy from the University of Oxford. He was awarded an Honorary Doctorate of Science by the University of New South Wales and is a Fellow of the Royal Australasian College of Physicians and of the Australian Academy of Technological Sciences and Engineering. In 1999 he was made a Member of the Order of Australia. Dr Wade was appointed as a Director on 30 April 2010. 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 Peter Scott resigned on 1 April 2010. Directors’ Meetings 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 22 years, been responsible for the ﬁnancial 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 Inc., Perseverance Corporation Limited, Valdora Minerals Minerals N.L., Bolnisi Gold NL and Palmarejo Silver and Gold Corporation. Mr Nightingale is currently a director of Augur Resources Ltd, Callabonna Uranium Limited, Cockatoo Coal Limited and Planet Gas Limited. Mr Nightingale has been company secretary since 23 February 1999. 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: Director No. of Eligible Meetings to Attend No. of Meetings Attended Directors’ Meetings Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Denis N. Wade Peter G. Scott 6 6 6 6 1 5 6 6 6 5 1 5 9 Biotron Annual Report 2010 Directors’ Interests At the date of this report, the beneﬁcial 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: Fully Paid Ordinary Shares Michael J. Hoy 1,408,214 Michelle Miller Michael S. Hirshorn Bruce Hundertmark Denis N. Wade* - - - 130,000 - 475,000 Options 500,000 1,408,214 500,000 500,000 500,000 200,000 200,000 162,500 Option Terms (Exercise Price and Term) $0.35 at any time up to 30 September 2010 $0.10 at any time up to 30 December 2011 $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 2007 up to 30 September 2010 $0.35 at any time up to 30 September 2010 $0.35 at any time up to 30 September 2010 $0.20 at any time up to 30 March 2012 * Dr Denis N. Wade held 475,000 shares and 162,500 options at the time of becoming a director. Option Holdings The movement during the reporting period in the number of options over ordinary shares in the Company held directly, indirectly or beneﬁcially, by each speciﬁed director and executive, including their personally-related entities, is as follows: Option holdings - 2010 Directors Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Denis N. Wade* Peter G. Scott** Executives Peter J. Nightingale Held at 1 July 2009 Purchased Expired Held at 30 June 2010 Vested and Exercisable at 30 June 2010 500,000 1,500,000 200,000 200,000 - - 1,408,214 - - - - 500,000 200,000 2,287,785 - - - - - - - 1,908,214 1,500,000 200,000 200,000 162,500 - 1,908,214 1,500,000 200,000 200,000 162,500 - 2,487,785 2,487,785 * Dr Denis N. Wade held 162,500 options at the time of becoming a director. ** Mr Peter G. Scott held 500,000 options when he resigned from ofﬁce on 1 April 2010. Biotron Annual Report 2010 10 DIRECTORS’ REPORT Option holdings - 2009 Directors Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Peter G. Scott Executives Peter J. Nightingale Held at 1 July 2008 Purchased Expired Held at 30 June 2009 Vested and Exercisable at 30 June 2009 500,000 1,500,000 200,000 200,000 - 200,000 - - - - - - - - - - - - 500,000 1,500,000 200,000 200,000 - 500,000 1,500,000 200,000 200,000 - 200,000 200,000 Remuneration Report - Audited The policy of remuneration of directors and senior executives is to ensure the remuneration package properly reﬂects 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 represents the cost to the Company for the services provided under these arrangements. 11 Biotron Annual Report 2010 No directors or senior executives receive performance related remuneration. Options issued in prior periods as remuneration were subject to service conditions due to the nature of the Company’s operations. 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 Denis N. Wade Executive Michelle Miller (Managing Director) Executives Peter J. Nightingale (Company Secretary) Year 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Primary Salary and Fees $ Post-Employment Superannuation Beneﬁts $ 55,046 55,046 27,523 27,523 27,523 27,523 20,642 5,000 4,587 - 219,230 200,000 75,000 75,000 4,954 4,954 2,477 2,477 2,477 2,477 1,858 25,000 - - 19,731 18,000 - - Total $ 60,000 60,000 30,000 30,000 30,000 30,000 22,500 30,000 4,587 - 238,961 218,000 75,000 75,000 Options granted as compensation - Audited Details of options that were granted as compensation to each key management person: Director Grant Date Number of Options Granted Fair Value at Grant Date Option Terms (Exercise Price and Term) Michelle Miller 14 October 2005 Michelle Miller 14 October 2005 Michelle Miller 14 October 2005 500,000 500,000 500,000 $24,016 $21,114 $18,701 $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 2007 up to 30 September 2010 The number of options that had vested as at 30 June 2010 is 1,500,000 (2009 – 1,500,000). There were no options that vested during the year ended 30 June 2010, no options were granted during or subsequent to year end and no options lapsed during the year. Biotron Annual Report 2010 12 DIRECTORS’ REPORT The fair value of the options at grant date was determined based on the Black-Scholes formula. The model inputs of the options issued, were the Company’s share price of $0.17 at the grant date, a volatility factor of 50% based on historic share price performance and a risk free interest rate of 5.25% based on the 10 year government bond rate. Consequences of Performance on Shareholder Wealth - Audited In considering the Company’s performance and beneﬁts for shareholders wealth, the board have regard to the following indices in respect of the current ﬁnancial year and the previous four ﬁnancial years. Net loss attributable to equity holders of the Company Dividends paid Change in share price 2010 2009 $1,872,244 $1,776,099 2008 $1,882,093 - - - (0.02) cents 0.0 cents (9.0) cents 2007 $3,234,004 - 4.5 cents 2006 $2,198,973 - 7.0 cents The overall level of key management personnel’s compensation is assessed on the basis of market conditions, status of the Company’s projects, and ﬁnancial resources of the Company. Service Contracts - Audited There are no service contracts for the key management personnel. Non-executive Directors - Audited Total compensation for all non-executive directors is determined by the board based on market conditions. Options At the date of this report, unissued ordinary shares of the Company under option are: Number of Options Exercise Price 5,450,000 750,000 500,000 108,119,266 * 6,418,049 $0.35 $0.40 $0.45 $0.10 $0.20 Expiry Date 30 September 2010 30 September 2010 30 September 2010 30 December 2011 30 March 2012 The options do not entitle the holder to participate in any share issue of the Company or any other body corporate. * During the year, the Company issued 6,418,049 ordinary shares as a result of the exercise of $0.10 options. There is no amount unpaid on the shares issued. A further 6,418,049 $0.20 ‘Piggy Back’ options were issued for no consideration as a result of the early exercise of these options. Refer Note 11. Number of Shares 6,418,049 Amount Paid on Each Share $0.10 13 Biotron Annual Report 2010 Principal Activities The principal activities of the Company during the ﬁnancial year were the funding and management of intermediate and applied biotechnology research and development projects. Financial Result and Review of Operations The operating loss of the Company for the ﬁnancial year after income tax was $1,872,244 (2009 loss - $1,776,099). A review of the Company’s operations for the year is set out in the Operating and Financial Review. 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. Indemniﬁcation of Ofﬁcers and Auditors During or since the end of the ﬁnancial year, the Company has not indemniﬁed or made a relevant agreement to indemnify an ofﬁcer or auditor of the Company against a liability incurred by such an ofﬁcer 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 ofﬁcer or auditor. Impact of Legislation and Other External Requirements Non-audit Services During the year KPMG, the Company’s auditor, performed no other services in addition to their statutory duties. The board has considered the non-audit services provided during the prior year by the auditor and is satisﬁed that the provision of those non-audit services during the prior year by the auditor is compatible with, and did not compromise, the auditor independence requirements of the Corporations Act 2001 for the following reasons: • 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 • the non-audit services provided did not undermine the general principles relating to auditor independence as set out in APES 110 Code of Ethics for Professional Accountants, 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. There were no changes in environmental or other legislative requirements during the year that have signiﬁcantly impacted the results or operations of the Company. 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 ﬁnancial year. State of Affairs In the opinion of the directors, there were no signiﬁcant changes in the state of affairs of the Company that occurred during the ﬁnancial year under review. Environmental Regulation The Company’s operations are not subject to signiﬁcant 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 ﬁnancial 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 signiﬁcantly the operations of the Company, the results of those operations, or the state of affairs of the Company, in future ﬁnancial years. Likely Developments During the year ended 30 June 2010, 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. Biotron Annual Report 2010 14 DIRECTORS’ REPORT 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 and accrued 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 - Audit and review of ﬁnancial reports Services other than statutory audit 2010 $ 34,375 2009 $ 26,240 - Grant audit - 1,750 Lead Auditor’s Independence Declaration The Lead Auditor’s Independence Declaration is set out on page 16 and forms part of the Directors’ Report for the year ended 30 June 2010. This report has been signed in accordance with a resolution of the directors and is dated 30 August 2010: Michael J. Hoy Chairman Michelle Miller Managing Director 15 Biotron Annual Report 2010 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 ﬁnancial year ended 30 June 2010, there have been: (i) no contraventions 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 W.E. Austin Partner Brisbane 30 August 2010 Biotron Annual Report 2010 16 STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2010 Other income 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 ﬁnancing income Interest income Net ﬁnancing income Loss before tax Income tax expense Loss for the year Other comprehensive income Total comprehensive loss for the year Basic loss per share attributable to ordinary equity shareholders Diluted loss per share attributable to ordinary equity shareholders Notes 2 3 3 5 4 4 2010 $ - (196,335) (23,122) (380,171) (965,313) (58,233) - (292,076) 2009 $ 5,000 (172,000) (47,731) (360,746) (980,294) (51,351) (6,675) (221,277) (1,915,250) (1,835,074) 43,006 43,006 58,975 58,975 (1,872,244) (1,776,099) - - (1,872,244) (1,776,099) - - (1,872,244) (1,776,099) (1.61) cents (1.61) cents (1.67) cents (1.67) cents The above statement of comprehensive income should be read in conjunction with the accompanying notes 17 Biotron Annual Report 2010 STATEMENT OF FINANCIAL POSITION AT 30 JUNE 2010 Current assets Cash and cash equivalents Trade and other receivables Other Total current assets Non-current assets Plant and equipment 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 6 7 8 9 10 2010 $ 1,780,567 9,471 23,577 1,813,615 44,230 44,230 2009 $ 950,581 27,520 18,385 996,486 67,352 67,352 1,857,845 1,063,838 62,212 78,075 140,287 140,287 1,717,558 136,397 85,935 222,332 222,332 841,506 11 20,750,759 19,920,593 2,277,738 359,608 (21,310,939) (19,438,695) 1,717,558 841,506 The above statement of ﬁnancial position should be read in conjunction with accompanying notes Biotron Annual Report 2010 18 STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2010 Attributable to equity holders of the Company Notes Share Capital Option Premium Reserve Retained Losses Total $ $ $ $ Balance at 1 July 2008 19,146,365 359,608 (17,662,596) 1,843,377 Total comprehensive income for the year Loss for the year Other comprehensive income - - - - (1,776,099) (1,776,099) - - Total comprehensive loss for the year 19,146,365 359,608 (19,438,695) 67,278 Transactions with owners, recorded directly in equity Contribution by and distribution to owners Ordinary shares issued Cost of the share issue 807,500 (33,272) - - - - 807,500 (33,272) Balance at 30 June 2009 11 19,920,593 359,608 (19,438,695) 841,506 Balance at 1 July 2009 19,920,593 359,608 (19,438,695) 841,506 Total comprehensive income for the year Loss for the year Other comprehensive income Total comprehensive loss for the year Transaction with owners, recorded directly in equity Contribution by and distribution to owners Ordinary shares/options issued Cost of the option issue Share based payment transaction Exercise of options - - - - - - (1,872,244) (1,872,244) - - (1,872,244) (1,872,244) 641,805 2,290,746 - (244,255) 60,000 - 128,361 (128,361) - - - - 2,932,551 (244,255) 60,000 - Balance at 30 June 2010 11 20,750,759 2,277,738 (21,310,939) 1,717,558 The statement of changes in equity is to be read in conjunction with the accompanying notes 19 Biotron Annual Report 2010 STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2010 Cash ﬂows from operating activities Cash receipts in the course of operations Payments for research and development Cash payments in the course of operations Cash used in operations Interest received Notes 2010 $ 2009 $ - 3,910 (1,138,088) (1,081,839) (765,239) (883,264) (1,903,327) (1,961,193) 45,017 68,950 Net cash used in operating activities 12 (1,858,310) (1,892,243) Cash ﬂows from investing activities Proceeds on sale of plant and equipment Payments for plant and equipment Net cash from investing activities Cash ﬂows from ﬁnancing activities Proceeds from issue of shares and options Cost of issue of shares and options Net cash from ﬁnancing activities Net increase/(decrease) in cash and cash equivalents held Cash and cash equivalents at the beginning of the ﬁnancial year - - - 2,932,551 (244,255) 2,688,296 829,986 950,581 Cash and cash equivalents at the end of the ﬁnancial year 12 1,780,567 The above statement of cash ﬂows should be read in conjunction with the accompanying notes 5,000 - 5,000 807,500 (33,272) 774,228 (1,113,015) 2,063,596 950,581 Biotron Annual Report 2010 20 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 1. REPORTING ENTITY Biotron Limited (the ‘Company’) is a company domiciled in Australia. Basis of preparation Statement of compliance (‘AASBs’) (including Australian The ﬁnancial report is a general purpose ﬁnancial report which has been prepared in accordance with Australian Accounting Standards Interpretations) adopted by the Australian Accounting Standards Board (‘AASB’) and the Corporations Act 2001. The ﬁnancial report of the Company also complies with International Financial Reporting Standards (IFRSs) and interpretations adopted by the International Accounting Standards Board (IASB). The ﬁnancial report was authorised for issue by the directors on 30 August 2010. Basis of measurement The ﬁnancial statements have been prepared on the historical cost basis. Functional and presentation currency These ﬁnancial statements are presented in Australian dollars, which is the Company’s functional currency. Use of estimates and judgements The preparation of ﬁnancial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. 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 and in any future periods affected. In particular, information about signiﬁcant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most signiﬁcant effect on the amounts recognised in the ﬁnancial statements are described in the following notes.- Note 1 Going Concern. Going concern The ﬁnancial report has been prepared on a going concern basis which contemplates the realisation of assets and settlement of liabilities in the ordinary course of business. The Company has incurred a trading loss of $1,872,244 in the year ended 30 June 2010 and has accumulated losses of $21,310,939 as at 30 June 2010. The Company has cash on hand of $1,780,587 at 30 June 2010 and used $1,853,310 of cash in operations for the year then ended. These conditions give rise to a material uncertainty that may cast signiﬁcant doubt upon the Company’s ability to continue as a going concern. The ongoing operation of the Company is dependent on: • • the Company raising additional funding from shareholders or other parties; and/or the Company reducing expenditure in line with available funding. The directors have prepared cash ﬂow projections that support the ability of the Company to continue as a going concern. These cash ﬂow projections assume the Company obtains sufﬁcient additional funding from shareholders or other parties. If such funding is not achieved, the Company plans to reduce expenditures signiﬁcantly. In the event that the Company does not obtain additional funding and/or reduce expenditure in line with available funding, it may not be able to continue its operations as a going concern and therefore may not be able to realise its assets and extinguish its liabilities in the ordinary course of operations and at the amounts stated in the ﬁnancial statements. Changes in accounting policies Commencing on 1 July 2009, the Company changed its accounting policies in the following areas: • presentation of ﬁnancial statements; and • operating segments. Signiﬁcant accounting policies The accounting policies set out below have been applied consistently to all periods presented in these ﬁnancial statements, and have been applied consistently by the Company, except as explained in the notes which address changes in accounting policies. 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. 21 Biotron Annual Report 2010 Property, plant and equipment Property plant and equipment are stated at their historical cost less accumulated depreciation and accumulated impairment losses. Depreciation is recognised in proﬁt or loss 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 scientiﬁc or technical knowledge and understanding, is recognised in proﬁt and loss when incurred. Development activities involve a plan or design for the production of new or substantially improved products and processes. Development expenditure is capitalised only if development costs can be measured reliably, the product or process is technically and commercially feasible, future economic beneﬁts are probable, and the Company intends to and has sufﬁcient resources to complete development and to use or sell the asset. The expenditure capitalised includes the cost of materials, direct labour and overhead costs that are directly attributable to preparing the asset for its intended use. Other development expenditure is recognised in proﬁt or loss when incurred. Capitalised development expenditure is measured at cost less accumulated amortisation and accumulated impairment losses. 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 at reporting date including related on-costs, such as workers compensation insurance and superannuation. Long service leave Liabilities for employee entitlements for long service leave is the amount of future beneﬁt that employees have earned in return for their service in the current and prior periods plus related on-costs, that beneﬁt is discounted to determine its present value. Share capital Ordinary shares Ordinary shares are classiﬁed as equity. Incremental costs directly attributable to the issue of ordinary shares and share options are recognised as a deduction from equity, net of any tax effects. Dividends on ordinary shares are recognised as a liability in the period in which they are declared. Taxation Income tax Income tax on the proﬁt 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 method, providing for temporary differences between the carrying amounts of assets and liabilities for ﬁnancial reporting purposes and the amounts used for taxation purposes. The initial recognition of assets or liabilities that affect neither accounting nor taxable proﬁt, and differences relating to investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future are temporary differences and 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 proﬁts 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 beneﬁt 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. Biotron Annual Report 2010 22 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 Cash ﬂows are included in the statement of cash ﬂows on a gross basis. The GST components of cash ﬂows arising from investing and ﬁnancing activities which are recoverable from, or payable to, the ATO are classiﬁed as operating cash ﬂows. Revenue recognition Finance income Interest revenue is recognised as it accrues using the effective interest rate method. Earnings per share The Company presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the proﬁt or loss attributable to ordinary shareholders of the Company by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the proﬁt or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees. 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 reﬂect the actual number of options that vest except where forfeiture is only due to share prices not achieving the threshold for vesting. Impairment Financial assets A ﬁnancial asset is assessed at each reporting date to determine whether there is any objective evidence that it is impaired. A ﬁnancial asset is considered to be impaired if any objective evidence indicates that one or more events have had a negative effect on the estimated future cash ﬂows of that asset. An impairment loss in respect of a ﬁnancial asset measured at amortised cost is calculated as the difference between its carrying amount, and the present value of the estimated future cash ﬂows discounted at the original effective interest rate. An impairment loss in respect of an available-for-sale ﬁnancial asset is calculated by reference to its fair value. All impairment losses are recognised in proﬁt or loss. Any cumulative loss in respect of an available-for-sale ﬁnancial asset recognised previously in equity is transferred to proﬁt and loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. For ﬁnancial assets measured at amortised cost and available-for-sale ﬁnancial assets that are debt securities, the reversal is recognised in proﬁt or loss. For available-for- sale ﬁnancial assets that are equity securities the reversal is recognised directly in equity. Non-ﬁnancial assets The carrying amounts of the Company’s non-ﬁnancial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated. The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash ﬂows are discounted to their present value using a pre-tax discount rate that reﬂects current market assessments of the time value of money and the risks speciﬁc to the asset. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in proﬁt or loss. An impairment loss in respect of goodwill is not reversed. In respect of other assets impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. 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 had been recognised. Determination of fair values A number of the Company’s accounting policies and disclosures require the determination of fair value, for both ﬁnancial and non-ﬁnancial assets and liabilities. Fair values have been determined for measurement and/or disclosure purposes based on the following methods. Where applicable, further information about the assumptions made in determining fair values is disclosed in the notes speciﬁc to that asset or liability. Trade and other receivables The fair value of trade and other receivables is estimated as the present value of future cash ﬂows, discounted at the market rate of interest at the reporting date. 23 Biotron Annual Report 2010 Share-based payment transactions The fair value of employee share options is measured using the Black-Scholes formula. Measurement inputs include share price on measurement date, exercise price of the instrument, expected volatility (based on weighted average historic volatility adjusted for changes expected due to publicly available information), weighted average expected life of the instruments (based on historical experience and general option holder behaviour), expected dividends, and the risk-free interest rate (based on government bonds). Service and non-market performance conditions attached to the transactions are not taken into account in determining fair value. Share-based payment arrangements in which the Company receives goods or services as consideration for its own equity instruments are accounted for as equity-settled share-based payment transactions. Non-derivative ﬁnancial liabilities Fair value, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash ﬂows, discounted at the market rate of interest at the reporting date. Presentation of ﬁnancial statements The Company applies revised AASB 101 Presentation of Financial Statements (2007), which became effective as of 1 January 2009. As a result, the Company presents in the consolidated statement of changes in equity all owners changes in equity, whereas all non-owners changes in equity are presented in the consolidated statement of comprehensive income. Comparative information has been re-presented so that it also is in conformity with the revised standard. Since the changes in accounting policy only impacts presentation aspects, there is no impact on earnings per share. Segment reporting Determination and presentation of operating segments As of 1 July 2009 the Company determines and presents operating segments based on the information that internally is provided to the CEO, who is the Company’s chief operating decision maker. This change in accounting policy is due to the adoption of AASB 8 Operating Segments. Previously, operating segments were determined and presented in accordance with AASB 114 Segment Reporting. The new accounting policy in respect of segment operating disclosures is presented as follows. An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Company’s other components. All operating segments’ operating results are regularly reviewed by the Company’s CEO to make decisions about resources to be allocated to the segment and assess its performance, and for which discrete ﬁnancial information is available. Segment results that are reported to the CEO include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items comprise mainly of corporate assets (primarily the Company’s headquarters), head ofﬁce expenses, and income tax assets and liabilities. Segment capital expenditure is the total cost incurred during the period to acquire property, plant and equipment, and intangible assets other than goodwill. Since the change in accounting policy only impacts presentation and disclosure aspects, there is no impact on earnings per share. New standards and interpretations not yet adopted The following standards, amendments to standards and interpretations have been identiﬁed as those which may impact the entity in the period of initial application. They are available for early adoption at 30 June 2010, but have not been applied in preparing this ﬁnancial report. • AASB 9 Financial Instruments includes requirements for the classiﬁcation and measurement of ﬁnancial assets resulting from the ﬁrst part of Phase 1 of the project to replace AASB 139 Financial Instruments: Recognition and Measurement. AASB 9 will become mandatory for the Company’s 30 June 2014 ﬁnancial statements. Retrospective application is generally required, although there are exceptions, particularly if the entity adopts the standard for the year ended 30 June 2012 or earlier. The Company has not yet determined the potential effect of the standard. • AASB 124 Related Party Disclosures (revised December 2009) simpliﬁes and clariﬁes the intended meaning of the deﬁnition of a related party and provides a partial exemption from the disclosure requirements for government-related entities. The amendments, which will become mandatory for the Company’s 30 June 2012 ﬁnancial statements, are not expected to have any impact on the ﬁnancial statements. • AASB 2009-5 further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the Company’s 30 June 2011 ﬁnancial statements, are not expected to have a signiﬁcant impact on the ﬁnancial statements. Biotron Annual Report 2010 24 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 • AASB 2009-10 Amendments to Australian Accounting Standards - Classiﬁcation of Rights Issue [AASB 132] (October 2010) clarify that rights, options or warrants to acquire a ﬁxed number of an entity’s own equity instruments for a ﬁxed amount in any currency are equity instruments if the entity offers the rights, options or warrants pro-rata to all existing owners of the same class of its own non- derivative equity instruments. The amendments, which will become mandatory for the Company’s 30 June 2011 ﬁnancial statements, are not expected to have any impact on the ﬁnancial statements. • IFRIC 19 Extinguishing Financial Liabilities with Equity Instruments addresses the accounting by an entity when the terms of a ﬁnancial liability are renegotiated and result in the entity issuing equity instruments to a creditor of the entity to extinguish all or part of the ﬁnancial liability. IFRIC 19 will become mandatory for the Company’s 30 June 2011 ﬁnancial statements, with retrospective application required. The Company has not yet determined the potential effect of the interpretation. • AASB 2010-3 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the Company’s 30 June 2011 ﬁnancial statements, are not expected to have a signiﬁcant impact on the ﬁnancial statements. • AASB 2010-4 Further amendments to Australian Accounting Standards arising from the Annual Improvements Process affect various AASBs resulting in minor changes for presentation, disclosure, recognition and measurement purposes. The amendments, which become mandatory for the Company’s 30 June 2012 ﬁnancial statements, are not expected to have a signiﬁcant impact on the ﬁnancial statements. 25 Biotron Annual Report 2010 2. OTHER INCOME Gain on sale of ﬁxed assets Total 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 ﬁnancial reports - Other services Depreciation - Ofﬁce equipment - Plant and equipment Direct research and development expenditure expensed as incurred Provision for employee entitlements 2010 $ - - 34,375 - 14,995 8,127 965,313 (7,860) 2009 $ 5,000 5,000 26,240 1,750 24,831 22,900 980,294 (20,383) 4. LOSS PER SHARE The calculation of basic loss per share at 30 June 2010 was based on the loss attributable to ordinary shareholders of $1,872,244 (2009 - $1,776,099) and a weighted average number of ordinary shares outstanding during the ﬁnancial year ended 30 June 2010 of 116,088,866 (2009 - 106,600,586), calculated as follows: Net loss for the year 1,872,244 1,776,099 Issued ordinary shares at 1 July Effect of shares issued on 14 April 2009 Effect of shares issued on 8 April 2010 Effect of shares issued on 28 May 2010 2010 2009 Number 114,537,315 - 1,477,030 74,521 Number 104,443,565 2,157,021 - - Weighted average number of ordinary shares 116,088,866 106,600,586 Options disclosed in the Issued Capital Note 11 are potential ordinary shares, but are not included in the calculation of diluted loss per share as they are not dilutive. Biotron Annual Report 2010 26 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 5. INCOME TAX EXPENSE Numerical reconciliation between tax expense and pre-tax net proﬁt Loss before tax - continuing operations (1,872,244) (1,776,099) Income tax using the domestic corporation tax rate of 30% (561,673) (532,830) 2010 $ 2009 $ Increase in income tax expense due to: - Adjustments not resulting in temporary differences - Unrecognised temporary differences - 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 295 (42,527) 603,905 - 114,386 7,431,227 7,545,613 2,371 (24,045) 554,504 - 85,004 6,618,540 6,703,544 The deductible temporary differences and tax losses do not expire under the current tax legislation. Deferred tax assets have not been recognised in respect of these items because it is not probable that future taxable proﬁt will be available against which the Company can utilise the beneﬁts of the deferred tax asset. 6. RECEIVABLES Current Other debtors GST receivable 7. OTHER Current prepayments Security deposits 1,875 7,596 9,471 8,447 15,130 23,577 2,011 25,509 27,520 3,255 15,130 18,385 27 Biotron Annual Report 2010 8. PLANT AND EQUIPMENT Ofﬁce equipment - at cost Accumulated depreciation Plant and equipment - at cost Accumulated depreciation Total plant and equipment - net book value Reconciliations Reconciliations of the carrying amounts for each class of plant and equipment are set out below: Ofﬁce equipment Balance at 1 July Depreciation Carrying amount at the end of the ﬁnancial year Plant and equipment Balance at 1 July Depreciation Carrying amount at the end of the ﬁnancial year Total carrying amount at the end of the ﬁnancial year 9. TRADE AND OTHER PAYABLES Current Creditors Accruals 10. EMPLOYEE ENTITLEMENTS Current Employee annual leave provision Long service leave provision Number of employees at the end of the ﬁnancial year Biotron Annual Report 2010 2010 $ 157,439 (133,610) 23,829 594,490 (574,089) 20,401 44,230 38,824 (14,995) 23,829 28,528 (8,127) 20,401 44,230 32,324 29,888 62,212 34,047 44,028 78,075 4 2009 $ 157,439 (118,615) 38,824 594,490 (565,962) 28,528 67,352 63,655 (24,831) 38,824 51,428 (22,900) 28,528 67,352 34,897 101,500 136,397 46,722 39,213 85,935 4 28 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 11. ISSUED CAPITAL Issued and paid up capital 121,755,364 (2009 - 114,537,315) fully paid ordinary shares 20,750,759 19,920,593 2010 $ 2009 $ Fully paid ordinary shares Balance at the beginning of the ﬁnancial year Issue of shares Share base payment transaction Exercise of options Costs of issue Balance at the end of ﬁnancial year 19,920,593 641,805 60,000 128,361 - 19,146,365 807,500 - - (33,272) 20,750,759 19,920,593 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. During the year ended 30 June 2009, the Company issued 10,093,750 ordinary shares through a Share Purchase Plan and placement for cash totalling $807,500. Total issue costs of $33,272 were recognised as a reduction of the proceeds of issue of these shares. During the year ended 30 June 2010, the Company issued 114,537,315 options at $0.02 each (2009 nil). Total issue costs of $244,255 were recognised as a reduction of the proceeds of the issue of these options. Also during the year ended 30 June 2010, a further 6,418,049 options were issued for no consideration as a result of the early exercise of these options. The following options, which were issued during the year ended 30 June 2010 for cash consideration or as a ‘piggyback option’ upon the early exercise of an existing option, were on issue at 30 June 2010: • 108,119,266 options, each exercisable at 10 cents to acquire one fully paid ordinary share at any time up to 30 December 2011. • 6,418,049 options, each exercisable at 20 cents to acquire one fully paid ordinary share at any time up to 30 March 2012. The following options, were issued during the year ended 30 June 2008 and were on issue at 30 June 2010: • 1,000,000 options, each exercisable at 35 cents to acquire one fully paid ordinary share at any time up to 30 September 2010. During the year ended 30 June 2010, the Company issued 6,418,049 ordinary shares through the exercise of options for cash totalling $641,805. • 4,450,000 options, each exercisable at 35 cents to acquire one fully paid ordinary share at any time up to 30 September 2010 (of which certain options contained service conditions). During the year ended 30 June 2010, the Company issued 800,000 shares for $60,000 in consideration for the provision of market research services. The shares issued were valued by reference to the closing share price on the date of issue. • 750,000 options, each exercisable at 40 cents to acquire one fully paid ordinary share at any time up to 30 September 2010 (of which certain options contained service conditions). • 500,000 options, each exercisable at 45 cents to acquire one fully paid ordinary share at any time up to 30 September 2010 (of which certain options contained service conditions). 29 Biotron Annual Report 2010 The fair value of the options at each grant date was determined based on the Black-Scholes formula. The model inputs for those options issued during the year ended 30 June 2008, were the Company’s share price of $0.22 at the grant date, a volatility factor of 89.4% based on historic share price performance and a risk free interest rate of 7.25% based on the 10 year government bond rate. Total expense arising from share based payment transactions recognised during the year ended 30 June 2010 was $60,000 (2009 – $nil). During the year ended 30 June 2010, no options lapsed (2009 – nil). The weighted average exercise price of options at year end was $0.12 (2009 – $0.363). 12. STATEMENT OF CASH FLOWS Reconciliation of cash ﬂows from operating activities Loss for the period (1,872,244) (1,776,099) 2010 $ 2009 $ Adjustments for: Depreciation of plant and equipment Provisions Share based payment Gain on sale of plant and equipment Changes in assets and liabilities Decrease in receivables (Increase)/decrease in prepayments (Decrease) in payables Decrease in other assets 23,122 (7,860) 60,000 - 18,049 (5,192) (74,185) - 47,731 (20,383) (5,000) 31,963 686 (181,230) 10,089 Net cash used in operating activities (1,858,310) (1,892,243) 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 ﬁnancial year as shown in the Statement of Cash Flows is reconciled to the related items in the Statement of Financial Position as follows: Cash and cash equivalents in the statement of cash ﬂows 1,780,567 950,581 Biotron Annual Report 2010 30 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 13. KEY MANAGEMENT PERSONNEL DISCLOSURES The policy of remuneration of directors and senior executives is to ensure the remuneration package properly reﬂects 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 represents 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 Denis N. Wade Executive Michelle Miller (Managing Director) Executives Peter J. Nightingale (Company Secretary) Total Year 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 2010 2009 Primary Salary and Fees $ Post-Employment Superannuation Beneﬁts $ 55,046 55,046 27,523 27,523 27,523 27,523 20,642 5,000 4,587 - 219,230 200,000 75,000 75,000 429,551 390,092 4,954 4,954 2,477 2,477 2,477 2,477 1,858 25,000 - - 19,731 18,000 - - 31,497 52,908 Total $ 60,000 60,000 30,000 30,000 30,000 30,000 22,500 30,000 4,587 - 238,961 218,000 75,000 75,000 461,048 443,000 During 2010 and 2009, no long term beneﬁts, termination beneﬁts or share-based payments were paid. 31 Biotron Annual Report 2010 Equity holdings and transactions The movement during the reporting period in the number of ordinary shares in the Company held directly, indirectly or beneﬁcially, by each speciﬁed director and executive, including their personally-related entities, is as follows: Fully paid ordinary shareholdings and transactions - 2010 Directors Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Denis N. Wade* Peter G. Scott** Executives Peter J. Nightingale Held at 1 July 2009 Purchased Received on Exercise of Options Sales Held at 30 June 2010 1,408,214 - - - - 9,014,000 1,702,397 - - 130,000 - - - - - - - - - - - - - - - - - - 1,408,214 - 130,000 - 475,000 - 1,702,397 * Dr Denis N. Wade held 475,000 shares at the time of becoming a director. ** Mr Peter G. Scott held 9,014,000 shares when he resigned as director on 1 April 2010. Fully paid ordinary shareholdings and transactions - 2009 Directors Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Denis N. Wade Peter G. Scott Executives Peter J. Nightingale Held at 1 July 2008 Purchased Received on Exercise of Options Sales Held at 30 June 2009 1,345,714 62,500 - - - - - - - - 8,924,414 89,586 1,639,897 62,500 - - - - - - - - - - - - - - 1,408,214 - - - - 9,014,000 1,702,397 During the year ended 30 June 2010, Michael J. Hoy had an interest in an entity, CityPrint Holdings Pty Limited, which provided printing services to the Company. Payments to CityPrint Holdings Pty Limited, which were in the ordinary course of business and on normal terms and conditions, amounted to $21,239 (2009 - $17,062). Outstanding amounts at 30 June 2010 total $nil (2009 - $nil). During the year ended 30 June 2010, Peter J. Nightingale had an interest in an entity, MIS Corporate Pty Limited, which provided full administrative services, including rental accommodation, administrative staff, services and supplies, to the entity. Fees paid to MIS Corporate Pty Limited during the year, which were in the ordinary course of business and on normal terms and conditions, amounted to $121,526 (2009 - $122,025). Outstanding amounts at 30 June 2010 total $nil (2009 - $nil). Biotron Annual Report 2010 32 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 Apart from the details disclosed in this note, no director has entered into a material contract with the Company since the end of the previous ﬁnancial year and there were no material contracts involving directors’ interests existing at year end. Option holdings The movement during the reporting period in the number of options over ordinary shares in the Company held directly, indirectly or beneﬁcially, by each speciﬁed director and executive, including their personally-related entities, is as follows: Option holdings - 2010 Held at 1 July 2009 Purchased Expired Held at 30 June 2010 Vested and Exercisable at 30 June 2010 Directors Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Denis N. Wade* Peter G. Scott** Executives Peter J. Nightingale 500,000 1,500,000 200,000 200,000 - - 1,408,214 - - - - 500,000 200,000 2,287,785 - - - - - - - 1,908,214 1,500,000 200,000 200,000 162,500 - 1,908,214 1,500,000 200,000 200,000 162,500 - 2,487,785 2,487,785 * Dr Denis N. Wade held 162,500 options at the time of becoming a director. ** Mr Peter G. Scott held 500,000 options when he resigned from ofﬁce on 1 April 2010. Option holdings - 2009 Held at 1 July 2008 Purchased Expired Held at 30 June 2009 Vested and Exercisable at 30 June 2009 500,000 1,500,000 200,000 200,000 - 200,000 - - - - - - - - - - - - 500,000 1,500,000 200,000 200,000 - 500,000 1,500,000 200,000 200,000 - 200,000 200,000 Biotron Annual Report 2010 Directors Michael J. Hoy Michelle Miller Michael S. Hirshorn Bruce Hundertmark Peter Scott Executives Peter J. Nightingale 33 14. EMPLOYEE AND DIRECTOR INCENTIVE OPTION PLAN At 30 June 2010, the Company had 4 employees (2009 - 4). 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 ofﬁce 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 2010, no options were granted or forfeited to employees (2009 - nil). No ordinary shares have been issued as a result of the exercise of any option granted pursuant to the Incentive Option Plan during the years ended 30 June 2010 and 30 June 2009. 15. FINANCIAL INSTRUMENTS DISCLOSURE The board has overall responsibility for the establishment and oversight of the risk management framework. Informal risk management policies are established to identify and analyse the risks faced by the Company. The main risks arising from the Company’s ﬁnancial instruments are credit risk, liquidity risk and interest rate risk. The summaries below present information about the Company’s exposure to each of these risks, their objectives, policies and processes for measuring and managing risk, the management of capital and ﬁnancial instruments. Credit risk Credit risk arises mainly from the risk of counterparties defaulting on the terms of their agreements. The carrying amounts of the following assets represent the Company’s maximum exposure to credit risk in relation to ﬁnancial assets: Notes Carrying amount Carrying amount Cash and cash equivalents Trade and other receivables Security deposits 6 7 2010 $ 2009 $ 1,780,567 950,581 9,471 15,130 27,520 15,130 1,805,168 993,231 The Company mitigates credit risk on cash and cash equivalents by dealing with regulated banks in Australia. Credit risk of trade and other receivables is very low as it consists predominantly of amounts recoverable from taxation authorities in Australia. Biotron Annual Report 2010 34 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2010 Impairment losses No impairment has been taken up against the Company’s ﬁnancial assets. None of the Company’s trade and other receivables are past due and no amount receivable has been renegotiated. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its ﬁnancial obligations as they fall due. The Company’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufﬁcient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Company’s reputation. The following are the contractual maturities of ﬁnancial liabilities, including estimated interest payments: Company 30 June 2010 Carrying Amount $ Contractual Cash Flows Less Than One Year Between One and Five Years Interest $ $ Trade and other payables 62,212 (62,212) (62,212) 30 June 2009 Trade and other payables 136,397 (136,397) (136,397) $ - - $ - - Ultimate responsibility for liquidity management rests with the board. The Company manages liquidity risk by maintaining adequate funding and monitoring of future rolling cash ﬂow forecasts of its operations, which reﬂect management’s expectations of expected settlement of ﬁnancial assets and liabilities. Interest rate risk The Company’s income statement is affected by changes in interest rates due to the impact of such changes on interest income from cash and cash equivalents and interest bearing security deposits. At balance date, the Company had the following mix of ﬁnancial assets exposed to variable interest rate risk that are not designated as cash ﬂow hedges: Financial Assets Cash and cash equivalents Security deposits Net exposure Note 7 2010 $ 1,780,567 15,130 1,795,697 2009 $ 950,581 15,130 965,711 35 Biotron Annual Report 2010 Sensitivity analysis An increase of 100 basis points in interest rates throughout the reporting period would have decreased the loss for the period by the amounts shown below, whilst a decrease would have increased the loss by the same amount. The Company’s equity consists of fully paid ordinary shares. There is no effect on fully paid ordinary shares by an increase or decrease in interest rates during the period. 30 June 2010 30 June 2009 $ 11,276 9,657 16. FINANCIAL REPORTING BY SEGMENTS The Company operates in the biotechnology industry in Australia. 17. OPERATING LEASE The Company leases an ofﬁce in North Ryde Sydney. The lease is currently under negotiations for a period of 3 years starting from November 2010 with an option to renew lease after that 3 years. Lease payments are increased every year at an increment of 5% per annum. This increment percentage is under negotiation. During the year ended 30 June 2010, $58,233 was recognised as an expense in the income statement in respect of the operating lease (2009 - $51,351). Less than one year Between one and ﬁve years More then ﬁve years 2010 2009 $ 24,871 - - $ 58,831 25,009 - Capital management The board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market conﬁdence and to sustain future development of the business. The board ensures costs are not incurred in excess of available funds and will seek to raise additional funding through issues of shares for the continuation of the Company’s operation. There were no changes in the Company’s approach to capital management during the year. The Company is not subject to externally imposed capital requirements. Net fair values of ﬁnancial assets and liabilities The carrying amounts of ﬁnancial assets and liabilities approximate their net fair values, given the short time frames to maturity and or variable interest rates. Biotron Annual Report 2010 36 DIRECTORS’ DECLARATION 1. In the opinion of the directors of Biotron Limited: a) the ﬁnancial statements and notes set out on pages 17 to 36, and the Remuneration Report in the Directors’ Report, set out on pages 11 to 13, are in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s ﬁnancial position as at 30 June 2010 and of its performance for the ﬁnancial year ended on that date; and (ii) complying with Australian Accounting Standards (including Australian Accounting Interpretations) and the Corporations Regulations 2001; b) the ﬁnancial report also complies with International Financial Reporting Standards as disclosed in Note 1; c) there are reasonable grounds to believe that the Company will be able to pay its debts as and when they become due and payable. 2. The directors have been given the declarations required by Section 295A of the Corporations Act 2001 from the chief executive ofﬁcer and chief ﬁnancial ofﬁcer for the ﬁnancial year ended 30 June 2010. This report has been signed in accordance with a resolution of the directors and is dated 30 August 2010: Michael J. Hoy Chairman Michelle Miller Managing Director 37 Biotron Annual Report 2010 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BIOTRON LIMITED appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the ﬁnancial report. We performed the procedures to assess whether in all material respects the ﬁnancial report presents fairly, in accordance with the Corporations Act 2001 and Australian Accounting Standards (including the Australian Accounting Interpretations), a view which is consistent with our understanding of the Company’s ﬁnancial position and of its performance. We believe that the audit evidence we have obtained is sufﬁcient and appropriate to provide a basis for our audit opinion. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. Report on the ﬁnancial report We have audited the accompanying ﬁnancial report of Biotron Limited (the Company), which comprises the statement of ﬁnancial position as at 30 June 2010, and the statement of comprehensive income, statement of changes in equity and statement of cash ﬂows for the year ended on that date, a description of signiﬁcant accounting policies and other explanatory notes 1 to 17 and the directors’ declaration. Directors’ responsibility for the ﬁnancial report The directors of Biotron Limited are responsible for the preparation and fair presentation of the ﬁnancial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes establishing and maintaining internal control relevant to the preparation and fair presentation of the ﬁnancial report that is free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. In Note 1 the directors also state, in accordance with Australian Accounting Standard AASB 101 Presentation of Financial Statements, that the ﬁnancial report comprising the ﬁnancial statements and notes complies with International Financial Reporting Standards. Auditor’s responsibility Our responsibility is to express an opinion on the ﬁnancial report based on our audit. We conducted our audit in accordance with Australian Auditing Standards. These Auditing Standards require that we comply with relevant ethical requirements relating to audit engagements and plan and perform the audit to obtain reasonable assurance whether the ﬁnancial report is free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the ﬁnancial report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁnancial report, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the ﬁnancial report in order to design audit procedures that are Biotron Annual Report 2010 38 INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF BIOTRON LIMITED Auditor’s opinion In our opinion: a) the ﬁnancial report of Biotron Limited is in accordance with the Corporations Act 2001, including: (i) giving a true and fair view of the Company’s ﬁnancial position as at 30 June 2010 and of its performance for the year ended on that date; and (ii) complying with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Regulations 2001. b) the ﬁnancial report also complies with International Financial Reporting Standards as disclosed in Note 1. Material uncertainty regarding continuation as a going concern Without qualifying our opinion, we draw attention to Note 1, “Going Concern” in the ﬁnancial report. The conditions disclosed in Note 1 indicate the existence of a material uncertainty which may cast signiﬁcant doubt about the Company’s ability to continue as a going concern and, therefore, whether it will realise its assets and extinguish its liabilities in the normal course of business and at the amounts stated in the ﬁnancial report. Report on the remuneration report We have audited the Remuneration Report included in pages 11 to 13 of the directors’ report for the year ended 30 June 2010. The directors of the company are responsible for the preparation and presentation of the remuneration report in accordance with Section 300A of the Corporations Act 2001. Our responsibility is to express an opinion on the Remuneration Report, based on our audit conducted in accordance with auditing standards. Auditor’s opinion In our opinion, the Remuneration Report of Biotron Limited for the year ended 30 June 2010 complies with Section 300A of the Corporations Act 2001. KPMG (cid:3) Brisbane 30 August 2010 W.E. Austin Partner 39 Biotron Annual Report 2010 ADDITIONAL STOCK EXCHANGE INFORMATION FOR THE YEAR ENDED 30 JUNE 2010 Home Exchange The Company is listed on the ASX Limited. The home exchange is Sydney. Use of Cash and Assets Since the Company’s listing on the ASX, 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. Distribution of Equity Securityholders As at 31 July 2009, the distribution of each class of equity was as follows: Range Fully Paid Ordinary Shares 30 September 2010 $0.35 Options 30 September 2010 $0.40 Options 30 September 2010 $0.45 Options 30 December 2011 $0.10 Options 30 March 2012 $0.20 Options 1 - 1,000 1,001 - 5,000 5,001 - 10,000 10,001 - 100,000 100,001 and over 58 373 303 635 167 1,536 - - - - 12 12 - - - - 2 2 - - - - 1 1 2 38 50 197 124 411 - 20 21 58 11 110 At 31 July 2010, nil shareholders held less than a marketable parcel of shares. ADDITIONAL STOCK EXCHANGE INFORMATION Biotron Annual Report 2010 40 ADDITIONAL STOCK EXCHANGE INFORMATION FOR THE YEAR ENDED 30 JUNE 2010 Twenty Largest Quoted Shareholders At 31 July 2010 the twenty largest fully paid ordinary shareholders held 42.51% of fully paid ordinary as follows: Name Dr Angela Fay Dulhunty Scott’s A V Pty Ltd Rigi Investments Pty Ltd Twynam Agricultural Group Pty Ltd CBDF Pty Ltd Pathold No 222 Pty Ltd Martin Place Securities Staff Superannuation Fund Pty Ltd Chris and Bhama Parish Philip and Marylyn Board Linkenholt Pty Ltd Michael John Hoy ANZ Nominees Limited Edstop Pty Ltd Ian and Marion Platt-Hepworth Carrington Services Pty Ltd Wightholme Nominees Pty Ltd Peter James Nightingale Prof Alan Jonathan Berrick Christopher David Hammer Ramsab Pty Ltd 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 There are no current on-market buy-backs. Fully Paid Ordinary Shares 9,968,362 9,014,000 4,492,645 3,700,000 2,875,254 2,650,000 2,300,000 1,600,000 1,599,950 1,500,000 1,408,214 1,358,829 1,248,276 1,228,420 1,200,000 1,200,000 1,175,714 1,150,000 1,090,715 1,000,000 % 8.19 7.40 3.69 3.04 2.36 2.18 1.89 1.31 1.31 1.23 1.16 1.12 1.03 1.01 0.99 0.99 0.97 0.94 0.90 0.82 41 Biotron Annual Report 2010 Principal Administration Ofﬁce: Suite 1.9, 56 Delhi Road NORTH RYDE NSW 2113 Phone: 61-2 9805 0488 Fax: 61-2 9805 0688 CORPORATE DIRECTORY Directors: Mr Michael J. Hoy (Chairman) Dr Michelle Miller (Managing Director) Dr Michael S. Hirshorn Mr Bruce Hundertmark Dr Denis N. Wade Company Secretary: Mr Peter J. Nightingale Registered Ofﬁce: Level 2, 66 Hunter Street SYDNEY NSW 2000 Phone: 61-2 9300 3344 Fax: 61-2 9221 6333 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 16, Riparian Plaza 71 Eagle Street BRISBANE QLD 4000 Home Exchange: ASX 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 shar ustralia, is a publicly listed company limited by shares. cly sh BIOTRON LIMITED Level 2, 66 Hunter Street, Sydney, NSW 2000, Australia Level 2, 66 Hunter Street Sydney NSW 2000 Tel: (61-2) 9300 3344 Fax: (61-2) 9221 6333 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 3, 66 Hunter Street, Sydney, NSW, 2000 on 26 November 2010 at 11.00 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 2010. 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 2010 be and is hereby adopted.' Resolution 2. 'That Dr Michael S. Hirshorn be and is hereby re-elected as a Director.' Resolution 3. 'That Dr Denis N. Wade be and is hereby elected as a Director.' Resolution 4. 'That, for the purposes of ASX Listing Rule 10.11, the grant of 5,000,000 options to Michelle Miller in accordance with the terms as set out in the Explanatory Memorandum accompanying this Notice of Meeting is approved'. 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 22 October 2010 pjn5610 Level 2, 66 Hunter Street Sydney NSW 2000 Tel: (61-2) 9300 3344 Fax: (61-2) 9221 6333 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 3, 66 Hunter Street, Sydney, NSW, 2000 on 26 November 2010 at 11.00 am. Resolution 1 Adoption of the Remuneration Report The Remuneration Report, which can be found as part of the Directors’ Report in the Company's 2010 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 Hirshorn as a Director In accordance with Article 58 of the Company's Constitution and the Corporations Law, Michael Hirshorn retires as a Director by rotation and, being eligible, offers himself for re-election. Resolution 3 Election of Denis Wade as a Director Having been appointed as a Director during the year, in accordance with Article 56 of the Company's Constitution and the Corporations Law, Denis Wade retires as a Director and, being eligible, offers himself for election. Resolution 4 Approval of Grant of Options to Michelle Miller for the purposes of ASX Listing Rule 10.11 As part of her remuneration as Managing Director, Resolution 4 proposes the granting of three tranches of options to Michelle Miller with the following principal terms and conditions:  Class of securities to be issued: 30 October 2015 options  Number of options to be issued: 5,000,000   Entitlement per option: Issue price  Exercise price per option:  Vesting date:  Expiry date: $nil Exercisable at any time after the vesting date and before the expiry date to acquire 1 fully paid ordinary share the greater of the amount equal to 100% above the market value of the Company's shares (as determined under section 139FA of the Income Tax Assessment Act 1936) on the date of the grant of the options and:  $0.15 for the first tranche of 1,000,000 options  $0.20 for the second tranche of 1,000,000 options  $0.25 for the third tranche of 3,000,000 options Immediately following shareholder approval of the grant of options for the first tranche of 1,000,000 options 30 October 2011 for the second tranche of 1,000,000 options 30 October 2012 for the third tranche of 3,000,000 options the earlier of 30 October 2015 and the date which is 1 month after the date of ceasing to be an officer of the Company (other than due to the occurrence of a Special Circumstance as defined by the Biotron Incentive Option Plan) By obtaining shareholder approval for Resolution 4 as required by ASX Listing Rule 10.11, the Company will satisfy the requirements of Exception 14 of ASX Listing Rule 7.2 and thereby not require shareholder approval for these issues under Listing Rule 7.1. The options issued under Resolution 4 allow for the rights of the optionholder to be changed to comply with the ASX Listing Rules applying to a reorganisation of capital at the time of the reorganisation. The optionholder cannot participate in new issues without exercising the options. All options granted under Resolution 4 may be allotted immediately following shareholder approval at the Annual General Meeting and, in any event, within one month following the close of the meeting. No funds will be raised from the issue of the options. In the event that any of the options are exercised, the funds raised will be used to continue the development of the Company's biotechnology projects and for working capital purposes. The options which may be granted are intended to provide an incentive to Michelle Miller to recognise her contribution to the Company. 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. Voting Exclusion Statement The Company will disregard any votes cast on Resolution 4 by:  Michelle Miller; and  any associates of Michelle Miller. 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. Level 2, 66 Hunter Street Sydney NSW 2000 Tel: (61-2) 9300 3344 Fax: (61-2) 9221 6333 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 11.00 am on 26 November 2010 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 S. Hirshorn as a Director 3. Election of Denis N. Wade as a Director 4. Approval of the grant of options to Michelle Miller 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 . . . . . . . . . . . . . . . . . . . . . . 2010 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 3. 4. 5. 6. 7. 8. 9. proportion of the 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 Resolution 4 by:  Michelle Miller; and  any associates of Michelle Miller. 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 24 November 2010 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 2, 66 Hunter Street, Sydney, NSW, 2000, or by facsimile on (61-2) 9221 6333, not less than 48 hours before the time appointed for holding the meeting. pjn5610

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