New (ABN 98 006 640 553) For personal use only - ASX · 2007. 9. 28. · aging of the skin. The new technologies developed by the scientific team have demonstrated that apoptosis

PHARMANET GROUP LIMITED

(ABN 98 006 640 553)

2007 ANNUAL REPORT

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PHARMANET GROUP LIMITED AND ITS CONTROLLED ENTITIES (ABN 98 006 640 553)

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Corporate Directory AUSTRALIAN COMPANY NUMBER: 006 640 553 DIRECTORS: John Palermo (Chairman) Simon Maxwell Ormsby Watson (Non-Executive) Christopher John Quirk (Non-Executive) SECRETARY: John Palermo Level 1 284 Oxford Street LEEDERVILLE WESTERN AUSTRALIA 6007 REGISTERED OFFICE: Level 1 284 Oxford Street LEEDERVILLE WESTERN AUSTRALIA 6007 Telephone: +61 8 9242 1622 Facsimile: +61 8 9443 2859 SHARE REGISTER: Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS WESTERN AUSTRALIA 6153 Telephone: +61 8 9315 0933 AUDITORS: BDO Kendalls Audit & Assurance (WA) 128 Hay Street SUBIACO WESTERN AUSTRALIA 6008 Telephone: +61 8 9380 8400 SOLICITORS: Mr S Watson Barrister & Solicitor 17 Ord Street WEST PERTH WESTERN AUSTRALIA 6005 Telephone: +61 8 9322 6855

HOME EXCHANGE: Australian Securities Exchange Limited 2 The Esplanade PERTH WESTERN AUSTRALIA 6000 ASX CODE: PNO CONTENTS: Page Corporate Directory 1 Chairman’s Report 2 Review of Operations 3 Directors’ Report 15 Independent Audit Report 22 Auditor’s Independence Declaration 24 Directors’ Declaration 25 Income Statement 26 Balance Sheet 27 Statement of Changes in Equity 28 Statement of Cash Flows 29 Notes to the Financial Statements 30 ASX Additional Information 55 Corporate Governance Statement 59

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Review of Operations The year 2006-2007 was an exciting year for Pharmanet Group Limited, as it built on the opportunities delivered by its scientific discoveries in the previous year. The period saw the Company move through a strengthening of its existing Intellectual Property portfolio, into the development of a product pipeline, and a production program for Thermalife. The Company has made significant research and development progress in key areas of focus, in inflammatory pain, tissue repair, and the Tripeptofen protein library. The activities of the Company were well received globally in a range of business and scientific presentations, laying the foundation for future partnerships and collaborations. The year ended with crucial steps forward in the scale up of the GMP production process for Thermalife. Company Vision The Company aims to grow shareholder value through the exploitation of its Tripeptofen Intellectual Property portfolio and opportunities derived from the safe and effective anti-inflammatory Thermalife product. The activities are focused on the re-entry of Thermalife into the Australian market, the development of products based on the Thermalife active ingredient for new therapeutic indications, and the discovery, protection, and development of early projects from our proprietary protein library. Year in Review The risks of drug development are well understood by the Company, so it relies on the existing Thermalife technology to develop new technologies, entering low-competition markets for new projects in Australia, the outlicensing of the Tripeptofen library and outlicensing the global development of products. Thermalife’s history in the market as a topical anti-inflammatory has provided the Company with a wealth of knowledge about additional clinical conditions that can be treated by the naturally derived active ingredient of Thermalife. The experience with Thermalife is important for the strategic decisions with respect to new product developments. Products Thermalife International Pharmaceuticals Pty Ltd (a wholly owned subsidiary) owns three TGA registered products for the temporary relief of arthritic and musculoskeletal pain. These products contain the same active ingredient, derived from plasma proteins. In addition, the Company is developing products containing extracts from the active ingredient associated with Thermalife Cream, such as Savantac. As reported in previous years, the Thermalife product has not been promoted to the market. Although at the time the decision was difficult, management considered that the original product was an important lead to new discoveries. New discoveries made by the scientific team were detailed to the shareholders on the 3rd May 2007. The Intellectual Property resulting from these discoveries provided the confidence that a reintroduction of Thermalife to the market was now appropriate. F

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Review of Operations (continued)

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Review of Operations (continued) Production process The first stage in the reintroduction of Thermalife was to update the labelling terminology to comply with current Therapeutic Goods Administration (TGA) and international regulations. This required extensive negotiations with TGA regarding the optimal terms used for describing the contents of the Thermalife product on the label. The Company utilised local regulatory affairs consultants to assist in this task, resulting in new label approvals in April 2007. The Company is committed to the highest production standards. Thermalife Cream will be produced in a facility complying with Good Manufacturing Practice (GMP), as audited by TGA. The quality assurance package which supports production is being updated to reflect current technology, industry and regulatory standards. This process is expected to continue into early 2008. The package of data generated will be key in supporting regulatory applications in overseas markets and further expansion of the Thermalife product market. Pharmaceutical products are strictly controlled. As part of the Company commitment to supply a safe quality product, the Company has identified a provider of plasma in Australia that meets the stringent regulatory requirements. The production process of the active ingredient at this new site was evaluated, resulting in a pilot optimisation and scale-up active ingredient production program that is planned to be finalised by the end of 2007.

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Review of Operations (continued) New products Derived from the Thermalife active ingredient, a series of new products for treating acute musculo-skeletal inflammation, sun burn, and photo-aging are under development. Savantac, for the temporary relief of arthritic and muscular pain and inflammation, is the most progressed development product in the portfolio. Savantac is a refined version of Thermalife, therefore Savantac may be classified as a line-extension product. The Company expects that Thermalife’s therapeutic record can, in part, be used to support the clinical efficacy of Savantac. Savantac’s optimised formulation will serve as base for the development of new products.

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The information generated from the Thermalife Cream quality assurance package and from the new site of manufacture of the active ingredient will assist in the completion of the regulatory package for Savantac. A large proportion of the information generated for Thermalife Cream is common to Savantac thus avoiding unnecessary duplication. In the treatment of sunburn the Company is in a formulation development stage for a product based on extracts from the Thermalife active ingredient to treat painful and red skin after prolonged sun exposure. Extracts from Thermalife have been shown to be effective in treating sun burn. This result has become one of the bench marks of the technology. Sun burn is not the only application for the technology. Sun exposure in more moderate forms introduces photo-aging of the skin. The new technologies developed by the scientific team have demonstrated that apoptosis and free-radicals are effectively reduced after treatment. The photo-aging market will be approached via the cosmetic pathway. One of the goals in the next year is to assemble a team that can focus on the development of cosmetic products.

Research and Development Cambridge Scientific Pty Ltd (a wholly owned subsidiary) (Cambridge) is the Research and Development arm of the group. Cambridge holds all Intellectual Property associated with the Tripeptofen platform.

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Review of Operations (continued) During the last year, Cambridge strengthened its Intellectual Property portfolio, by:

1) building on its existing patent applications to ensure an optimal continuation into National Phase examination;

and

2) ongoing scientific efforts in identifying and isolating new therapeutic molecular entities. In May 2007, the team was expanded by molecular biological and biochemical expertise when Dr. A. Samuels joined Cambridge.

As a parallel strategy, the Company has received advice from Dr. Lucio van Rooijen to identify partners in Europe for outlicensing its fractionation and isolation program. Inventing new therapeutics is a constant race with competitor companies. At present our main goal is to generate early cash flow. Intellectual Property Portfolio The Intellectual property portfolio currently contains 10 separate recent patent filings and is constructed as a vertically integrated plan. The original product (Thermalife) is protected by Australian Patent No. AU617661B. This granted patent is succeeded by more new patent applications lodged in the USA and internationally through the PCT. At the foundation of the IP portfolio is a composition of matter patent designed to protect the propriety processes regarding analgesic and anti-inflammatory activities from the Tripeptofen library. This patent is filed as a USA complete and separately under PCT. Additionally, three new patent applications have been filed covering the use in Tissue Disruption, Cox-2 Inhibition and Cytokines and Secondary Injury mediation. Additional applications are under constant development as new biological targets and activities are identified and verified. In this manner, the Company manages the Intellectual Property pipeline from a supply line perspective, at the application level and finally at the molecular interaction level. This framework is constantly being expanded as more research data comes to hand. New Patent Filing Details

Summarised below is the Intellectual Property portfolio for the Company.

All patents were filed in the name of Cambridge Scientific Pty Ltd.

Analgesic and Anti-Inflammatory Composition Filing Date: 16/2/2005 Application Number: 11/059580 Country: USA Filing Type: Complete Status: Awaiting Examination

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Review of Operations (continued) Analgesic and Anti-Inflammatory Composition Filing Date: 10/02/06 Application Number: PCT/U2006/000185 Country: Canada Filing Type: Complete – National Phase entry

Analgesic and Anti-Inflammatory Composition Filing Date: 10/02/06 Application Number: EP06704862.9 Region: Europe Filing Type: Complete – National Phase entry

Analgesic and Anti-Inflammatory Composition Filing Date: 10/02/06 Application Number: 5/MUMNP/2007 Region: India Filing Type: Complete – National Phase entry

Analgesic and Anti-Inflammatory Composition Filing Date: 10/02/06 Application Number: 560737 Region: New Zealand Filing Type: Complete – National Phase entry

Analgesic and Anti-Inflammatory Composition Filing Date: 10/02/06 Application Number: PCT/AU2006/000185 Region: South Africa Filing Type: Complete – National Phase entry

Analgesic and Anti-Inflammatory Composition Filing Date: 10/02/06 Application Number: 2006212722 Country: Australia Filing Type: Complete – National Phase entry

Tissue Disruption Treatment and Composition for Use Filing Date: 01/09/05 Application Number: 11/218382 Country: USA Filing Type: Complete

Tissue Disruption Treatment and Composition for Use Filing Date: 01/09/06 Application Number: PCT/AU2006/001288 Country: PCT / Australia Filing Type: International

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Review of Operations (continued) COX 2 Inhibitor Filing Date: 27/04/07 Application Number: PCT/AU2007/000555 Country: PCT / Australia Filing Type: International Anti-cytokine Filing Date: 27/04/07 Application Number: PCT/AU2007/000554 Country: PCT / Australia Filing Type: International Further patents on the different biochemical actions found are currently being formulated for submission in the short term. Technology Pain, inflammation and the associated biology are major market drivers in the pharmaceutical fields. In recent time, they also play an increasingly important role in skin care and cosmetics. With a combined market in excess of US$300 billion per annum, these are potentially important areas for new product development. The group is active in these sectors and utilises a proprietary library (Tripeptofen) of biological mediators to create products, active ingredients and new chemical entities (NCE’s). These opportunities result from a proprietary biotechnology process that is able to break down specific proteins into fragments that provide highly effective and safe medication of key biological processes. To date the Company has identified 25 specific mechanisms from its library and is exploring commercial applications for these both separately and in combination. The Research and Development team uses the original Thermalife technology as a low risk development platform for the creation of a multi-level product pipeline focused on diseases and conditions involving inflammation, pain and the secondary injury cascade. When originally conceived some 18 years ago, the original topical product was thought to provide relief from arthritic and muscular pain due to the rare elements used in its production. With the benefit of modern science, the Company discovered new methods for producing new therapeutic active ingredients, derived from its proprietary technologies. The experience with Thermalife has confirmed that the topical product works fast, is effective, and safe. The likelihood that the Thermalife safety and efficacy profile will translate to the new active ingredients in early development pipeline is high, due to the understanding of the biological mechanisms involved.

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Review of Operations (continued) Biological mechanisms The results set out below, represent a brief summary of a number of the biological activities that have been modulated by candidates from the antibody-like protein fragments. TNF-α – Antagonism: Tumor Necrosis Factor alpha (TNF-α) is a commercially significant target in the management of inflammation and inflammatory disease. The scientific data has shown that the drug development platform of the Company inhibits the production of TNF-α at very low concentrations, which makes it an ideal candidate for products and new molecular entities targeted at rheumatoid arthritis, lupus, inflammatory bowel disease, and inflammatory skin diseases.

Inhibition of TACE: TNF-α Converting Enzyme (TACE) is necessary for the release of pro-inflammatory components. TACE belongs to the family of metalloprotease disintegrins (also known as ADAM or MDC family), essential for the release of membrane-bound pro-TNF-α. TACE is also required for the activation of the receptor for the epidermal growth factor (EGFR) in vivo and for the development of tumors in nude mice, indicating a crucial role of TACE in tumorigenesis.

The ability of our active ingredients to inhibit TACE at very low concentrations suggests a strong potential for the development of new competitive, topical products in both the therapeutic and cosmetic applications.

Caspase Inhibition: Caspases are a family of enzymes implicated in a process called apoptosis. Apoptosis is a cellular response to insults such as UV light, chemical or physical damage or a viral infection. This insult initiates a cascade of events which lead to the destruction of the cell, often called "programmed cell death". It is an innate response of the cell which protects the rest of the organism. Exaggeration of apoptosis causes tissue-damage. Hepatitis, insulitis, graft-versus-host disease, and allergic encephalitis are all diseases in which excessive apoptosis plays a considerable role.

Capsases are inhibited by the active ingredients in the Company’s proprietary platform. Blocking apoptosis will be a valuable tool against photo-aging of the skin, sun burn, and in aiding superficial wound repair. Also neurodegenerative diseases are affected by apoptosis, and might become targets for development at a later stage..

Cox-2 Inhibition: Cyclooxygenases 2 (Cox-2) inhibitors are amongst the most recognised of all anti-inflammatory agents. COX-2 inhibition is possibly the best known and effective anti-inflammatory therapy, however, gastrointestinal side effects have seen oral products such as Celebrex and Vioxx, come under considerable safety concerns. Topically delivered, selective Cox2 inhibitors, such as in the Company’s platform, are expected to reduce side-effects and provide unique commercial opportunities.

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Review of Operations (continued) Scientific publications

As announced in April 2007, the Company presented three different posters on the efficacy of Thermalife, and extract active ingredients from the Tripeptofen platform. The presentations were held at the World Congress of Inflammation 2007, in Copenhagen, Denmark.

The level of interest from the international scientific as well as pharmaceutical community was high and the Company gained a unique opportunity to showcase its emerging biological platform as a potential source of a wide range of selective, safe and exciting pharmaceutical compounds. The information available during the conference was important to adjust the prioritisations in our research and development projects. Cosmetic Developments Use of the Company’s products and active ingredients in aesthetic and cosmetic applications provide an important development path for the Company. The known topical (through-the-skin) administration route, the scientific base in established biological mechanism and the extensive safety record all combine to provide access to a US$250 billion market where the Company may have a competitive advantage. The lower regulatory barriers and the wider international appeal, make this sector an important target for the Company. During October 2006, biological research in the cosmetic sector added an additional free-radical scavenger capability to enhance the existing library.

The Company’s cosmetic and aesthetic strategy is to leverage value from the current product and ingredient pipeline by creating and marketing new low-concentration and new specific formulations from existing production.

Interest has already been expressed from US and European companies for in licensing of the active ingredients, cosmetic product development, and product distribution. Business Development

Our Business Development strategies have focused on finding partners for

taking our existing products in other territorial markets, developing new products for new therapeutic indications, isolating and identifying the active pharmaceutical molecular entities, developing and marketing cosmetic products .

Mid-year presentations to European cosmetic groups and later discussions in the US and in France have assisted the Company in the understanding of the needs of the cosmeceutical market.

The identification and isolation of new patentable chemical entities from the Tripeptofen platform has been a focus for out licensing activities via Dr Lucio van Rooijen. Dr. Lucio van Rooijen works closely with the Company in his discussions with major European biopharmaceutical companies. The strategy of out-licensing rather than internal development has allowed the Company to focus on the reintroduction of Thermalife into the Australian market.

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Review of Operations (continued) BUILDING ON STRENGTHS, - THE 5 STRATEGIC FIELDS: In summary, the Company has 5 strategic strengths. Safety And Efficacy The group’s technology platform is derived from a product with an unblemished safety and efficacy record for more than 18 years. Safety and efficacy are the two most critical aspects in mediating risks in new drug discoveries. Topical administration route Not every drug can be administered through the skin. Treating local inflammation does not need high drug levels in the body, especially when the high levels throughout the body produce side-effects. The Thermalife related products can move through the skin, and are presented in the form of a cream. Due to the cream formulation of the product, the likelihood of systemic side-effects, such as gastro-intestinal bleeding or stroke, is very low. Pharmaceutical Pipeline The group’s pharmaceutical pipeline continues to expand as refinements in production processing, expansion in intellectual property and new developments in testing and isolation grows the pharmaceutical ingredient and product pipelines. Cosmetic Pipeline Developing specialised extracts for cosmetic and aesthetics markets has allowed the Company to create a new and distinct cosmetic pipeline with multiple biological benefits. These actions provide a wider range of consumer-focused benefits ranging from anti-photoaging, post-resurfacing treatments and post sun products, all with global market potential and low regulatory hurdles. Approvals Existing product approvals in Australia may allow the manufacture and distribution of high value added products in Australia. In addition, these existing approvals provide regulatory pathway short-cuts for opportunities in new therapeutic fields and indications.

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Directors' Report The Directors present their report on the results of Pharmanet Group Limited and of the Consolidated Entity (being Pharmanet Group Limited and its Controlled Entities) for the year ended 30 June 2007 and the state of affairs of the Company and of the Consolidated Entity at that date. DIRECTORS The Directors of the Parent Entity in office during the year and at the date of this report are: John Palermo Simon Maxwell Ormsby Watson Christopher John Quirk NATURE OF OPERATIONS AND PRINCIPAL ACTIVITIES The principal activities during the year of entities within the Consolidated Entity were research, development, investment and manufacture and distribution of pharmaceutical products. OPERATING RESULTS The net amount of the consolidated loss of the Consolidated Entity for the year after providing for income tax was $1,157,963 (2006: $3,546,889). DIVIDENDS The Directors do not recommend the payment of a dividend for the year ended 30 June 2007. REVIEW OF OPERATIONS The Company continues to pursue business opportunities in the health care industry and related areas, review its intellectual property assets and evaluate value enhancement opportunities from existing assets. SIGNIFICANT CHANGES IN THE STATE OF AFFAIRS There have been no significant changes in the state of affairs of the Company. SIGNIFICANT EVENTS AFTER THE BALANCE DATE There have been no significant events after balance date, other than as disclosed on note 17. ENVIRONMENTAL REGULATION The Consolidated Entity has assessed whether there are any particular or significant environmental regulations which apply. It has determined that the risk of non-compliance is low, and has not identified any compliance breaches during the year. LIKELY DEVELOPMENTS AND EXPECTED RESULTS The Consolidated Entity expects to continue to develop and implement its investment and business strategy in the areas of healthcare and biotechnology.

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Directors' Report (continued)

PARTICULARS OF DIRECTORS

John Palermo B.Bus, FCA, FCPA, JP Mr Palermo is a Chartered Accountant and a consultant to the Chartered Accounting practice, Palermo Chartered Accountants. He was the Principal of that practice from 1978 to 2006. His main areas of expertise are corporate consultancy services and company administration. During the past three years Mr Palermo has also served as a director of the following other listed companies:

• Pelican Resources Ltd * • Consolidated Global Investments Ltd * • Gladiator Resources Ltd *

(* denotes current directorship)

Simon Maxwell Ormsby Watson LLB, B.Ec Mr Watson has been in private practice since 1971, specialising in the field of commercial law. His legal expertise provides an important contribution to the Company. During the past three years he has not held directorships in any other listed companies.

Christopher John Quirk Christopher Quirk is an Australian dermatologist who has been a teaching hospital consultant for 22 years and has conducted numerous trials for international pharmaceutical companies such as Roche, Novartis, 3M and Matrix and has served on advisory boards for Merck, Allergan and Roche. He has published 22 papers in international journals and recently has presented at the World Congress of Dermatology in Paris and the World Congress on Cancers of the Skin in Seville. During the past three years Dr Quirk has also served as a director of the following other listed companies:

• OBJ Ltd *

(* denotes current directorship) COMPANY SECRETARY

John Palermo B.Bus, FCA, FCPA, JP Mr J Palermo has been the Company Secretary of Pharmanet Group Limited since 1987. He is a Chartered Accountant and a consultant to the Chartered Accounting practice, Palermo Chartered Accountants. He was the Principal of that practice from 1978 to 2006. His main areas of expertise are corporate consultancy services and company administration.

SHARE OPTIONS As at the date of this report, the following options remained outstanding:

No. Exercise Price Due Date 193,836,527 $0.05 31 December 2008 13,900,000 $0.10 30 June 2008 1,500,000 $0.05 31 December 2008 37,500,000 $0.05, $0.10 and $0.15 31 December 2010

No persons entitled to exercise an option had or has any right by virtue of the option to participate in any future share issues.

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Directors' Report (continued) DIRECTORS' MEETINGS During the financial year ended 30 June 2007, the Company held 9 Directors' Meetings including Directors’ Resolutions. The total number of meetings and resolutions attended by each Director were:

Meetings Eligible Attended to Attend John Palermo 9 9 Simon Maxwell Ormsby Watson 9 9 Christopher John Quirk 9 9

CORPORATE STRUCTURE Pharmanet Group Limited is a company limited by shares that is incorporated and domiciled in Australia. The principal place of business is located at Level 1, 284 Oxford Street, Leederville, Western Australia. The ultimate parent entity is Pharmanet Group Limited. Pharmanet Group Limited has prepared a consolidated financial report incorporating the entities that it controlled during the financial year, which are outlined in the following illustration of the group’s corporate structure: 50% 80% 100% 100% 100% 100% 100% 100% 100%

CORPORATE GOVERNANCE In recognising the need for the highest standards of corporate behaviour and accountability, the Directors of Pharmanet Group Limited support and have adhered to the principles of corporate governance.

The Company’s corporate governance statement is contained after the additional ASX information section of this Annual Report. DIRECTORS AND OFFICERS INDEMNIFICATION The Company has during or since the end of the financial year:

Indemnified or made relevant agreements for indemnifying an officer or Director of the Company against a liability incurred as an officer, including costs and expenses in successfully defending legal proceedings.

Pharmanet Group Limited

Thermalife International

Pharmaceuticals Pty Ltd

Peptophen Research &

Development Pty Ltd

Pharmaceutical Products Group

Pty Ltd

Pandaland Holdings Pty Ltd

Cambridge Scientific Pty Ltd

Molecular Pharmacology

(USA) Limited

Ampack Medical

Australia Pty Ltd

Veterinary

Technologies Pty Ltd

Molecular Pharmacology

Limited

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Directors' Report (continued) REMUNERATION REPORT This report outlines the remuneration arrangements in place for directors and executives of the Company.

Remuneration policy (audited)

The remuneration policy of Pharmanet Group Limited has been designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated entity’s ability to attract and retain the best executives and directors to run and manage the consolidated entity.

The Board’s policy for determining the nature and amount of remuneration for board members and senior executives of the consolidated entity is as follows:

The remuneration policy setting out the terms and conditions for the executive directors and other senior executives was developed by the Board.

Executive remuneration and other terms of employment are reviewed annually by the Board having regard to performance against goals set at the start of the year, relevant comparative information and independent expert advice.

As well as a base salary, remuneration packages include superannuation, retirement and termination entitlements, performance-related bonuses and fringe benefits.

Remuneration packages are set at levels that are intended to attract and retain executives capable of managing the Company’s diverse operations.

Remuneration and other terms of employment for the executive directors and certain other senior executives are being formalised in service agreements.

Remuneration of non-executive directors is determined by the Board within the maximum amount approved by the shareholders from time to time and which currently stands at $250,000 per annum.

The Board undertakes an annual review of its performance against goals set at the start of the year. The Board may exercise discretion in relation to approving incentives, bonuses, and options. The policy is designed to attract the highest calibre of executives and reward them for performance that results in long-term growth in shareholder wealth.

All remuneration paid to directors and executives is valued at the cost to the Company and expensed. Performance-based remuneration (audited) The Company currently has no performance-based remuneration component built into director and executive remuneration packages. Key management personnel compensation (audited)

The following persons were Directors of Pharmanet Group Limited during the financial year:

Chairman – Executive J Palermo

Non-executive Directors S M O Watson C J Quirk There are no other key management personnel in positions of control or exercising management authority.

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Directors' Report (continued)

REMUNERATION REPORT (continued)

Details of the nature and amount of each major element of the emoluments of each Director of the consolidated entity and each of the named executive officers of the consolidated entity, receiving the highest emoluments, for the financial years ended 30 June 2007 and 30 June 2006 are:

Primary Cash Non- Post Employment Equity Other TOTAL Salary & Bonus Monetary Superann- Retirement Options Benefits Fees uation Benefits

($) ($) ($) ($) ($) ($) ($) ($)Directors

Palermo, J: Chairman (executive) 2007 100,000 -- -- -- -- 9,660 4,500 114,1602006 42,184 -- -- -- -- 127,960 -- 170,144

Watson, S M O: Director (non-executive) 2007 -- -- -- -- -- 9,660 -- 9,6602006 -- -- -- -- -- 127,960 -- 127,960

Quirk, C J: Director (non-executive) 2007 -- -- -- -- -- 9,660 -- 9,6602006 -- -- -- -- -- -- -- --

Total Directors 2007 100,000 -- -- -- -- 28,980 4,500 133,4802006 42,184 -- -- -- -- 255,920 -- 298,104

Remuneration Options (2007) Terms & Conditions for Each Grant

Grant Grant Vested Value Per Exercise First Last No. Date No. Option at Price Exercise Exercise Grant Date $ $ Date Date

J Palermo 6,000,000 21/12/2006 6,000,000 $0.00308, $0.00119 and $0.00056

$0.05, $0.10 and $0.15

21/12/2006 31/12/2010

S M O Watson 6,000,000 21/12/2006 6,000,000 $0.00308, $0.00119 and $0.00056

$0.05, $0.10 and $0.15

21/12/2006 31/12/2010

C J Quirk 6,000,000 21/12/2006 6,000,000 $0.00308, $0.00119 and $0.00056

$0.05, $0.10 and $0.15

21/12/2006 31/12/2010

During the year ended 30 June 2007, no options issued to Directors and consultants for remuneration purposes were forfeited, lapsed or exercised. Remuneration Options (2006)

Terms & Conditions for Each Grant

Grant Grant Vested Value Per Exercise First Last No. Date No. Option at Price Exercise Exercise Grant Date $ $ Date Date

J Palermo 6,000,000 08/12/2005 6,000,000 $0.02394,$0.021 and $0.01904

$0.05, $0.10 and $0.15

08/12/2005 31/12/2010

S M O Watson 6,000,000 08/12/2005 6,000,000 $0.02394,$0.021 and $0.01904

$0.05, $0.10 and $0.15

08/12/2005 31/12/2010

P J Garratt 6,000,000 08/12/2005 6,000,000 $0.02394,$0.021 and $0.01904

$0.05, $0.10 and $0.15

08/12/2005 31/12/2010

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Directors' Report (continued) REMUNERATION REPORT (continued) The grant of options is to provide an incentive to each of the Directors for future services they will provide to the Company and an acknowledgement of past services. The Directors consider that the incentive provided is cost effective to the Company as opposed to alternative incentives in the form of a monetary bonus or Director’s fees. The options have been valued using the Black-Scholes Valuation method.

The model inputs for options granted during the year ended 30 June 2007 included: (a) options are granted for no consideration (2006: Nil) (b) exercise price: $0.05, $0.10 and $0.15 (2006: $0.05, $0.10 and $0.15) (c) grant date: 21 December 2006 (2006: 8 December 2005) (d) expiry date: 31 December 2010 (2006: 31 December 2010) (e) share price at grant date: $0.021 (2006: $0.045) (f) expected price volatility of the Company’s shares: 50% (2006: 100%) (g) risk-free interest rate: 5.93% (2006: 5.31%)

Additional information (unaudited)

Details of remuneration: cash bonuses and options For each cash bonus and grant of options included in the tables on page 19, the percentage of the available bonus or grant that was paid, or that vested, in the financial year, and the percentage that was forfeited because the person did not meet the service an performance criteria is set out below:

Cash Bonus Options

Name Paid %

Forfeited %

Year granted Vested %

Forfeited %

Financial years in which

options may vest

Minimum total value of grant yet

to vest $

Maximum total value of grant yet

to vest $

J Palermo -- -- 2007 2006

100 100

-- --

-- --

-- --

-- --

S M O Watson -- -- 2007 2006

100 100

-- --

-- --

-- --

-- --

C J Quirk -- -- 2007 2006

100 --

-- --

-- --

-- --

-- --

P J Garratt -- -- 2007 2006

-- 100

-- --

-- --

-- --

-- --

Share-based compensation: options Further details relating to options are set out below:

Name

A Remuneration consisting of

options

B Value at grant

date $

C Value at exercise

date $

D Value at lapse

date $

E Total of columns

B-D $

J Palermo 8.4% 9,660 -- -- 9,660 S M O Watson 100% 9,660 -- -- 9,660 C J Quirk 100% 9,660 -- -- 9,660 A = The percentage of the value of remuneration consisting of options, based on the value of options

expensed during the current year. B = The value at grant date calculated in accordance with AASB 2 Share-based Payment of options granted

during the year as part of remuneration. C = The value at exercise date of options that were granted as part of remuneration and were exercised during

the year, being the intrinsic value of the options at that date. D = The value at lapse date of options that were granted as part of remuneration and that lapsed during the

year. Lapsed options refer to options that vested but expired unexercised.

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BDO Kendalls Audit & Assurance (WA)

128 Hay Street

SUBIACO WA 6008

PO Box 700

WEST PERTH WA 6872

Phone 61 8 9380 8400

Fax 61 8 9380 8499

[email protected]

www.bdo.com.au

ABN 90 360 101 594

BDO Kendalls is a national association of

separate partnerships and entities

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF PHARMANET GROUP LIMITED

We have audited the accompanying financial report of Pharmanet Group Limited, which comprises the balance sheet as at 30 June 2007, and the income statement, statement of changes in equity and cash flow statement for the year ended on that date, a summary of significant accounting policies, other explanatory notes and the directors’ declaration of the consolidated entity comprising the company and the entities it controlled at the year’s end or from time to time during the financial year.

We have also audited the remuneration disclosures contained in the directors’ report. As permitted by the Corporations Regulations 2001, the consolidated entity has disclosed information about the remuneration of directors and executives (“remuneration disclosures”), required by Accounting Standard AASB 124 Related Party Disclosures, under the heading “Remuneration Report” in pages 18 to 20 of the directors’ report and not in the financial report. Directors’ Responsibility for the Financial Report and the AASB 124 Remuneration Disclosures Contained in the Directors’ Report The directors of the company are responsible for the preparation and fair presentation of the financial report in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001. This responsibility includes 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 Accounting Standard AASB 101 Presentation of Financial Statements, that compliance with the Australian equivalents to International Financial Reporting Standards ensures that the financial report, comprising the consolidated and parent financial statements and notes, complies with International Financial Reporting Standards. The directors of the company are also responsible for the remuneration disclosures contained in the directors’ report. 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. Our responsibility is to also express an opinion on the remuneration disclosures contained in the directors’ report based on our audit. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial report and the remuneration disclosures contained in the directors’ report. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial report and the remuneration disclosures contained in the directors’ 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 and the remuneration disclosures contained in the directors’ report in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the directors, as well as evaluating the overall presentation of the financial report and the remuneration disclosures contained in the directors’ report.

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We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinions. Independence In conducting our audit, we have complied with the independence requirements of the Corporations Act 2001. We confirm that the independence declaration required by the Corporations Act 2001, provided to the directors of Pharmanet Group Limited on 28 September 2007, would be in the same terms if provided to the directors as at the date of this auditor’s report. Auditor’s Opinion on the Financial Report In our opinion: (a) the financial report of Pharmanet Group Limited is in accordance with the Corporations

Act 2001, including:

(i) giving a true and fair view of the company’s and consolidated entity’s financial position as at 30 June 2007 and of 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; and

(b) the consolidated financial statements and notes also complies with International Financial Reporting Standards as disclosed in Note 1.

Auditor’s Opinion on the AASB 124 Remuneration Disc losures Contained in the Directors’ Report In our opinion the remuneration disclosures that are contained in pages 18 to 20 of the directors’ report comply with Accounting Standard AASB 124. Inherent Uncertainty Regarding Continuation as a Go ing Concern Without qualification to the opinion expressed above, attention is drawn to the following matter. As a result of the matters described in Note 1, there is significant uncertainty whether Pharmanet Group Limited and controlled entities will be able to continue as a going concern. BDO Kendalls Audit & Assurance (WA) (formerly BDO)

BG McVeigh Partner

Perth, Western Australia Dated this 28th day of September 2007

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BDO Kendalls Audit & Assurance (WA)

128 Hay Street

SUBIACO WA 6008

PO Box 700

WEST PERTH WA 6872

Phone 61 8 9380 8400

Fax 61 8 9380 8499

[email protected]

www.bdo.com.au

ABN 90 360 101 594

BDO Kendalls is a national association of

separate partnerships and entities

28 September 2007 The Directors Pharmanet Group Ltd Level 1, 284 Oxford Street LEEDERVILLE WA 6007 Dear Sirs DECLARATION OF INDEPENDENCE BY BDO KENDALLS TO THE DIRECTORS OF PHARMANET GROUP LIMITED As lead auditor of Pharmanet Group Limited for the year ended 30 June 2007, I declare that, to the best of my knowledge and belief, there have been no contraventions of: • the auditor independence requirements of the Corporations Act 2001 in relation to the

audit; and • any applicable code of professional conduct in relation to the audit. This declaration is in respect of Pharmanet Group Limited and the entities it controlled during the period. Yours faithfully BDO Kendalls Audit & Assurance (WA) (formerly BDO)

BG McVeigh Partner F

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Income Statement for the Year Ended 30 June 2007 CONSOLIDATED PARENT ENTITY

NOTE 2007 2006 2007 2006 $ $ $ $ Revenue 3 27,218 33,193 27,218 30,160 Other income 3 89,854 40,500 89,854 5,945

Raw materials and consumables used 4(a) -- (2,806) -- -- Depreciation expense 4(a) (4,168) (4,039) (2,144) (2,590) Write down of investments and loans 4(c) (17,990) (1,871,712) (767,755) (2,291,795) Director and employee benefits expense 4(c) (44,966) (384,140) (28,980) (383,880) Travel and accommodation expense 4(a) (48,931) (50,260) (2,231) (9,260) Consulting and legal expenses 4(a) (665,950) (857,915) (164,886) (394,247) Bad debts 4(c) -- (20) -- -- Rent premises 4(a) (18,957) (18,436) -- (6,145) Communication costs 4(c) (4,469) (9,120) (3,654) (7,217) Borrowing costs 4(a) (87,667) (70,139) (87,667) (70,139) Other expenses 4(b&c) (381,937) (351,995) (203,700) (207,429)

Loss before income tax (1,157,963) (3,546,889) (1,143,945) (3,336,597) Income tax expense 5 -- -- -- --

Loss after income tax (1,157,963) (3,546,889) (1,143,945) (3,336,597)

Loss attributable to members of Pharmanet Group Limited (1,157,963) (3,546,889) (1,143,945) (3,336,597)

Cents Per Share 2007 2006

Earnings per share from continuing operations Basic loss per share 25 (0.004) (0.016) Where diluted earnings per share are not dilutive they are not disclosed.

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

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Balance Sheet as at 30 June 2007

CONSOLIDATED PARENT ENTITY NOTE 2007 2006 2007 2006

$ $ $ $ CURRENT ASSETS Cash and cash equivalents 6 502,876 875,234 462,963 811,709 Trade and other receivables 7 2,622 5,487 2,622 4,389 Other 9 46,441 60,552 18,543 51,812

TOTAL CURRENT ASSETS 551,939 941,273 484,128 867,910

NON CURRENT ASSETS Trade and other receivables 7 -- 15,000 -- 15,000 Other financial assets 8 -- -- 1 1 Plant and equipment 10 14,168 16,010 6,948 7,871

TOTAL NON CURRENT ASSETS 14,168 31,010 6,949 22,872

TOTAL ASSETS 566,107 972,283 491,077 890,782

CURRENT LIABILITIES Trade and other payables 11 524,572 591,709 269,303 495,059 Interest bearing liabilities 12 610,000 1,110,000 610,000 1,110,000 Other 13 1,178 1,370 -- --

TOTAL CURRENT LIABILITIES 1,135,750 1,703,079 879,303 1,605,059

NON CURRENT LIABILITIES Interest bearing liabilities 12 -- -- -- --

TOTAL NON CURRENT LIABILITIES -- -- -- --

TOTAL LIABILITIES 1,135,750 1,703,079 879,303 1,605,059

NET ASSETS/(LIABILITIES) (569,643) (730,796) (388,226) (714,277)

EQUITY Contributed equity 14 19,624,371 18,309,171 19,624,371 18,309,171 Reserves 15 610,913 455,295 609,676 454,880 Accumulated losses (20,804,927) (19,495,262 ) (20,622,273) (19,478,328)

Total parent equity interest (569,643) (730,796) (388,226) (714,277) Minority equity interest -- -- -- --

TOTAL EQUITY/(DEFICIENCY) (569,643) (730,796) (388,226) (714,277)

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

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Statement of Changes in Equity for the Year Ended 30 June 2007

Consolidated

Ordinary Share

Capital

$

Foreign Currency

Transaction Reserve

$

Share Based Payments Reserves

$

Minority Equity Interest

$

Accumulated Losses

$

Total

$

Balance at 01/07/2005 17,700,554 -- 71,000 -- (15,949,715) 1,821,839 Foreign currency translation reserve -- 415 -- -- -- 415 Loss attributable to members of parent entity -- -- -- -- (3,546,889) (3,546,889)

Net recognised income & expense -- 415 -- -- (3,546,889) (3,546,474)

Shares issued during the year 645,000 -- -- 645,000 Transaction costs (36,383) -- -- -- -- (36,383) Options issued during the year -- -- 383,880 -- -- 383,880 Outside equity interest -- -- -- (155,663) -- (155,663) Outside equity interest assumed by Company -- -- -- 155,663 -- 155,663 Provision for intangible -- -- -- -- 1,342 1,342

Balance at 30/06/2006 18,309,171 415 454,880 -- (19,495,262) (730,796)

Balance at 01/07/2006 18,309,171 415 454,880 -- (19,495,262) (730,796) Foreign currency translation reserve -- 822 -- -- -- 822 Loss attributable to members of parent entity -- -- -- -- (1,157,963) (1,157,963)

Net recognised income & expense -- 822 -- -- (1,157,963) (1,157,141)

Shares issued during the year 1,350,000 -- -- -- -- 1,350,000 Options issued during the year -- -- 179,060 -- -- 179,060 Transaction costs (34,800) -- (24,264) -- -- (59,064) Outside equity interest -- -- -- (151,702) -- (151,702) Outside equity interest assumed by Company -- -- -- 151,702 (151,702) --

Balance at 30/06/2007 19,624,371 1,237 609,676 -- (20,804,927) (569,643)

Parent Entity

Balance at 01/07/2005 17,700,554 -- 71,000 -- (16,141,731) 1,629,823 Loss attributable to members of parent entity -- -- -- -- (3,336,597) (3,336,597)

Net recognised income & expense -- -- -- -- (3,336,597) (3,336,597)

Shares issued during the year 645,000 -- -- -- -- 645,000 Transaction costs (36,383) -- -- -- -- (36,383) Options issued during the year -- -- 383,880 -- -- 383,880

Balance at 30/06/2006 18,309,171 -- 454,880 -- (19,478,328) (714,277)

Balance at 01/07/2006 18,309,171 -- 454,880 -- (19,478,328) (714,277)

Loss attributable to members of parent entity -- -- -- -- (1,143,945) (1,143,945)

Net recognised income & expense -- -- -- -- (1,143,945) (1,143,945)

Shares issued during the year 1,350,000 -- -- -- -- 1,350,000 Options issued during the year -- -- 179,060 -- -- 179,060 Transaction costs (34,800) -- (24,264) -- -- (59,064)

Balance at 30/06/2007 19,624,371 -- 609,676 -- (20,622,273) (388,226)

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

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Statement of Cash Flows for the Year Ended 30 June 2007 CONSOLIDATED PARENT ENTITY

NOTE 2007 2006 2007 2006 $ $ $ $ CASH FLOWS FROM OPERATING ACTIVITIES Receipts from customers -- 32,280 -- -- Payments to suppliers (1,248,585) (1,730,101) (1,225,448) (1,534,346) Interest received 27,218 30,696 27,218 30,160 Other -- 5,945 -- 5,945 Borrowing costs (87,667) (70,139) (87,667) (70,138)

NET CASH FLOWS USED IN OPERATING ACTIVITIES 2 (1,309,034) (1,731,319) (1,285,897) (1,568,379)

CASH FLOWS FROM INVESTING ACTIVITIES Payment for plant and equipment (3,888) (8,968) (2,783) (968) Proceeds from sale of plant and equipment 2,384 -- 2,384 -- Proceeds from disposal of investment -- 220,000 -- -- Other (192) 1,370 -- --

NET CASH FLOWS (USED IN)/PROVIDED BY INVESTING ACTIVITIES (1,696) 212,402 (399) (968)

CASH FLOWS FROM FINANCING ACTIVITIES Repayment borrowings (500,000) -- (500,000) -- Proceeds from issue of shares, options and convertible notes 1,496,614 1,838,880 1,496,614 1,838,880 Payment of costs relating to issue of shares and options (59,064) (36,383) (59,064) (36,383) Other 822 415 -- --

NET CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 938,372 1,802,912 937,550 1,802,497

Net (decrease)/increase in cash and cash equivalents held (372,358) 283,995 (348,746) 233,150 Cash and cash equivalents held at the beginning of the year

875,234

591,239

811,709

578,559

Cash and cash equivalents held at the end of the year

6

502,876

875,234

462,963

811,709

The above statement of cash flows should be read in conjunction with the accompanying notes.

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Notes to the Financial Statements for the Year Ended 30 June 2007

NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

The financial report is a general purpose financial report which has been prepared in accordance with Australian Accounting Standards (including the Australian Accounting Interpretations) and the Corporations Act 2001.

The financial report was authorised for issue by the Board on 28 September 2007. The consolidated financial report of Pharmanet Group Limited complies with Australian Accounting Standards, which include Australian equivalents to International Financial Reporting Standards (AIFRS), in their entirety. Compliance with AIFRS ensures that the consolidated financial report also complies with International Financial Reporting Standards (IFRS) in their entirety. The parent entity financial statements and notes also comply with IFRS except that it has elected to apply the relief provided to parent entities in respect of certain disclosure requirements contained in AASB 132 Financial Instruments: Disclosure and Presentation. The financial report has been prepared on an accruals basis and is based on historical costs. Cost is based on the fair values of the consideration given in exchange for assets. The following is a summary of the material accounting policies adopted by the consolidated entity in the preparation of the financial report. The accounting policies have been consistently applied, unless otherwise stated. Accounting Policies (a) Going Concern The ability of the Company to continue in existence is dependent upon the ability of the Company in raising additional equity or loan capital and commercially exploiting the technologies and products at amounts sufficient to meet proposed expenditure commitments. The major factor to be considered when reviewing the continued operation of the Company is its ability to raise additional equity or loan funding. In addition the Company has received confirmation from the majority note holder that it is its intention to convert the note. Furthermore the major creditors have confirmed their intention that it will not demand payment until the Company has sufficient funds to be able to meet the commitment. It is anticipated that further capital raisings either by debt or equity will address this matter. (b) Principles of Consolidation A controlled entity is any entity Pharmanet Group Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities. The controlled entity has a June financial year-end. A list of controlled entities is contained in Note 22 to the financial statements. All inter-company balances and transactions between entities in the economic entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the economic entity during the year, their operating results have been included/excluded from the date control was obtained or until the date control ceased. Minority equity interests in the equity and results of the entities that are controlled are shown as a separate item in the consolidated financial report.

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NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (c) Income Tax The charge for current income tax expenses is based on the profit for the year adjusted for any non assessable or disallowed items. It is calculated using tax rates that have been enacted or are substantively enacted by balance sheet date. Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax base of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effect on accounting or taxable profit or loss. Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability is settled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity. Deferred income tax assets are recognised to the extent that it is probable that future profit will be available against which deductible temporary differences can be utilised. The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by the law. (d) Property, Plant and Equipment Each class of property, plant and equipment is carried at cost or fair value less, where applicable, any accumulated depreciation and impairment losses. Plant and equipment Plant and equipment is measured on the cost basis less depreciation and impairment losses. The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the assets employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts. The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costs and an appropriate proportion of fixed and variable overheads. Subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred. F

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NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (d) Property, Plant and Equipment (continued) Increases in the carrying amount arising on revaluation of land and buildings are credited to a revaluation reserve in shareholders’ equity. Decreases that offset previous increases of the same asset are charged against fair value reserves directly in equity; all other decreases are charged to the income statement. Each year the difference between depreciation between depreciation based on the revalued carrying amount of the asset charged to the income statement and depreciation based on the asset’s original cost is transferred from the revaluation reserve to retained earnings. Depreciation The depreciable amount of all fixed assets including building and capitalised lease assets, but excluding freehold land, is depreciated on a diminishing value method commencing from the time the asset is held ready for use. Leasehold improvements are depreciated over the shorter of either the unexpired period of the lease or the estimated useful lives of the improvements. The depreciation rates used for each class of depreciable assets are: Plant and equipment 10-37.5% The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings. (e) Financial Assets and Financial Liabilities

Financial assets and financial liabilities are recognised on the balance sheet when Pharmanet Group Limited becomes party to the contractual provisions of the financial instrument. A financial asset is derecognised when the contractual rights to the cash flows from the financial assets expire or are transferred and no longer controlled by the entity. A financial liability is removed from the balance sheet when the obligation specified in the contract is discharged or cancelled or expires.

Upon initial recognition a financial asset or financial liability is designated as at fair value through profit or loss except for investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. A gain or loss arising from a change in the fair value of a financial asset or financial liability classified as at fair value through profit or loss is recognised in profit or loss. Cash and cash equivalents For the purposes of the statement of cash flows, cash includes cash on hand and at call deposits with banks or financial institutions, net of bank overdrafts, investments in money market instruments and cash in transit

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NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (e) Financial Assets and Financial Liabilities (continued) Loans and receivables Financial assets not measured at fair value comprise loans and receivables being non derivative financial assets with fixed or determinable payments that are not quoted in an active market. These are measured at amortised cost using the effective interest method.

Trade and other payables Financial liabilities comprise of trade and other payables, provisions and borrowings are measured at amortised cost using the effective interest method.

(f) Impairment of Assets At each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset’s fair value less costs to sell and value in use, is compared to the asset’s carrying value. Any excess of the asset’s carrying value over its recoverable amount is expensed to the income statement. Impairment testing is performed annually for goodwill and intangible assets with indefinite lives. Where it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs. (g) Share based payments Share options granted after 8 December 2005 and vested after 31 December 2010. The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the vesting and performance criteria, the impact of dilution, the non-tradable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and risk free interest rate for the term of the option. The fair value of the options granted excluded the impact of any non-market vesting condition (for example, profitability and sale growth targets). Non-market vesting conditions are included in assumption about the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate. Upon the exercise of options, the balance of the share-based payments reserve relating to these options is transferred to share capital. The market value of shares issued to employees for no cash consideration under the employee share scheme is recognised as an employee benefits expense with a corresponding increase in equity when the employees become entitled to the shares.

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NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (h) Inventories Inventories have been valued at the lower of cost and net realisable value. Cost is determined on the first in, first out basis, and comprises the cost of purchase including costs of bringing the inventories to location. In the case of manufactured goods, direct labour costs, variable overhead and a portion of fixed overhead costs allocated on the basis of normal operating capacity are included.

(i) Investments in Associates Investments in associate companies are recognised in the financial statements by applying the equity method of accounting where significant influence is exercised over an investee. Significant influence exists where the investor has the power to participate in the financial and operating policy decisions of the investees but does not have control or joint control over those policies. The equity method of accounting recognises the group’s share of past acquisition reserves of its associates. (j) Intangibles Goodwill Goodwill and goodwill on consolidation are initially recorded at the amount by which the purchase price for a business or for an ownership interest in a controlled entity exceeds the fair value attributed to its net assets at date of acquisition. Goodwill on acquisitions of subsidiaries is included in intangible assets. Goodwill on acquisition of associates is included in investments in associates. Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Patents and trademarks Patents and trademarks are recognised at cost of acquisition. Patents and trademarks have a finite life and are carried at cost less any accumulated amortisation and any impairment losses. Patents and trademarks are amortised over their useful life ranging from 15 to 20 years. Research and development Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably. Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project. (k) Employee Benefits Provision is made for the Company’s liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits. The Company contributes to retirement funds that provide benefits to employees. The level of contributions is determined by Superannuation Guarantee legislation. The Company has no responsibility for the administration or performance of the funds.

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NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (l) Revenue Revenue from the sale of goods is recognised upon the delivery of goods to customers.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Revenue from the rendering of a service is recognised upon the delivery of the service to the customers.

All revenue is stated net of the amount of goods and service tax (GST).

(m) Borrowing Costs Borrowing costs directly attributable to the acquisition, construction or production of assets that necessarily take a substantial period of time to prepare for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale. All other borrowing costs are recognised in income in the period in which they are incurred.

(n) Goods and Services Tax (GST) Revenues, expenses and assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Tax Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

(o) Foreign Currencies

Transactions in foreign currencies are converted to local currency at the rate of exchange ruling at the date of the transaction.

(p) Critical accounting estimates and judgments The preparation of financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The Directors evaluate estimates and judgments incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained both externally and within the Group. 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 judgments in applying accounting policies that have the most significant effect on the amount recognised in the financial statements are described in the following notes: Note 5 – Income Tax Note 24 – Financial Instruments Note 26 – Share Based Payments

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Australian accounting standards and amendments issued but not yet effective AASB 2007-1 Amendments to

Australian Accounting Standards arising from AASB Interpretation 11 [AASB 2]

Amendments arise from release of AASB Interpretation 11 Group and Treasury Share Transactions

1 March 2007 Unless the Group enters into such share-based payment transactions in future reporting periods, these amendments are not expected to have any impact on the Group’s financial report

1 July 2007

AASB Interpretation 11

AASB 2 – Group and Treasury Share Transactions

Addresses whether certain share-based payment transactions with employees should be accounted for as equity-settled or cash-settled transactions under AASB 2

1 March 2007 Unless the Group enters into such share-based payment transactions in future reporting periods, this Interpretation is not expected to have any impact on the Group’s financial report.

1 July 2007

AASB 2007-2 Amendments to Australian Accounting Standards arising from AASB Interpretation 12 [AASB 1, AASB 117, AASB 118, AASB 120, AASB 121, AASB 127, AASB 131 and AASB 139]

Amendments arise from release of AASB Interpretation 12 Service Concession Arrangements

1 January 2008 Unless the Group enters into such service concession arrangements in future reporting periods, these amendments are not expected to have any impact on the Group’s financial report.

1 July 2008


Service Concession Arrangements

Addresses service concession arrangements under which private sector entities participate in the development, financing, operation and maintenance of infrastructure for the provision of public services, such as transport, water and energy facilities.

1 January 2008 Unless the Group enters into such service concession arrangements in future reporting periods, this Interpretation is not expected to have any impact on the Group’s financial report.

1 July 2008

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Australian accounting standards and amendments issued but not yet effective (continued) AASB 2007-3 Amendments to

Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 and AASB 1038]

Amendments arise from release of AASB 8 Operating Segments

1 January 2009 AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s financial statements. However, the amendments will result in changes to the segment disclosures included in the Group’s financial report.

1 July 2009

AASB 8 Operating Segments New standard replacing disclosure requirements of AASB 114

1 January 2009 As above. 1 July 2009

AASB 2007-5 Amendments to Australian Accounting Standard – Inventories Held for Distribution by Not-for-Profit Entities [AASB 102]

This Standard changes paragraph Aus9.1 to require inventories held for distribution by not-for-profit entities to be measured at cost, adjusted when applicable for any loss of service potential.

1 July 2007 Not applicable. 1 July 2007

AASB 2007-6 Amendments to Australian Accounting Standards arising from AASB 123 [AASB 1, AASB 101, AASB 107, AASB 111, AASB 116 and AASB 138 and Interpretations 1 and 12]

Amendments arise from the issuance in June 200 of a revised AASB 123 Borrowing Costs

1 January 2009 As it is the Group’s current policy to capitalise interest on qualifying assets, there will be no impact on the Group’s financial statements.

1 July 2009

AASB 123 Borrowing Costs Revised standard requiring the capitalisation of all borrowing costs directly attributable to the acquisition, construction or production of a qualifying asset.

1 January 2009 As above. 1 July 2009

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 1: STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (continued) (q) Australian accounting standards and amendments issued but not yet effective (continued) AASB Interpretation 10

Interim Financial Reporting and Impairment

Prevents the reversal of impairment losses on goodwill, investments in equity instruments carried at cost and available-for-sale financial assets being reversed in the annual financial report.

1 November 2006 There will be no impact because the entity has not previously made any impairment write-downs on these items during an interim reporting period (or has not subsequently reversed such impairment write-downs).

1 July 2007


Customer Loyalty Programmes

The fair value of revenue is to be allocated between sales and reward credits, resulting in a portion of revenue being deferred until reward credits are redeemed.

1 July 2008 There will be no impact as the entity does not have a customer loyalty programme.

1 July 2008


AASB 119 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction

Provides guidance on how to assess the limit in AASB 119 Employee Benefits para 58 on the amount of the surplus that can be recognised as an asset by an employer sponsor.

1 January 2008 There will be no impact as the entity does contribute to a defined benefit fund.

1 July 2008

AASB 101 Presentation of Financial Statements

Removes Australian specific disclosure requirements.

1 January 2007 As these changes result in a reduction of Australian specific disclosures, there will be no impact on amounts recognised in the financial statements.

1 July 2007

All other pending Standards issued between the previous financial report and the current reporting dates have no application to either the parent or consolidated entity.

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 2: STATEMENT OF CASH FLOWS RECONCILIATION OF THE NET OPERATING LOSS AFTER TAX TO THE NET CASH FLOWS FROM OPERATIONS

CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006

$ $ $ $ Loss after income tax (1,157,963) (3,546,889) (1,143,945) (3,336,597) (Gain)/loss on sale of non-current assets (822) 571 (822) 315 Depreciation of plant and equipment 4,168 2,802 2,144 2,590 Diminution in value of investment and loans 15,000 1,836,342 15,000 1,835,000 Equity settled share based payments 32,446 -- 32,446 -- Minority interest for the year (151,702) -- -- -- Movements in assets and liabilities - Inventories -- 2,806 -- -- - Trade debtors 2,865 (4,772) 1,767 (4,389) - Prepayments (2,915) -- (2,915) -- - Accounts payable and accruals (67,137) (10,889) (225,756) (52,768) - GST receivable 17,026 (11,290) 36,184 (12,530) Net cash flows used in operating activities (1,309,034) (1,731,319) (1,285,897) (1,568,379)

NOTE 3: REVENUE AND OTHER INCOME Revenue from operating activities Revenue from sale of goods -- 2,497 -- --

Total revenue from operating activities -- 2,497 -- -- Revenue from non-operating activities Interest – other parties 27,218 30,696 27,218 30,160

Total revenue from non-operating activities 27,218 30,696 27,218 30,160

Total revenues 27,218 33,193 27,218 30,160 Other income Profit on disposal of investment -- 34,555 -- -- Profit on disposal of plant and equipment 822 -- 822 -- Rent -- 5,945 -- 5,945 Provision for doubtful debts recovered 89,032 -- 89,032 -- Total other income 89,854 40,500 89,854 5,945

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CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006 NOTE 4: EXPENSES AND GAINS/(LOSSES) $ $ $ $

(a) Expenses Cost of goods sold -- 2,806 -- --

Depreciation of non-current assets Plant and equipment 4,168 4,039 2,144 2,590

Operating lease rental 18,957 18,436 -- 6,145

Borrowing costs – other parties 87,667 70,139 87,667 70,139

Consulting costs and legal fees 665,950 857,915 164,886 394,247 Travel and accommodation 48,931 50,260 2,231 9,260

(b) Gains/(Losses) Net gain/(loss) on disposal of plant and equipment -- (571) -- (315)

(c) Significant items Loss before income tax includes the following expenses whose disclosure is relevant in explaining the financial performance of the entity:

Bad debts -- 20 -- -- Communication costs 4,469 9,120 3,654 7,217 Director and employee benefits expense 44,966 384,140 28,980 383,880 Write down of investments and loans 17,990 1,871,712 767,755 2,291,795 Other expenses 381,937 351,424 203,700 207,114 449,362 2,616,416 1,004,089 2,890,006

NOTE 5: INCOME TAX

(a) Income tax expense

Current tax -- -- -- -- Deferred tax -- -- -- -- Under/(over) provision in prior years -- -- -- --

-- -- -- --

The prima facie tax on loss before income tax is reconciled to the income tax as follows:

Loss before income tax (1,157,963) (3,546,889) (1,143,945) (3,336,597)

Income tax calculated at 30% (347,389) (1,064,067) (343,184) (1,000,979)

Add back: Non-allowable expenditure and provisions (21,042) 858,575 203,368 807,257 Deferred tax asset in respect to losses not brought to account

368,431

205,492

139,816

193,722

Income tax expense -- -- -- --

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NOTE 5: INCOME TAX (continued) CONSOLIDATED PARENT ENTITY (b) Tax losses and timing differences for which 2007 2006 2007 2006 no deferred tax asset has been recognised $ $ $ $

Timing differences 14,819 -- 10,154 -- Unused tax losses 10,434,768 9,388,633 5,169,457 4,713,557

10,449,587 9,388,633 5,179,611 4,713,557

Potential tax benefit @ 30% 3,134,876 2,816,590 1,553,883 1,414,067 Deferred income tax assets have not been recognised as it is not probable that future profit will be available against which deductible temporary differences can be utilised. CONSOLIDATED PARENT ENTITY NOTE 6: CASH AND CASH EQUIVALENTS 2007 2006 2007 2006 $ $ $ $ Cash balance comprises: Cash at bank 52,874 175,232 12,963 111,709 Term deposit 450,000 700,000 450,000 700,000 Other 2 2 -- --

502,876 875,234 462,963 811,709 NOTE 7: TRADE AND OTHER RECEIVABLES

Current Trade debtors 2,622 5,487 2,622 4,389

Non-current Aggregate amounts receivable from related parties: Other associated entities -- 15,000 -- 15,000 Wholly-owned group - Controlled entities -- -- 5,845,532 5,095,967

Provision for doubtful debt - Controlled entities -- -- (5,845,532) (5,095,967)

-- 15,000 -- 15,000

Movement in provision for doubtful debts

Balance at beginning of year -- -- (5,095,967) (4,639,494)

Bad and doubtful debts provided for during the year -- -- (749,565) (456,473)

Balance at end of year -- -- (5,845,532) (5,095,967)

(a) Terms and Conditions Terms and conditions relating to the above financial instruments

(i) Trade debtors are non-interest bearing and generally on 30 day terms. (ii) Sundry debtors and other receivables are non-interest bearing and have repayment terms between 30 and 90

days. (iii) Loans receivable from controlled entities are non-interest bearing and payable on demand.

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CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006 $ $ $ $ NOTE 8: OTHER FINANCIAL ASSETS Non current Shares in controlled entities -- -- 3,909,151 3,909,151Less: provision for write-down -- -- (3,909,150) (3,909,150) -- -- 1 1 NOTE 9: OTHER ASSETS Current GST receivable 43,526 60,552 15,628 51,812 Prepayments 2,915 -- 2,915 -- 46,441 60,552 18,543 51,812 NOTE 10: PLANT AND EQUIPMENT

Plant and equipment at cost 24,171 24,363 12,855 15,188 Accumulated depreciation (10,003) (8,353) (5,907) (7,317) 14,168 16,010 6,948 7,871 (a) Reconciliations of net carrying amount Plant and equipment: Carrying amount at beginning of year 16,010 10,415 7,871 9,808 Additions 3,888 10,205 2,783 968 Disposals (1,562) (571) (1,562) (315) Depreciation expense (4,168) (4,039) (2,144) (2,590) Carrying value at end of year 14,168 16,010 6,948 7,871

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Notes to the Financial Statements for the Year Ended 30 June 2007 CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006 $ $ $ $

NOTE 11: TRADE AND OTHER PAYABLES Current Trade creditors 313,851 396,309 82,065 315,059 Accrued expenses 210,721 195,400 187,238 180,000

524,572 591,709 269,303 495,059

Trade creditors and accruals include the following amounts with related parties: Directors and Director related entities 399,281 409,796 219,082 390,708 (a) Terms and Conditions Terms and conditions relating to the above financial instruments:

(i) Trade creditors are non-interest bearing and are normally settled on 30 day terms.

NOTE 12: INTEREST-BEARING LIABILITIES

Current Convertible notes 610,000 1,110,000 610,000 1,110,000 (a) Terms and conditions Convertible notes issued: Issue Date Amount Interest Rate Convertible On or Before 1 April 2004 200,000 12% per annum 30 June 2008 (i) 12 October 2005 410,000 12% per annum 12 November 2007 (ii)

14 June 2006 500,000 12% per annum 14 July 2006 (iii)

1,110,000

The notes are convertible into shares at any time on or before the conversion date at the option of either the Company or the lender. The notes issued in April 2004 are convertible to shares at the option of the holder at the lower of $0.02 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company. The notes issued in October 2005 are convertible to shares at the option of the holder at the lower of $0.024 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company. The notes issued in June 2006 are convertible to shares at the option of the holder at the lower of $0.03 or 80% of the average weighted price of the shares traded on ASX during the five business days before the date on which the notice of conversion is received by the Company.

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 12: INTEREST-BEARING LIABILITIES (continued)

Upon conversion, each share granted also has a free attaching option on a one option for one share basis, exercisable at $0.05 on or before 31 December 2008.

If the lender has not been repaid and has not converted 30 days prior to the end of the term of the notice, the Company, by issuing a notice to the holder, may convert the notes to shares and options as per the conversion terms and conditions.

If the lender has not converted by the end of the term of the note, the Company must repay the lender.

(i) The convertible notes issued on 1 April 2004 were not converted on 30 June 2007, as they were extended for a further 12 months.

(ii) The convertible notes issued on 12 October 2005 were not converted on 12 November 2006, as they were extended for a further 12 months.

(iii) The convertible notes issued on 14 June 2006 were converted on 12 September 2006. CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006 $ $ $ $ NOTE 13: OTHER LIABILITIES

Current Loans 1,178 1,370 -- -- NOTE 14: CONTRIBUTED EQUITY

Issued and paid up capital 295,319,573 ordinary shares fully paid (2006: 223,097,350) 19,624,371 18,309,171 19,624,371 18,309,171

Terms and conditions of contributed equity

Ordinary Shares Ordinary shares have the right to receive dividends as declared and, in the event of winding up the Company, to participate in the proceeds from the sale of all surplus assets in proportion to the number of and amounts paid up on shares held.

Each ordinary share entitles their holder to one vote, either in person or by proxy, at a meeting of the Company.

Movement in ordinary share capital of the Company during the year was as follows:

Date Details Number of Shares

Issue Price $

01/07/06 Opening balance 223,097,350 18,309,171 12/09/06 Conversion of convertible notes 25,000,000 $0.02 500,000 29/12/06 Working capital 47,222,223 $0.018 850,000 Less: transaction costs arising on share issues -- (34,800)

30/06/07 Closing balance 295,319,573 19,624,371

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Notes to the Financial Statements for the Year Ended 30 June 2007 CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006 $ $ $ $ NOTE 15: RESERVES (a) Composition (i) Share based payment reserve 609,676 454,880 609,676 454,880 (ii) Foreign currency translation reserve 1,237 415 -- -- 610,913 455,295 609,676 454,880 (i) The share based payments reserve records items recognised as expenses on valuation of Director and

consultant share options. (ii) The foreign currency translation reserve records exchange differences arising on translation of a foreign

controlled subsidiary. (b) Movement in options of the Company during the year was as follows:

Date Details Number of Options

Issue Price

$

01/07/06 Opening balance 153,514,304 $0.05 454,880 12/09/06 Conversion of convertible notes 25,000,000 $0.05 -- 21/12/06 Remuneration options (b) 1,500,000 $0.10 1,680 21/12/06 Remuneration options (b) 1,500,000 $0.05 1,786 21/12/06 Remuneration options (b) 6,000,000 $0.05 18,480 21/12/06 Remuneration options (b) 6,000,000 $0.10 7,140 21/12/06 Remuneration options (b) 6,000,000 $0.15 3,360 31/12/06 Options expired (146,614,304) $0.05 -- 16/03/07 Working capital 146,614,304 $0.001 146,614 19/03/07 Working capital (a) 47,222,223 $0.05 -- Less: transaction costs arising on option issues -- (24,264)

30/06/07 Closing balance 246,736,527 609,676

(a) Free attaching options for funds raised (b) Pursuant to resolution of members

NOTE 16: CONTINGENT LIABILITIES

Pharmanet Group Limited and its controlled entities have no known material contingent liabilities at the end of the financial year. NOTE 17: SUBSEQUENT EVENTS

Subsequent to the end of the financial year ended 30 June 2007, the following event had occurred: • On 23 August 2007, the Australian Taxation Office issued the consolidated entity a Research and

Development tax offset of $77,080.50.

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NOTE 18: SEGMENT INFORMATION The Consolidated Entity principally operates in the biotechnology and pharmaceutical industry in Australia.

(b) Geographical Segments

Australia USA Consolidated 2007 2006 2007 2006 2007 2006 $ $ $ $ $ $

Operating revenue

Sales to customers Outside the consolidated

entity

-- 1,497 -- --

-- 1,497

Other revenue 117,072 72,196 -- -- 117,072 72,196

Total revenue 117,072 73,693 -- -- 117,072 73,693

Segment Result (550,333) (3,546,889) (607,630) -- (1,157,963) (3,546,889)

Consolidated Entity Operating Loss (1,157,963) (3,546,889)

Segment Assets 510,187 972,283 55,920 -- 566,107 972,283

(a) Business Segments Investments Pharmaceutical Consolidated Manufacturing

2007 2006 2007 2006 2007 2006 $ $ $ $ $ $

Operating revenue

Sales to customers outside the consolidated

entity

-- -- -- 1,497

-- 1,497

Other revenue 117,072 71,196 -- 1,000 117,072 72,196

Total revenue 117,072 71,196 -- 2,497 117,072 73,693

Segment result (398,587) (3,063,269) (759,376) (483,620) (1,157,963) (3,546,889)

Consolidated entity Operating loss (1,157,963) (3,546,889)

Segment assets 491,077 890,968 75,030 81,315 566,107 972,283

Segment liabilities 879,303 1,605,059 256,447 98,020 1,135,750 1,703,079

Other segment

Information Depreciation 2,144 2,642 2,024 1,397 4,168 4,039

Acquisition of plant and equipment

2,783 968 1,105 9,237

3,888 10,205

Other non cash

items other than depreciation and amortisation (32,445) (383,880) -- -- (32,445) (383,880)

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NOTE 19: KEY MANAGEMENT PERSONNEL This note is to be read in conjunction with the Remuneration Report which is included in the Directors’ Report. Directors The following persons were Directors of Pharmanet Group Limited during the financial year: Chairman – Executive J Palermo Non-executive Directors S M O Watson C J Quirk There are no other key management personnel in positions of control or exercising management authority. (a) Remuneration of Key Management Personnel Non-Executive Directors Fees and payments to non-executive directors reflects the demands which are made on, and the responsibilities of, the Directors. Non-executive directors’ fees and payments are reviewed annually by the Board. Director Fees The current base remuneration was last reviewed with effect from 1 July 2006. The Chairman’s and other non-executive directors’ remuneration is inclusive of committee fees. Non-executive directors’ fees are determined within an aggregate directors’ fee pool limit, which is periodically recommended for approval by shareholders.

Key management personnel compensation Consolidated Parent Entity 2007 2006 2007 2006 $ $ $ $

Short-term employee benefits 104,500 42,184 104,500 42,184Post-employment benefits -- -- -- --Long-term benefits -- -- -- --Share-based payments 28,980 255,920 28,980 255,920

133,480 298,104 133,480 298,104 The Company has taken advantage of the relief provided by Corporations Regulations 2M.6.04 and has transferred the detailed remuneration disclosures to the Directors’ Report. The relevant information can be found in the remuneration report on pages 18 to 20. (b) Options and Rights Holdings by Directors (2007)

Balance Granted as No. of Net Balance Total Vested Total 01/07/06 Remuneration Options Change 30/06/07 30/06/07 Exercisable (No. Options) (No. Options) Exercised Other (No. Options) (No. Options) (No. Options)

(No. Options) Director J Palermo 12,000,000 6,000,000 -- -- 18,000,000 18,000,000 18,000,000 S M O Watson 15,027,311 6,000,000 -- -- 21,027,311 21,027,311 21,027,311 C J Quirk 900,000 6,000,000 (2,777,778) 5,555,556 9,677,778 9,677,778 9,677,778 Total 27,927,311 18,000,000 (2,777,778) 5,555,556 48,705,089 48,705,089 48,705,089

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NOTE 19: KEY MANAGEMENT PERSONNEL (continued)

Options and Rights Holdings by Directors (2006)

Balance Granted as No. of Net Balance Total Vested Total 01/07/05 Remuneration Options Change 30/06/06 30/06/06 Exercisable (No. Options) (No. Options) Exercised Other (No. Options) (No. Options) (No. Options)

(No. Options) Director J Palermo 6,000,000 6,000,000 -- -- 12,000,000 12,000,000 12,000,000 S M O Watson 9,027,311 6,000,000 -- -- 15,027,311 15,027,311 15,027,311 C J Quirk -- -- -- 900,000 900,000 900,000 900,000 Total 15,027,311 12,000,000 -- 900,000 27,927,311 27,927,311 27,927,311 (c) Share Holdings by Directors (2007)

Opening Received No. of Options Net Other Closing Balance Remuneration Exercised Change Balance (No. of Shares) (No. of Shares) (No. of Shares) (No. of Shares)

Parent Entity Director J Palermo 15,610,964 -- -- -- 15,610,964 S M O Watson 12,502,769 -- -- -- 12,502,769 C J Quirk 800,000 -- 2,777,778 -- 3,577,778

Total Directors 28,913,733 -- 2,777,778 -- 31,691,511

Share Holdings by Directors (2006)

Balance Received No. of Options Net Other Balance 01/07/05 Remuneration Exercised Change 30/06/06 (No. of Shares) (No. of Shares) (No. of Shares) (No. of Shares)

Director J Palermo 15,610,964 -- -- -- 15,610,964 S M O Watson 12,502,769 -- -- -- 12,502,769 C J Quirk -- -- -- 800,000 800,000

Total Directors 28,113,733 -- -- 800,000 28,913,733 (d) Transactions with key management personnel

John Palermo, Simon Watson, Christopher Quirk and their related entities provide consulting services to the consolidated group as required, as detailed in Note 23.

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CONSOLIDATED PARENT ENTITY 2007 2006 2007 2006 $ $ $ $

NOTE 20: REMUNERATION OF AUDITORS Amounts received or due and receivable by the auditors of the Parent Entity for:

Audit and review of the accounts - BDO Kendalls Audit & Assurance (WA) 37,690 43,647 26,975 39,367 - Other auditors 93,950 1,720 -- -- Other services - BDO Kendalls Audit & Assurance (WA) 1,100 400 1,100 400 - Other auditors 1,600 -- 1,600 --

134,340 45,767 29,675 39,767

NOTE 21: EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS

Employee Share Incentive Scheme

An employee share scheme has been established where directors, executives and certain members of staff of the consolidated entity are issued with options over the ordinary shares of Pharmanet Group Limited. The options, issued for nil consideration, are issued at the discretion of the directors of Pharmanet Group Limited. The options expired on 13 October 2005. Information with respect to the number of options granted to employees is as follows:

2007 2006 No. of Weighted No. of Weighted options average options average exercise exercise price price

Balance at beginning of year -- -- 900,000 0.28 - granted -- -- -- -- - expired -- -- (900,000) -- - exercised -- -- -- --

Balance at end of year -- -- -- --

Exercisable at end of year -- -- -- -- Superannuation Commitments Employees and the employer contribute to complying accumulation funds at varying percentages of salaries and wages. The consolidated entity’s contributions are not legally enforceable other than those payable in terms of ratified award obligations required by the Occupational Superannuation Act. The assets of the funds are sufficient to satisfy all benefits that would have vested under the plan in the event of termination of the plans and voluntary or compulsory termination of each employee.

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 22: CONTROLLED ENTITIES

Country Class of % Held by Book Value of Units/Shares Parent Entity of Shares Held Incorp Held by Parent Entity 2007 2006 2007 2006 $ $ $ $

Pharmanet Group Ltd AUS N/A N/A N/A N/A N/A

Thermalife International Pharmaceuticals Pty Ltd AUS Ord Shares 100% 100% -- --

Peptophen Research and Development Pty Ltd AUS Ord Shares 100% 100% -- --

Pandaland Holdings Ltd AUS Ord Shares 100% 100% -- --

Pharmaceutical Products Group Pty Ltd AUS Ord Shares 100% 100% -- --

Cambridge Scientific Pty Ltd AUS Ord Shares 100% 100% -- --

Veterinary Technologies Limited AUS Ord Shares 100% 100% 1 1

Molecular Pharmacology (USA) Limited USA Ord Shares 80% 80% -- -- 1 1

NOTE 23: RELATED PARTY TRANSACTIONS

The Directors of Pharmanet Group Limited during the financial year were:

John Palermo Simon Maxwell Ormsby Watson Christopher John Quirk

Either individually or through companies under their control or through companies under the control of a director related entity, Mr J Palermo, Dr C J Quirk and Mr S M O Watson received payment for the provision of consultancy, secretarial, legal, rent and administrative services under normal commercial terms and conditions.

Related parties of Mr J Palermo, being Palermo Chartered Accountants, JP Corporate Pty Ltd, PAJ Investments Pty Ltd for company secretarial, corporate advisory and premises lease respectively, Dr C J Quirk for financial consultancy services and Mr S M O Watson for the provision of legal services.

The aggregate amount of payments for the above mentioned services provided in the ordinary course of business were as follows:

2007 2006 $ $

Consultancy, administration and secretarial 197,783 332,819 Legal 20,354 150,481 Rent and outgoings 22,962 17,846

241,099 501,146

The above payments have not been included as part of Directors’ remuneration.

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NOTE 24: FINANCIAL INSTRUMENTS

(a) Interest Rate Risk The Consolidated Entity’s exposure to interest rate risk, which is the risk that a financial instrument’s value will fluctuate as a result of change in the market interest rate and the effective weighted average interest rate on these financial assets, is as follows:

Weighted Average Non Interest Floating Total Effective Interest Bearing Interest Rate Rate % $ $ $ 2007 2006 2007 2006 2007 2006 2007 2006

Financial assets - Cash 6.30 5.71 -- -- 502,876 875,234 502,876 875,234- Trade debtors 2,622 5,487 -- -- 2,622 5,487- GST receivable 43,526 60,552 -- -- 43,526 60,552- Prepayments 2,915 -- -- -- 2,915 --- Unsecured loans -- 15,000 -- -- -- 15,000

Total financial assets 49,063 81,039 502,876 875,234 551,939 956,273

Financial liabilities - Convertible notes -- -- 610,000 1,110,000 610,000 1,110,000- Creditors and accruals 524,572 591,709 -- -- 524,572 591,709

Total financial liabilities 524,572 591,709 610,000 1,110,000 1,134,572 1,701,709

The Consolidated Entity’s accounting policies, including the terms and conditions of each class of financial asset, financial liability and equity instrument, both recognised and unrecognised in the balance sheet are as follows:

Financial Assets • Trade receivables Receivables are carried at nominal amounts due less any provision for doubtful debts. A provision for

doubtful debts is recognised when collection of the full nominal amount is no longer probable. Credit is provided on normal commercial terms.

• Receivables related parties Amounts receivable from related parties/entities are carried at nominal amounts due. Details of the terms

and conditions are set out in Note 7.

• Share investments Share investments are carried at the lower of cost or recoverable amount. Dividend income is recognised

when the dividends are declared by the investee.

• Unsecured loans The carrying amount approximates fair value because of their short term to maturity. The recoverability of this loan is assured under the terms of the Variation of Option to Purchase Ampack Medical Australia Pty Ltd.

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 24: FINANCIAL INSTRUMENTS (continued) Financial Liabilities • Trade and other payables

Liabilities are recognised for amounts to be paid in the future for goods and services received, whether or not billed to the Consolidated Entity. Trade liabilities are settled on 30 days terms.

• Convertible Notes The convertible notes are unsecured. They are reported at their principle amount. Interest is charged as an expense as it accrues. Details of the terms are set out at in Note 12.

Equity • Ordinary Shares Ordinary share capital is recognised at the face value of the consideration received by the Company,

details of shares issued and the terms and conditions of options outstanding at balance date are set out in Note 14.

(b) Credit Risk The maximum exposure to credit risk, excluding the value of any collateral or other security, at balance date, to recognise financial assets is the carrying amount net of any provisions for impairment of those assets, as disclosed in the balance sheet and notes to the financial statements. The Consolidated Entity does not have any material credit risk exposure to any single receivable or group of receivables under financial instruments entered into by the Consolidated Entity.

(c) Net Fair Values For assets and other liabilities the net fair value approximates their carrying value. The Consolidated Entity has no financial assets or liabilities that are readily traded on organised markets at balance date and has no financial assets where the carrying amount exceeds net fair values at balance date. The aggregate net fair values and carrying amounts of financial assets and financial liabilities are disclosed in the balance sheet and in the notes to and forming part of the financial statements.

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 25: EARNINGS PER SHARE

The following reflects the income and data used in the calculations of basic earnings per share:

Consolidated 2007 2006 $ $ Net loss (1,157,963) (3,546,889)

Earnings used in calculating basic earnings per share (1,157,963) (3,546,889 )

Number of shares Number of Shares Weighted average number of ordinary shares used in calculating based earnings per share: 266,704,656 214,157,397 Basic loss per share (0.004) (0.016) Diluted loss per share is not disclosed as the conversion to ordinary shares does not lead to an inferior view of the earnings performance of the entity. NOTE 26: SHARE BASED PAYMENTS The following share based payments arrangements existed as at 30 June 2007. On 21 December 2006, the following options were granted to various Directors, employees and consultants of the consolidated entity: J Palermo - 2,000,000 unlisted options exercisable at $0.05 on or before 31 December 2010; - 2,000,000 unlisted options exercisable at $0.10 on or before 31 December 2010; and - 2,000,000 unlisted options exercisable at $0.15 on or before 31 December 2010. S M O Watson - 2,000,000 unlisted options exercisable at $0.05 on or before 31 December 2010; - 2,000,000 unlisted options exercisable at $0.10 on or before 31 December 2010; and - 2,000,000 unlisted options exercisable at $0.15 on or before 31 December 2010. C J Quirk - 2,000,000 unlisted options exercisable at $0.05 on or before 31 December 2010; - 2,000,000 unlisted options exercisable at $0.10 on or before 31 December 2010; and - 2,000,000 unlisted options exercisable at $0.15 on or before 31 December 2010. The Company also issued a further 1,500,000 unlisted options exercisable at $0.05 on or before 31 December 2008 and 1,500,000 unlisted options exercisable at $0.10 on or before 31 December 2010 to various employees and consultants of the consolidated entity.

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Notes to the Financial Statements for the Year Ended 30 June 2007 NOTE 26: SHARE BASED PAYMENTS (continued) The number and weighted average exercise prices of share options is as follows: Weighted

average exercise price

Number of Options

Weighted average exercise

price

Number of Options

2007 2007 2006 2006

Outstanding at 1 July $0.10 153,514,304 $0.20 113,247,641Expired during the year $0.05 (146,614,304) $0.28 (900,000)Forfeited during the year -- -- -- --Exercised during the year -- -- $0.05 (500,000)Granted during the year $0.10 239,836,527 $0.10 41,666,663Outstanding at 30 June $0.10 246,736,527 $0.10 153,514,304Vested and exercisable at 30 June $0.10 246,736,527 $0.10 153,514,304 The options outstanding at 30 June 2007 have an exercise price in the range of $0.05 to $0.15 and a weighted average remaining contractual life of 2 years. Fair value of options granted The fair value at grant date is independently determined using a Black-Scholes option pricing model that takes into account the exercise price, the term of the option, the impact of dilution, the share price at grant date and expected price volatility of the underlying share and the risk free interest rate for the term of the option. The model inputs for options granted during the year ended 30 June 2007 included:

(a) options are granted for no consideration (2006: Nil) (b) exercise price: $0.05, $0.10 and $0.15 (2006: $0.05, $0.10 and $0.15) (c) grant date: 21 December 2006 (2006: 8 December 2005) (d) expiry date: 31 December 2010 (2006: 31 December 2010) (e) share price at grant date: $0.021 (2006: $0.045) (f) expected price volatility of the Company’s shares: 50% (2006: 100%) (g) risk-free interest rate: 5.93% (2006: 5.31%)

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ASX Additional Information

1. QUOTED SECURITIES

(a) ORDINARY FULLY PAID SHARES

(i) DISTRIBUTION OF SHAREHOLDERS AS AT 17 SEPTEMBER 2007:

SPREAD PERCENTAGE OF OF HOLDINGS HOLDERS SHARES ISSUED CAPITAL %

1 - 1,000 117 63,967 0.02 1,001 - 5,000 267 862,281 0.29 5,001 - 10,000 173 1,454,417 0.49 10,001 - 100,000 510 24,846,950 8.41 100,001+ 334 268,091,958 90.79

1,401 295,319,573 100.00

The number of shareholdings held in less than marketable parcels is 743.

(ii) TOP 20 HOLDERS OF ORDINARY FULLY PAID SHARES: The names of the twenty largest shareholders of ordinary fully paid shares are listed below:

NAME NO. OF PERCENTAGE ORDINARY OF ISSUED SHARES SHARES % HELD 1. Monarch Corporation Pty Ltd <Monarch A/c> 32,038,889 10.85 2. Steven Jin Hooi Ong 9,466,035 3.213. Monarch Corporation Pty Ltd 9,160,358 3.10 4. Kings Park Nominees Pty Ltd 7,216,708 2.445. Westdale Asset Pty Ltd 6,000,000 2.03 6. Merinda Holdings Pty Ltd <RGR Harris S/F A/c> 6,000,000 2.037. Bradshaw Muir & Associates Pty Ltd 5,500,000 1.86 8. Manhattan Investments Inc 5,000,000 1.699. Exclusive Designs WA Pty Ltd 4,968,780 1.68 10. Vagabond Holdings Pty Ltd <G R Koski Family A/c> 4,500,007 1.52 11. Kings Park Nominees Pty Ltd <Watson Super Fund

A/c> 4,286,061 1.45

12. James Wallace Hope <JWH A/c> 4,000,000 1.35 13. Gaetano Mandosio & Alfonsina Mandosio 4,000,000 1.35 14. Huidi Qi 4,000,000 1.35 15. Richard Bradshaw & Lynne Bradshaw 3,782,591 1.28 16. Yu Lin Capraro & Umberto Capraro 3,300,000 1.12 17. Intercorp Pty Ltd 3,249,444 1.10 18. Vagabond Holdings Pty Ltd 3,000,000 1.02 19. Arco Four Investments Pty Ltd 3,000,000 1.02 20. Clark Super Pty Ltd <Clark Super Fund A/c> 2,900,000 0.98

125,368,873 42.43

(iii) VOTING RIGHTS No restrictions - on a show of hands every member present in person or by proxy shall have one

vote and upon a poll, each fully paid share shall have one vote.

(iv) SUBSTANTIAL SHAREHOLDERS Substantial Shareholders as recorded in the Register of Members as at 17 September 2007:

Name Ordinary Shares No. %

Monarch Corporation Pty Ltd <Monarch A/c>

32,038,889 10.85

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ASX Additional Information

(c) OPTIONS EXERCISABLE AT $0.05 ON OR BEFORE 31 DECEMBER 2008

(i) DISTRIBUTION OF OPTIONHOLDERS AS AT 17 SEPTEMBER 2007:

SPREAD NO. OF NO. OF PERCENTAGE OF OF HOLDINGS HOLDERS OPTIONS ISSUED OPTIONS %

1 - 1,000 7 4,446 0.00 1,001 - 5,000 5 13,974 0.01 5,001 - 10,000 3 22,500 0.01 10,001 - 100,000 45 2,711,741 1.40 100,001+ 114 191,083,866 98.58

174 193,836,527 100.00

(ii) TOP 20 HOLDERS OF OPTIONS EXERCISABLE AT $0.05 ON OR BEFORE 31 DECEMBER 2008:

The names of the twenty largest holders of options exercisable at $0.05 on or before 31 December

2007 are listed below:

NAME NO. OF PERCENTAGE OPTIONS OF ISSUED HELD OPTIONS %

1. Monarch Corporation Pty Ltd <Monarch A/c> 30,038,889 15.50 2. Monarch Corporation Pty Ltd 10,318,571 5.32 3. Yu Lin Capraro & Umberto Capraro 8,500,000 4.39 4. Steven Jin Hooi Ong 8,331,000 4.30 5. Kings Park Nominees Pty Ltd <Watson Super Fund A/c> 7,988,561 4.12 6. Westdale Asset Pty Ltd 7,900,000 4.08 7. Jason Peterson & Lisa Peterson <J & L Peterson S/F A/c> 6,319,987 3.26 8. Li Hui 5,568,932 2.879. Manhattan Investments Inc 5,000,000 2.58 10. Ozway International Pty Ltd 4,500,000 2.3211. Intercorp Pty Ltd 4,361,111 2.25 12. Roger Geoffrey Harris <RGR Harris Family A/c> 4,075,000 2.1013. Vagabond Holdings Pty Ltd <G R Koski Family A/c> 3,750,000 1.93 14. Anthony John Baxter 3,584,211 1.8515. JEB Holdings Pty Ltd <Edwards Super Fund A/c> 3,194,444 1.65 16. Dolphin Technology Pty Ltd <Dolphin A/c> 3,000,000 1.5517. Dolphin Technology Pty Ltd 3,000,000 1.55 18. JEB Holdings Pty Ltd <Edwards Family A/c> 3,000,000 1.5519. Sigma Chemicals 1986 Pty Ltd 2,500,000 1.29 20. Kelly Helene Lyndon 2,450,000 1.26

127,380,706 65.72

(iii) VOTING RIGHTS Holders of options are not entitled to vote at a General Meeting of Members in person, by proxy or

upon a poll, in respect of their option holding only.

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ASX Additional Information 2. UNQUOTED SECURITIES (a) OPTIONS As at 17 September 2007 there existed the following unquoted options: (i) 13,900,000 OPTIONS EXERCISABLE AT $0.10 EACH BEFORE 30 JUNE 2008

Options %

Intercorp Pty Ltd 7,000,000 50.36 Vagabond Holdings Pty Ltd <GRF A/c> 2,000,000 14.39 Monarch Corporation Pty Ltd <Monarch A/c> 2,000,000 14.39 D F Lynton-Brown Pty Ltd <Super A/c> 600,000 4.31 Profit Resource Management Pty Ltd 500,000 3.60 T & F Pugh <Trelou A/c> 400,000 2.88 Peterborough Nominees Pty Ltd 400,000 2.88 Katarina Corporation Pty Ltd 400,000 2.88 M E I'Ons & J M I'Ons 400,000 2.88 Alan Furman 200,000 1.43

13,900,000 100.00

(ii) 6,000,000 OPTIONS EXERCISABLE AT $0.05 EACH BEFORE 31 DECEMBER 2010

Options %

Dolphin Technology Pty Ltd <The Dolphin A/c> 2,000,000 33.33 Vison Pty Ltd 2,000,000 33.33 Kings Park Nominees Pty Ltd <The Watson Super Fund A/c> 2,000,000 33.34

6,000,000 100.00

(iii) 6,000,000 OPTIONS EXERCISABLE AT $0.10 EACH BEFORE 31 DECEMBER 2010

Options %


6,000,000 100.00

(iv) 6,000,000 OPTIONS EXERCISABLE AT $0.15 EACH BEFORE 31 DECEMBER 2010

Options %


6,000,000 100.00

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ASX Additional Information (v) VOTING RIGHTS Holders of options are not entitled to vote at a General Meeting of Members in person, by proxy or

upon a poll, in respect of their option holding. 3. DIRECTORS' INTERESTS Interests of each Director in the share capital of the Company at 30 June 2007 are detailed in the Directors’

Report.

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Corporate Governance Statement The ASX Corporate Governance Council requires that the Company must disclose the extent to which it has followed best practice recommendations, identify which recommendations have not been followed and the reason for not adopting the recommendations. The ASX Corporate Governance Council recognises that not all recommendations are appropriate for all companies and that companies should only adopt those recommendations that are suitable in each individual case. The following is a summary of policies adopted by the Company and where appropriate, explanations of where best practice recommendations have not been applied. The various policies and procedures were followed throughout the entire financial year. Board Composition and Functions Under the Company’s Constitution, the Board is required to consist of at least 3 and no more than 10 directors. If the Company has 3 or more directors, one third of the directors, with the exception of the Managing Director, must retire and seek re-election at the Annual General Meeting each year. The Board of the Company currently consists of 1 executive and 2 non-executive directors. The Board composition does not follow ASX recommendations, in that a majority of directors are not independent. The Board is considered to be comprised of directors with the experience and qualifications best suited to the Company’s size and range of activities. The Company has followed ASX recommendations in the assessment of whether a director is considered to be “independent”. The other non-executive directors are Simon Watson and Christopher Quirk. The Board delegates responsibilities to committees, executive directors and senior management. The Board is responsible for corporate strategy, implementation of business plans, allocation of resources, approval of budgets and capital expenditure, and the adherence to Company policies. The Board is also responsible for compliance with the Code of Conduct, overseeing risk management and internal controls, and the assessment, appointment and removal of the Managing Director, Company Secretary and other senior management. Directors of the Company during the financial year and information pertaining to individual directors is included in the Directors’ Report. Board members have the right to seek independent professional advice in the furtherance of their duties as directors at the Company’s expense.

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Corporate Governance Statement (continued)

Director Independence The Company has established guidelines for testing the independence of directors. A director is considered to be independent if they satisfy certain criteria, the most significant being as follows: • The director must be in a non-executive role where any fees payable by the Company could not be considered

to make the director reliant on such remuneration. The director must have no other material contractual relationship with the Company other than as a director of the Company.

• The director is not a substantial shareholder of the Company. • The director has not been employed in an executive capacity by the Company and has not been a principal of

a material adviser or consultant to the Company within the last 3 years, and • The director is free from any interest which could reasonably be perceived to materially interfere with the

director’s ability to act in the best interests of the Company. Risk Management The Board is responsible for the identification of significant areas of business risk, implementing procedures to manage such risks and developing policies regarding the establishment and maintenance of appropriate ethical standards to: • Ensure compliance in legal, statutory and ethical matters; • Monitor the business environment; • Identify business risk areas; • Identify business opportunities; and • Monitor systems established to ensure prompt and appropriate responses to shareholder complaints and

enquiries. The Board meets on a regular basis. The Company does not follow the ASX best practice recommendation that the Company should have an internal control function. The Board considers that the Company is not of a size or operational complexity to warrant the implementation of a separate internal control function. The Company Secretary is required to state in writing to the Board that the Company has a sound system of risk management, that internal compliance and control systems are in place to ensure the implementation of Board policies, and that those systems are operating efficiently and effectively in all material respects.

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Corporate Governance Statement (continued) Audit Committee The Company believes it is not of a size to justify having an Audit Committee. All directors are involved in overseeing the existence and maintenance of internal controls, accounting systems and external audit arrangements. Procedure for the Selection of New Directors The Company believes it is not of a size to justify having a Nomination Committee. If any vacancies arise on the Board, all directors are involved in the search and recruitment of a replacement. Corporate performance is enhanced when the Board has an appropriate mix of skills and experience. The Board is evaluated before a candidate is selected to join the Board. Candidates are nominated by existing Board members and independent search consultants are also utilised if necessary. Where a director nominates a candidate for the Board, the director must disclose any pre-existing relationship with the nominee. New directors are provided with a letter of appointment setting out their responsibilities and rights, and are provided with a copy of the Company’s Constitution. Remuneration of Board Members The Company has established a Remuneration Committee comprising the full Board to oversee the remuneration of senior executives and executive directors. According to the Company’s Constitution, the Remuneration Committee must consist of at least 2 non-executive directors. At the date of this report, the committee members were John Palermo, Simon Watson and Christopher Quirk. The Company believes it is not of a size to justify following the ASX recommendations. The Committee reviews executive directors’ and senior management’s remuneration and other terms of employment annually, having regard to performance, relative industry remuneration levels, and where appropriate, the Committee seeks independent advice to ensure appropriate remuneration levels are in place. The remuneration of non-executive directors is determined by the Board within the maximum amount approved by shareholders in general meeting. Non-executive directors are not entitled to retirement benefits other than statutory superannuation or other statutory required benefits. Non-executive directors may provide consulting services to the Company, which are over and above the service normally provided by a non-executive director in the performance of their duty as a member of the Board. Where the Company requests that specific projects are investigated by a non-executive director that fall outside their normal duties as a director, additional services may be charged to the Company, at normal commercial rates. Performance evaluations for Board members are held annually and are undertaken with a view to comparing the performance of individual directors to the performance and growth of companies of similar size and complexity within the mining industry.

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Corporate Governance Statement (continued) No director may be involved in setting their own remuneration or terms and conditions. Conflicts of Interest The Board has put in place Code of Conduct and Share Trading Policies which have been designed to ensure that all directors and employees of the Company act ethically and do not use confidential information for personal gain. Code of Conduct The Board is responsible for setting the tone of legal, ethical and moral conduct to ensure that the Company is considered reputable by the industry and other outside entities. This involves considering the impact of the Company’s decisions on the industry, colleagues and the general community. The Code of Conduct adopted by the Company requires that all employees abide by the laws, regulations and business practices whenever the Company operates. The Board maintains an approach that preserves the integrity of any laws or regulations under which the Company operates. The Company has also put in place various internal Policies which provide internal controls to ensure employees only act within the authority given to them by the Board. This is to ensure that the Board has responsibility for any material transactions and dealings with outside parties, and that any legal, environment and social consequences of such dealings will be properly considered before any action is taken. Disclosure of Information to ASX and Investors The Company has established policies and procedures relating to the disclosure of information to interested parties. Policy Adopted • Code of Conduct 28 June 2004 • Director Independence 28 June 2004 • Legal, Environmental & Social Responsibilities 28 June 2004 • Remuneration Policy 28 June 2004 • Risk Management & Internal Control Procedures 28 June 2004 • Audit Committee 28 June 2004 • Board and Management Responsibilities 28 June 2004 • Compliance with ASX Disclosure Requirements 28 June 2004 • Nomination of Directors 28 June 2004 • Directors’ and Officers’ Trading in Securities 28 June 2004 • Communication with Shareholders 28 June 2004 • Investor Relations and Media Interaction 28 June 2004

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