ASSOCIATE GLOBAL PARTNERS LIMITED — Annual Report 2007

Sep 2, 2007

31 August 2007

Company Announcements Office Australian Stock Exchange

ASX Preliminary Final Report – 30 June 2007

This report is to be read in conjunction with the annual report for the year ended 30 June 2007 and any public announcements made by the company during the reporting period in accordance with the continuous disclosure requirements of the Corporations Act 2001.

Contents
Results for announcement to the market (Appendix 4E item 2)	2
Other Appendix 4E information (Appendix 4E item 9)	2
Commentary on results for the period (Appendix 4E item 14)	3
Status of audit (Appendix 4E items 15 to 17)	5
Preliminary Financial Report (Appendix 4E items 3 to 8, 10 to 12)	Attachment 1

For further information:

Jenny Harry CEO and Managing Director, Proteome Systems Ltd Phone: 02 9889 1830

1

1/35 Waterloo Road, North Ryde Sydney NSW 2113 Australia Locked Bag 2073, North Ryde Sydney NSW 1670 Australia Phone: +61 2 9889 1830 Fax: + 61 2 9889 1805 www.proteomesystems.com Proteome Systems Limited ACN 080 277 998

Proteome Systems Limited

ABN 56 080 277 998

Reporting period: Year ended 30th June 2007 (Previous corresponding period: Year ended 30th June 2006)

Results for announcement to the market

				A$’000
Revenuefrom ordinary activities	Down	52%	to	2,587
(Loss)from ordinary activities after tax attributable to	Down	14 %	to	(8,773)
members
(Loss)for the year attributable to members	Down	14 %	to	(8,773)
Dividends
Itisnot proposed to pay a dividend.
Other Appendix 4E information
	30	June 2007		30 June 2006
		$		$
Net tangible assets perordinary share		0.021		0.052

This report has been compiled using the attached Financial Report for the year ended 30 June 2007 which has been prepared using Australian equivalents to International Financial Reporting Standards.

2

1/35 Waterloo Road, North Ryde Sydney NSW 2113 Australia Locked Bag 2073, North Ryde Sydney NSW 1670 Australia Phone: +61 2 9889 1830 Fax: + 61 2 9889 1805 www.proteomesystems.com Proteome Systems Limited ACN 080 277 998

Commentary on results for the period (Appendix 4E item 14)

Overview

The following key milestones were achieved during the year:

Diagnostics

• Continued development of a rapid antigen-based point-of-care diagnostic test for the detection of active tuberculosis using the company’s biomarker discovery platform. Proteome Systems completed the final milestone due under its agreement with the Foundation for Innovative New Diagnostics (FIND) to demonstrate “proof-of-concept” for the test.

• Subsequent to year end, in July 2007, the company entered into a Collaboration and Option Agreement with BD (Becton, Dickinson and Company), USA, for the development and commercialisation of tuberculosis (TB) diagnostic tests. Under the terms of this agreement, BD will pay the Company upfront fees and may make further payments upon the achievement of various milestones. If BD proceeds to market point-of-care diagnostic products for rapid and cost-effective detection of active TB, the Company would be entitled to royalties on net sales of tests.

• Continued development of a semen-based diagnostic test for prostate cancer in conjunction with New-York-based biotechnology company, Egenix Inc. Following identification of a glycoprotein that is specific to prostatic tissue in semen and contains the HCA sugar, Proteome Systems has further characterised the HCA marker for a semen-based test for the non-invasive detection of prostate cancer. Westmead Hospital is currently collecting clinical samples for use in our diagnostic assay.

• Achievement of the final milestone under its collaboration agreement with US-based HighQ Foundation for the discovery of biomarkers for monitoring the progression of Huntington’s disease (HD) and the effectiveness of treatments in clinical trials. HighQ has not yet advised the Company how it will be proceeding with the evaluation of these biomarkers for the development of an HD assay.

Therapeutics

• Successful completion of a 22 person human “proof of concept” study on the efficacy of EUK189, one of Proteome Systems’ patented small molecule drug compounds, to treat radiationinduced dermatitis.

• Successful completion of second “proof of concept” study on the efficacy of EUK-189 as a topical drug to treat radiation dermatitis. This second study, at higher doses than the first study, demonstrated the ability of EUK-189 to decrease the accumulation of p53, a tumoursuppressive protein involved in a number of inflammatory conditions and cancer.

• In October 2006 research data was presented by scientists from the University of Southern California demonstrating that EUK-207, another of Proteome Systems’ patented small molecule drug compounds, potently prevents neuronal damage induced by oxygen and glucose deprivation followed by reoxygenation due to carotid artery bypass graft (CABG). This strengthens the case for EUK-207 as a neuroprotectant for a range of neurological conditions.

• In May 2007 the company granted an option to Minerva Healthcare Inc.(“Minerva”) to license the Company’s topical Eukarion compounds. The grant of rights to Minerva is subject to the rights of Atrium Innovations Inc. under its existing licence agreement with Proteome Systems. The Company’s entering into a licensing deal with Minerva is subject to a number of contingencies, including Minerva’s successfully undertaking a capital raising. If Proteome Systems does enter into a licence agreement with Minerva, it would expect to receive an upfront fee of USD4 million and a 10% equity stake in Minerva, with the potential to receive an additional milestone payment of USD1 million and royalty payments in respect of any Eukarion-based products that may be developed by Minerva.

Other

• In July 2006 Proteome Systems extended its collaboration with Agilent Technologies Inc to co-develop an integrated solution for the analysis of glycoproteins.

• In September 2006 Proteome Systems signed a non-binding Heads of Agreement with Bayer CropScience Pty Limited, a subsidiary of Bayer CropScience AG. The Heads of Agreement contemplates that Proteome Systems may grant Bayer CropScience a licence to manufacture and exploit WheatRite™, a wheat quality test previously developed by Proteome Systems.

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1/35 Waterloo Road, North Ryde Sydney NSW 2113 Australia Locked Bag 2073, North Ryde Sydney NSW 1670 Australia Phone: +61 2 9889 1830 Fax: + 61 2 9889 1805 www.proteomesystems.com Proteome Systems Limited ACN 080 277 998

The company continues to assist Bayer Cropscience to commercialise the test.

• In September 2006 Proteome Systems signed a Memorandum of Understanding with Californian-based Diagnostic Consulting Network. The MOU contemplates that the parties will work together to generate mutual business opportunities. In January 2007, Proteome Systems engaged DCN to assist in its development to prototype level of a rapid assay for TB based on a point of care testing platform.

• In April 2007 the Company announced the sale of rights in its award-winning technology products to Shimadzu Corporation, a leading manufacturer of analytical instruments for scientific research.

Financial Highlights

Revenue:

Revenue and other income decreased for the year ending 30 June 2007 by 35% to $4.58 million (2006: $7.03 million).

Revenue from continuing operations decreased primarily due to a 74% decrease in collaboration income to $0.98 million (2005: $3.81 million), as the Group completed existing fee for service contracts to focus on developing diagnostic products.

Other income increased by 24% during the year. This included a 28% decrease in government grants to $1.10 million (2006: $1.52 million), offset by non-recurring income from the sale of intangible assets and plant and equipment and the revaluation of a liability extinguished during the year.

Expenses:

Cost of goods sold:

These expenses increased by 32% during the financial year to $0.49 million (2006: $0.37 million) in line with a corresponding increase in sales of technology products as the Group ran down its technology inventory.

Employment costs:

These expenses declined by 32% during the financial year to $5.40 million (2006: $7.98 million) as a result of a reduction in headcount and a decrease in the cost of share-based payments (refer below).

Corporate and administration expenses:

These expenses declined by 3% during the financial year to $2.11 million (2006: $2.17 million) as the company continued to streamline operations.

External research supplies and services:

These expenses increased by 17% during the financial year to $2.43 million (2006: $2.07 million). This was primarily due to the nature and life-cycle stage of projects currently being undertaken by the Group.

Depreciation and amortization:

These expenses decreased by 40% during the financial year to $0.70 million (2006: $1.16 million) as a result of the overall aging of fixed assets.

Impairment and write down of assets

Impairment expenses decreased by 89% to $0.02 million (2006: $0.18 million), due to the inclusion in 2006 of a large impairment of plant and equipment relating to the technology business. There was a write up of inventory of $0.23 million (2006: write down of $0.94) due the sale of inventories previously written down.

Borrowing expenses:

Borrowing expenses declined by 22% during the year to $0.07 million (2006: $0.09 million) as interest bearing debt was retired.

Share-based payments

Share-based payment expense decreased by 77% during the financial year to $0.37 million (2006: $1.63 million). This is a result of the Board streamlining its executive remuneration strategy, increasing the proportion of at-risk non-cash remuneration to key employees, and in doing so aligning their performance objectives with the creation of shareholder value.

4

1/35 Waterloo Road, North Ryde Sydney NSW 2113 Australia Locked Bag 2073, North Ryde Sydney NSW 1670 Australia Phone: +61 2 9889 1830 Fax: + 61 2 9889 1805 www.proteomesystems.com

Proteome Systems Limited ACN 080 277 998

Net Loss Attributable To Members:

The net loss attributable to members of Proteome Systems Limited decreased by 14% during the 2007 financial year to $8.77 million (2006: $10.21 million).

Cash Flows:

A capital raising by the company in October 2006 increased cash funds of the company by $3.94 million after deducting associated expenses. The company ended the year with $3.19 million in cash and bank term deposits. This represented a $2.88 million reduction from the cash position as at 30 June 2006.

Net cash outflows from operations reduced by 23% to $6.63 million in the year ended 30 June 2007 (2006: $8.66 million), as a result of streamlining operations and proactive cost management.

The company continues to focus on reducing its cash burn.

Employees:

The consolidated entity employed 41 staff at 30 June 2007 (2006: 50 staff). At the date of this Release, the consolidated entity employed 39 staff (Australia 33; USA 6).

Status of audit (Appendix 4E items 15 to 17)

This preliminary final report is based on accounts which are in the process of being audited.

5

1/35 Waterloo Road, North Ryde Sydney NSW 2113 Australia Locked Bag 2073, North Ryde Sydney NSW 1670 Australia Phone: +61 2 9889 1830 Fax: + 61 2 9889 1805 www.proteomesystems.com Proteome Systems Limited ACN 080 277 998

ABN 56 080 277 998 Proteome Systems Limited and Controlled Entities Annual financial report - 30 June 2007

Contents

Attachment 1

Proteome Systems Limited

ABN 56 080 277 998

Preliminary Financial Report – 30 June 2007

Contents

	Page
Income statements	7
Balance sheets	8
Statements of changes in equity	9
Cash flow statements	10
Note 1 - Summary of significant accounting policies	11
Note 2 - Segment information	19
Note 3 - Contributed equity	21
Note 4 - Earnings per share	22
Note 5 - Contingencies	23
Note 6 - Events occurring after the balance sheet date	24

Page 6 of 24

Proteome Systems Limited and Controlled Entities Income statements

For the year ended 30 June 2007

Notes Revenue from continuing operations Other income Cost of goods sold Employment costs Occupancy costs Corporate & administration expenses External research supplies and services Patents & royalty costs Depreciation and amortisation expense Impairment of assets Inventory write up/ (down) Finance costs Provision for doubtful debts from subsidiaries Foreign exchange losses (Increase)/ Release of warranty provision Other expenses Loss before income tax Income tax expense Loss attributable to members of Proteome Systems Limited and Controlled Entities Earnings per share for loss attributable to the ordinary equity holders of the company: Basic earnings per share 4 Diluted earnings per share 4	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $ 2,587,327 5,423,402 715,448 1,673,001 1,989,405 1,606,347 789,262 115,062 (491,060) (368,897) - - (5,404,387) (7,981,668) (2,904,889) (4,419,605) (1,294,635) (1,314,157) (1,055,652) (951,060) (2,105,055) (2,166,875) (1,897,602) (2,185,112) (2,427,456) (2,073,793) (4,227) (103,338) (675,679) (864,899) (675,892) (761,228) (702,836) (1,162,572) (630,266) (1,033,318) (20,461) (183,235) (12,483) (872,352) 227,798 (941,463) - - (70,049) (86,321) (59,689) (77,629) - - (2,759,506) (1,607,204) (83,771) - (47,061) - (28,250) 94,700 - - (273,380) (195,059) (2,405) (28,819)
	(8,772,489) (10,214,490) (8,544,962) (10,251,602) (82) (491) - -
	(8,772,571) (10,214,981) (8,544,962) (10,251,602)
	cents cents (5.8) (8.0) (5.8) (8.0)

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

Page 7 of 24

Proteome Systems Limited and Controlled Entities Balance sheets

As at 30 June 2007

Notes ASSETS Current assets Cash and cash equivalents Trade and other receivables Inventories Restricted cash Other assets Total current assets Non-current assets Receivables Other financial assets Property, plant and equipment Intangible assets Total non-current assets Total assets LIABILITIES Current liabilities Trade and other payables Borrowings Provisions Other Total current liabilities Non-current liabilities Borrowings Provisions Total non-current liabilities Total liabilities Net assets EQUITY Contributed equity 3 Reserves Accumulated losses Parent entity interest	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $ 3,188,107 6,070,739 3,135,415 6,025,293 173,425 1,202,461 15,802 1,092,421 180,978 351,904 - - - 408,436 - 408,436 291,806 214,606 187,146 132,911
	3,834,316 8,248,146 3,338,363 7,659,061
	- - - - 370,832 387,540 595,154 587,176 1,033,737 1,346,120 896,646 1,201,819 36,311 145,062 33,835 139,806
	1,440,880 1,878,722 1,525,635 1,928,801
	5,275,196 10,126,868 4,863,998 9,587,862
	1,361,904 2,082,416 1,073,972 1,593,513 99,302 408,348 71,199 408,348 60,500 32,250 - - 25,183 25,978 15,109 8,125
	1,546,889 2,548,992 1,160,280 2,009,986
	33,204 - 8,615 - 362,571 330,433 362,571 330,433
	395,775 330,433 371,186 330,433
	1,942,664 2,879,425 1,531,466 2,340,419
	3,332,532 7,247,443 3,332,532 7,247,443
	101,070,398 96,808,308 101,070,398 96,808,308 2,643,296 2,047,726 2,467,334 2,099,373 (100,381,162) (91,608,591) (100,205,200) (91,660,238)
	3,332,532 7,247,443 3,332,532 7,247,443

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

Page 8 of 24

Proteome Systems Limited and Controlled Entities Statements of changes in equity For the year ended 30 June 2007

Notes Total equity at the beginning of the financial year Exchange differences on translation of foreign operations Net income recognised directly in equity Loss for the year Total recognised income and expense for the year Transactions with equity holders in their capacity as equity holders: Employee performance rights Employee share options Contributions of equity, net of transaction costs Total equity at the end of the financial year Total recognised income and expense for the year is attributable to: Members of Proteome Systems Limited and Controlled Entities	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $ 7,247,443 6,239,737 7,247,443 6,239,737
	227,609 (36,621) - -
	227,609 (36,621) - - (8,772,571) (10,214,981) (8,544,962) (10,251,602)
	(8,544,962) (10,251,602) (8,544,962) (10,251,602)
	289,320 1,627,402 289,320 1,627,402 78,644 - 78,644 - 4,262,087 9,631,906 4,262,087 9,631,906
	4,630,051 11,259,308 4,630,051 11,259,308
	3,332,532 7,247,443 3,332,532 7,247,443
	(8,544,962) (10,251,602) (8,544,962) (10,251,602)

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

Page 9 of 24

Proteome Systems Limited and Controlled Entities Cash flow statements

For the year ended 30 June 2007

Notes Cash flows from operating activities Receipts from customers (inclusive of goods and services tax) Payments to suppliers and employees (inclusive of goods and services tax) Interest received Interest paid Income taxes paid Net cash (outflow) inflow from operating activities Cash flows from investing activities Payment for controlled entities, net of cash acquired Payments for property, plant and equipment Payments for investments Proceeds from sale of property, plant and equipment Repayment of loans by related parties Capital return received from investments Payments for computer software capitalised Proceeds from disposal of intellectual property Net cash (outflow) inflow from investing activities Cash flows from financing activities Proceeds from issues of shares Share issue transaction costs Loans (to) /from subsidiary companies Repayment of finance leases Repayment of borrowings Net cash inflow from financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the financial year Effects of exchange rate changes on cash and cash equivalents Cash and cash equivalents at end of year	Consolidated Parent entity 2007 2006 2007 2006 $ $ $ $ 4,308,069 5,014,304 1,337,957 2,520,274 (11,311,440) (13,929,514) (8,947,345) (10,808,512)
	(7,003,371) (8,915,210) (7,609,388) (8,288,238) 397,929 316,096 397,929 316,096 (29,170) (56,948) (23,756) (56,948) - - - -
	(6,634,612) (8,656,062) (7,235,215) (8,029,090)
	- (31,283) - (31,283) (255,382) (139,919) (240,183) (102,437) - (54,560) - (54,560) 90,554 332 90,252 - - 83,050 - 83,050 - 2,773 - 2,773 (6,958) (56,011) (5,887) (52,415) 244,095 - 243,932 -
	72,309 (195,618) 88,114 (154,872)
	4,000,000 9,904,980 4,000,000 9,904,980 (65,637) (266,113) (65,637) (266,113) - - 516,816 (634,034) (22,579) (133,742) (5,276) (133,742) (208,007) (169,013) (163,682) (169,013)
	3,703,777 9,336,112 4,282,221 8,702,078
	(2,858,526) 484,432 (2,864,880) 518,116 6,070,739 5,572,613 6,025,293 5,495,679
	(24,106) 13,694 (24,998) 11,498
	3,188,107 6,070,739 3,135,415 6,025,293

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

Page 10 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

1 Summary of significant accounting policies

This general purpose financial report has been prepared in accordance with Australian equivalents to International Financial Reporting Standards (AIFRS), other authoritative pronouncements of the Australian Accounting Standards Board, Urgent Issues Group Interpretations and the Corporations Act 2001.

(a) Basis of preparation of financial report and going concern

The principal accounting policies adopted in the preparation of the financial report are set out below. These policies have been consistently applied to all the periods presented, unless otherwise stated.

Compliance with IFRS

Australian Accounting Standards include AIFRS. Compliance with AIFRS ensures that the consolidated and parent entity financial statements and notes of Proteome Systems Limited comply with International Financial Reporting Standards (IFRS).

Historical cost convention

These financial statements have been prepared under the historical cost convention, as modified by certain financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

Critical accounting estimates

The preparation of financial statements in conformity with AIFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies.

Going Concern

During the year ended 30 June 2007 the consolidated entity incurred an operating loss before tax and net cash outflows from operating activities as disclosed in the income statements and cash flow statements respectively. The ability of the Consolidated Entity and Company to continue as a going concern and to meet their debts and commitments as and when they fall due is subject to significant uncertainty, and is dependent upon some or all of the following:

• (i) the Company being successful in raising funds in addition to the capital raising described in Note 6, such funds to be raised from existing shareholders, new investors, or from other funding sources;

• (ii) revenues generated from existing and new grants and collaboration agreements for diagnostic and therapeutics research;

• (iii) proceeds received from the sale or licensing of assets, including intellectual property; and

• (iv) close and effective monitoring of the consolidated entity’s cash flows, including the Consolidated Entity’s ability to undertake appropriate cost saving initiatives if revenue milestones are not achieved.

The directors are confident the Consolidated Entity and Company will continue as a going concern for a period of 12 months from the date of the Directors’ Report in anticipation that the Company will secure additional funds and/or achieve reductions in outflows from some or all of the measures mentioned above, and consequently will realise assets and settle liabilities and commitments in the ordinary course of business and at the amount stated in the annual report. However, if the above measures are not successful, the Consolidated Entity may not be able to continue as a going concern.

No adjustments have been made relating to the recoverability or classification of recorded assets and liabilities that might be necessary should the Consolidated Entity not continue as a going concern. Such adjustments may include:

• A reassessment of the net realisable value of non-current assets, and the reclassification of certain non current assets as held for sale;

• A revaluation of employee liabilities;

• An evaluation of unrecorded liabilities relating to future financial commitments such as leases on operating premises and research collaboration agreements.

(b) Principles of consolidation

The consolidated financial statements incorporate the assets and liabilities of all subsidiaries of Proteome Systems Limited (“company” or “parent entity”) as at 30 June 2007 and the results of all subsidiaries for the year then ended. Proteome Systems Limited and its subsidiaries together are referred to in this financial report as the Group or the consolidated entity.

Subsidiaries are all those entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies, generally accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are de-consolidated from the date that control ceases.

The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group (refer to note 1(i)).

Page 11 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

Intercompany transactions, balances and unrealised gains on transactions between Group companies are eliminated. Unrealised losses are also eliminated unless the transaction provides evidence of the impairment of the asset transferred. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group.

Investments in subsidiaries are accounted for at cost in the individual financial statements of Proteome Systems Limited.

(c) Segment reporting

A business segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different to those of other business segments. A geographical segment is engaged in providing products or services within a particular economic environment and is subject to risks and returns that are different from those of segments operating in other economic environments.

(d) Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’). The consolidated financial statements are presented in Australian dollars, which is Proteome Systems Limited’s functional and presentation currency.

(ii) Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement.

(iii) Group companies

The results and financial position of all the Group entities (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows:

• assets and liabilities for each balance sheet presented are translated at the closing rate at the date of that balance sheet;

• income and expenses for each income statement are translated at average exchange rates (unless this is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and

• all resulting exchange differences are recognised as a separate component of equity.

On consolidation, exchange differences arising from the translation of any net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ equity. When a foreign operation is sold or borrowings repaid, a proportionate share of such exchange differences are recognised in the income statement as part of the gain or loss on sale.

(e) Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Amounts disclosed as revenue are net of returns, trade allowances and duties and taxes paid.

The Group recognises revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and specific criteria have been met for each of the Group’s activities as described below. The amount of revenue is not considered to be reliably measurable until all contingencies relating to the sale have been resolved. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement.

Revenue is recognised for the major business activities as follows:

(i) Human resources

Contract revenue, including collaboration income, is recognised in accordance with the percentage of completion method or on completion of development milestones, in accordance with the terms of the contract. The stage of completion is measured by reference to labour hours incurred to date as a percentage of estimated total labour hours for each contract.

Other human resources revenue is recognised when the service is provided.

(ii) Technology equipment and other related products

A sale is recorded when goods have been despatched to a customer pursuant to a sales order, the associated risks of

Page 12 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

ownership have passed to the carrier or customer, and collectibility is probable.

(iii) Intellectual Property

For payments received in advance, revenue is recognised on a straight-line basis over the period the rights have been provided. For payments received in arrears, revenue is recognised when amounts receivable can be determined and are assessed as collectible.

(iv) Lease Income

Lease income from property sub-leases is recognised as income on a straight-line basis over the lease term.

(v) Interest income

Interest income is recognised on a time proportion basis using the effective interest method.

(vi) Dividends

Dividends are recognised as revenue when the right to receive payment is established.

(f) Government grants

Grants from the government are recognised at their fair value where there is a reasonable assurance that the grant will be received and the Group will comply with all attached conditions.

Government grants relating to costs are deferred and recognised in the income statement over the period necessary to match them with the costs that they are intended to compensate.

(g) Income tax

The income tax expense or revenue for the period is the tax payable on the current period’s taxable income based on the national income tax rate for each jurisdiction adjusted by changes in deferred tax assets and liabilities attributable to temporary differences between the tax bases of assets and liabilities and their carrying amounts in the financial statements, and to unused tax losses.

Deferred tax assets and liabilities are recognised for temporary differences at the tax rates expected to apply when the assets are recovered or liabilities are settled, based on those tax rates which are enacted or substantively enacted for each jurisdiction. The relevant tax rates are applied to the cumulative amounts of deductible and taxable temporary differences to measure the deferred tax asset or liability. An exception is made for certain temporary differences arising from the initial recognition of an asset or a liability. No deferred tax asset or liability is recognised in relation to these temporary differences if they arose in a transaction, other than a business combination, that at the time of the transaction did not affect either accounting profit or taxable profit or loss.

Deferred tax assets are recognised for deductible temporary differences and unused tax losses only if it is probable that future taxable amounts will be available to utilise those temporary differences and losses.

Deferred tax liabilities and assets are not recognised for temporary differences between the carrying amount and tax bases of investments in controlled entities where the parent entity is able to control the timing of the reversal of the temporary differences and it is probable that the differences will not reverse in the foreseeable future.

Deferred tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets and liabilities and when the deferred tax balances relate to the same taxation authority. Current tax assets and tax liabilities are offset where the entity has a legally enforceable right to offset and intends either to settle on a net basis, or to realise the asset and settle the liability simultaneously.

Current and deferred tax balances attributable to amounts recognised directly in equity are also recognised directly in equity.

Tax consolidation legislation

Proteome Systems Limited and its wholly-owned Australian controlled entities have implemented the tax consolidation legislation as of 1 July 2003.

The head entity, Proteome Systems Limited, and the controlled entities in the tax consolidated group continue to account for their own current and deferred tax amounts. These tax amounts are measured as if each entity in the tax consolidated group continues to be a stand alone taxpayer in its own right.

In addition to its own current and deferred tax amounts, Proteome Systems Limited also recognises the current tax liabilities (or assets) and the deferred tax assets arising from unused tax losses and unused tax credits assumed from controlled entities in the tax consolidated group.

Assets or liabilities arising under tax funding agreements with the tax consolidated entities are recognised as amounts receivable from or payable to other entities in the group. Details about the tax funding agreement are disclosed in note 7.

Page 13 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

Any difference between the amounts assumed and amounts receivable or payable under the tax funding agreement are recognised as a contribution to (or distribution from) wholly-owned tax consolidated entities.

(h) Leases

Leases of property, plant and equipment where the Group has substantially all the risks and rewards of ownership are classified as finance leases. Finance leases are capitalised at the lease’s inception at the lower of the fair value of the leased property and the present value of the minimum lease payments. The corresponding rental obligations, net of finance charges, are included in other long term payables. Each lease payment is allocated between the liability and finance charges so as to achieve a constant rate on the finance balance outstanding. The interest element of the finance cost is charged to the income statement over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period. The property, plant and equipment acquired under finance leases is depreciated over the shorter of the asset’s useful life and the lease term.

Leases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straight-line basis over the period of the lease.

Lease income from operating leases is recognised in income on a straight-line basis over the lease term.

(i) Acquisitions of assets

The purchase method of accounting is used to account for all acquisitions of assets (including business combinations) regardless of whether equity instruments or other assets are acquired. Cost is measured as the fair value of the assets given, shares issued or liabilities incurred or assumed at the date of exchange plus costs directly attributable to the acquisition. Where equity instruments are issued in an acquisition, the value of the instruments is their published market price as at the date of exchange unless, in rare circumstances, it can be demonstrated that the published price at the date of exchange is an unreliable indicator of fair value and that other evidence and valuation methods provide a more reliable measure of fair value. Transaction costs arising on the issue of equity instruments are recognised directly in equity.

Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill (refer to note 1(q)). If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement, but only after a reassessment of the identification and measurement of the net assets acquired.

Where settlement of any part of cash consideration is deferred, the amounts payable in the future are discounted to their present value as at the date of exchange. The discount rate used is the entity’s incremental borrowing rate, being the rate at which a similar borrowing could be obtained from an independent financier under comparable terms and conditions.

(j) Impairment of assets

Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. Assets that are subject to amortisation are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash generating units).

(k) Cash and cash equivalents

Cash and cash equivalents includes cash on hand, deposits held at call with financial institutions, other short-term, highly liquid investments with original maturities of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet.

(l) Trade receivables

Trade receivables are recognised initially at fair value and subsequently measured at amortised cost, less provision for doubtful debts. Trade receivables are generally due for settlement within 30 days.

Collectibility of trade receivables is reviewed on an ongoing basis. Debts which are known to be uncollectible are written off. A provision for doubtful receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of receivables. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the effective interest rate. The amount of the provision is recognised in the income statement.

(m) Inventories

Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value.

Page 14 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overhead expenditure, the latter being allocated on the basis of normal operating capacity. Costs are assigned to individual items of inventory using standard costing techniques. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale.

(n) Investments and other financial assets

Classification

The Group classifies its investments in the following categories: financial assets at fair value through profit or loss, loans and receivables, and available-for-sale financial assets. The classification depends on the purpose for which the investments were acquired. Management determines the classification of its investments at initial recognition and re-evaluates this designation at each reporting date.

(i) Financial assets at fair value through profit or loss

This category has two sub-categories: financial assets held for trading, and those designated at fair value through profit or loss on initial recognition. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or if so designated by management. The policy of management is to designate an asset as a financial asset if it is possible the asset will be sold in the short term and the asset is subject to frequent changes in fair value. Derivatives are also categorised as held for trading unless they are designated as hedges. Assets in this category are classified as current assets if they are either held for trading or are expected to be realised within 12 months of the balance sheet date.

(ii) Loans and receivables

Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They arise when the Group provides money, goods or services directly to a debtor with no intention of selling the receivable. They are included in current assets, except for those with maturities greater than 12 months after the balance sheet date which are classified as non-current assets. Loans and receivables are included in receivables in the balance sheet.

(iii) Available-for-sale financial assets

Available-for-sale financial assets, comprising of unlisted equity securities, are non-derivatives that are either designated in this category or not classified in any other categories. They are included in non-current assets unless management intends to dispose of the investment within 12 months of the balance sheet date.

Available-for-sale financial assets are carried at fair value. Changes in fair value are recorded in equity. Financial assets at fair value through profit and loss are subsequently carried at fair value. Loans and receivables are carried at amortised cost using the effective interest method. Realised and unrealised gains and losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are included in the income statement in the period in which they arise.

The Group assesses at each balance date whether there is objective evidence that a financial asset or group of financial assets is impaired. Impairment losses recognised in the income statement on equity instruments classified as availablefor-sale are not reversed through the income statement.

(o) Fair value estimation

The fair value of financial assets and financial liabilities must be estimated for recognition and measurement or for disclosure purposes.

The fair value of financial instruments that are not traded in an active market is determined using valuation techniques. The Group uses a variety of methods and makes assumptions that are based on market conditions existing at each balance date.

The nominal value less estimated credit adjustments of trade receivables and payables are assumed to approximate their fair values. The fair value of financial liabilities for disclosure purposes is estimated by discounting the future contractual cash flows at the current market interest rate that is available to the Group for similar financial instruments.

(p) Property, plant and equipment

Property, plant and equipment is stated at historical cost less depreciation and impairment charges. Historical cost includes expenditure that is directly attributable to the acquisition of the items.

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.

Depreciation is calculated using the straight line method to allocate their cost, net of their residual values, over their

Page 15 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

estimated useful lives, as follows:

• Plant 3-8 years - Furniture, fittings and equipment 3-8 years

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 (note 1(j)).

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the income statement.

(q) Intangible assets

(i) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. Goodwill on acquisition of subsidiaries is included in intangible assets. Goodwill acquired in business combinations is not amortised. Instead, goodwill is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be impaired, and is 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.

Goodwill is allocated to cash-generating units for the purpose of impairment testing.

(ii) Patents

Patents have a finite useful life and are carried at cost less accumulated amortisation and impaired losses. Amortisation is calculated using the straight line method to allocate the cost of patents over their estimated useful lives, which vary from 5 to 20 years. Where costs pertaining to a patent application have been capitalised in prior periods, and that patent is subsequently abandoned, both the cost and accumulated amortisation are written off.

(iii) Research and development

Research expenditure is recognised as an expense as incurred.

Costs incurred on development projects are recognised as intangible assets when it is probable that the project will be a success considering its commercial and technical feasibility and its costs can be measured reliably. The expenditure capitalised comprises all directly attributable costs, including costs of materials, services, direct labour and an appropriate proportion of overheads. Capitalised development costs recorded as intangible assets are amortised from the point at which the asset is ready for use on a straight line basis over its useful life. No development expenditure incurred to date has met these criteria.

Development expenditures that do not meet the above criteria are recognised as an expense as incurred. Development costs previously recognised as an expense are not recognised as an asset in a subsequent period.

(iv) Computer software

Computer software is stated at historical cost less accumulated amortisation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Amortisation is calculated using the straight line method to allocate the cost of software over its estimated useful life, which is generally two and half years.

(r) Trade and other payables

These amounts represent liabilities for goods and services provided to the Group prior to the end of financial year which are unpaid. The amounts are unsecured and are usually paid within 30 days of recognition.

(s) Borrowings

Borrowings are initially recognised at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost. Any difference between the proceeds (net of transaction costs) and the redemption amount is recognised in the income statement over the period of the borrowings using the effective interest method.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

Borrowing costs are recognised using the effective interest rate method.

(t) Provisions

Provisions for legal claims and service warranties are recognised at their present value when: the Group has a present

Page 16 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

legal or constructive obligation as a result of past events; it is more likely than not that an outflow of resources will be required to settle the obligation; and the amount has been reliably estimated. Provisions are not recognised for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. A provision is recognised even if the likelihood of an outflow with respect to any one item included in the same class of obligations may be small.

(u) Employee benefits

(i) Wages and salaries and annual leave

Liabilities for wages and salaries, including non-monetary benefits, and annual leave expected to be settled within 12 months of the reporting date are recognised in other payables in respect of employees’ services up to the reporting date and are measured at the amounts expected to be paid including appropriate on-costs when the liabilities are settled.

(ii) Long service leave

The liability for long service leave is recognised in the provision for employee benefits and measured as the present value of expected future payments to be made in respect of services provided by employees up to the reporting date using the projected unit credit method. Consideration is given to expected future wage and salary levels, experience of employee departures and periods of service. Expected future payments are discounted using market yields at the reporting date on national government bonds with terms to maturity and currency that match, as closely as possible, the estimated future cash outflows.

(iii) Retirement benefit obligations

Contributions to employee superannuation funds are recognised as an expense as they become payable. Prepaid contributions are recognised as an asset to the extent that a cash refund or a reduction in the future payments is available. The consolidated entity does not operate a defined benefit superannuation scheme.

(iv) Share-based payments

Share-based compensation benefits are provided to employees via the Proteome Systems Employee Share Option Plan (“ESOP”) and the 2004 Performance Rights Plan (“the Plan”).

The fair value of options granted under the ESOP is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the period during which the employees become unconditionally entitled to the options.

The fair value at grant date is 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-tradeable nature of the option, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the option.

The fair value of the options granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of options that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of options that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.

The fair value of performance rights granted under the Plan is recognised as an employee benefit expense with a corresponding increase in equity. The fair value is measured at grant date and recognised over the vesting period.

The fair value at grant date is determined using either a Black-Scholes pricing model or a Monte Carlo pricing model. Both models take into account the exercise price, the vesting and performance criteria, the impact of dilution, the non-tradeable nature of the right, the share price at grant date and expected price volatility of the underlying share, the expected dividend yield and the risk-free interest rate for the term of the right.

The fair value of the rights granted excludes the impact of any non-market vesting conditions (for example, profitability and sales growth targets). Non-market vesting conditions are included in assumptions about the number of rights that are expected to become exercisable. At each balance sheet date, the entity revises its estimate of the number of rights that are expected to become exercisable. The employee benefit expense recognised each period takes into account the most recent estimate.

(v) Contributed equity

Ordinary shares are classified as equity.

Incremental costs such as stamp duties, professional adviser’s fees, underwriting costs and brokerage fees directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

Page 17 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

Provision is made for the amount of any dividend declared, being appropriately authorised and no longer at the discretion of the entity, on or before the end of the financial year but not distributed at balance date.

(w) Earnings per share

(i) Basic earnings per share

Basic earnings per share is calculated by dividing the profit attributable to equity holders of the company, excluding any costs of servicing equity other than ordinary shares, by the weighted average number of ordinary shares outstanding during the year, adjusted for bonus elements in ordinary shares issued during the year.

(ii) Diluted earnings per share

Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares and the weighted average number of shares assumed to have been issued for no consideration in relation to dilutive potential ordinary shares.

(x) Goods and Services Tax (GST)

Revenues, expenses and assets are recognised net of the amount of associated GST, unless the GST incurred is not recoverable from the taxation authority. In this case it is recognised as part of the cost of acquisition of the asset or as part of the expense.

Receivables and payables are stated inclusive of the amount of GST receivable or payable. The net amount of GST recoverable from, or payable to, the taxation authority is included with other receivables or payables in the balance sheet.

Cash flows are presented on a gross basis. The GST components of cash flows arising from investing or financing activities which are recoverable from, or payable to the taxation authority, are presented as operating cash flow.

(y) Consumables

Consumables used in the normal operation of the business are expensed as incurred.

(z) Restricted cash

The Group is required to hold a minimum level of cash and cash equivalents as guarantees for lease liabilities and security deposits, which is recognised separately from cash and cash equivalents.

(aa) New accounting standards and UIG interpretations

Certain new accounting standards and UIG interpretations have been published that are not mandatory for 30 June 2007 reporting periods. The Group’s assessment of the impact of these new standards and interpretations is set out below.

• (i) AASB 7 Financial Instruments: Disclosures and AASB 2005-10 Amendments to Australian Accounting Standards [AASB 132, AASB 101, AASB 114, AASB 117, AASB 133, AASB 139, AASB 1, AASB 4, AASB 1023 & AASB 1038]

AASB 7 and AASB 2005-10 are applicable to annual reporting periods beginning on or after 1 January 2007. The Group has not adopted the standards early. Application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group’s financial instruments.

(ii) AASB-1 10 Interim Financial Reporting and Impairment

AASB-1 10 is applicable to reporting periods commencing on or after 1 November 2006. The Group has not recognised an impairment loss in relation to goodwill, investments in equity instruments or financial assets carried at cost in an interim reporting period, but subsequently reversed the impairment loss in the annual report. Application of the interpretation will therefore have no impact on the Group’s financial statements.

Page 18 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

2 Segment information

(a) Description of segments

Business segments

The consolidated entity is organised on a global basis into the following divisions by product and service type.

Technology

Sale and support of technology instruments, kits, consumables and informatics.

Diagnostics/Therapeutics

Development of Intellectual Property in discovery research programs. Primarily includes biomarker discovery and research for development of diagnostics and drug targets, and development of drug compounds for therapeutics.

Other

Support functions for the above activities.

Geographical segments

The Consolidated Entity operates in the following geographical areas:

Australia

The home country of the Parent Entity which is also the main operating entity. The principal areas of operations are proteomic research, development of diagnostics, sale of proteomic instruments and consumables, and exploitation of intellectual property developed.

North America

Comprises of operations carried out in the USA. The principal areas of operations are research and development of therapeutics, sale of proteomic consumables, and exploitation of intellectual property developed.

Asia

Since the closure of the office in Japan in the previous financial year, the Consolidated Entity no longer operates in this geographical segment.

(b) Primary reporting format – business segments

Therapeutics/ Diagnostics Technology Unallocated/ Other 2007 Segment revenue and other income 2,455,450 926,227 Unallocated revenue Total revenue and other income Segment result (2,987,396) (112,808) Unallocated revenue less unallocated expenses Loss for the year before income tax Segment assets 867,744 232,073 Unallocated assets Total assets	Consolidated 3,381,677 1,195,055
	4,576,732
	(3,100,204) (5,672,367)
	(8,772,571)
	1,099,817 4,175,379
	5,275,196

Page 19 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

2 Segment information (continued)

(b) Primary reporting format – business segments

2007

Therapeutics/ Diagnostics Technology Unallocated/ Other Segment liabilities 606,215 101,420 Unallocated liabilities Total liabilities Acquisitions of plant and equipment, intangibles, and other non-current assets 206,132 - 116,898 Depreciation and amortisation expense 408,982 32,333 261,521 Impairment of plant and equipment - (480) - Write up of inventory - (227,798) - Share-based payments - - 370,515 2006 Segment revenue and other income 5,121,597 1,215,138 Unallocated revenue Total revenue and other income Segment result (1,122,659) (834,095) Unallocated revenue less unallocated expenses Loss for the year before income tax Segment assets 1,909,834 585,514 Unallocated assets Total assets Segment liabilities (443,923) (38,792) Unallocated liabilities Total liabilities Acquisitions of plant and equipment, intangibles, and other non-current assets 64,384 - 226,543 Depreciation and amortisation expense 642,922 219,706 299,944 Impairment of goodwill 31,096 - - Write down of inventory - 941,463 - Impairment of plant and equipment - 152,139 - Share-based payments - - 1,627,401	Consolidated 707,635 1,235,029
	1,942,664
	323,030 702,836 (480) (227,798) 370,515 6,336,735 693,014
	7,029,749
	(1,956,754) (8,257,736)
	(10,214,490)
	2,495,348 7,631,520
	10,126,868
	(482,715) (2,396,710)
	(2,879,425)
	290,927 1,162,572 31,096 941,463 152,139 1,627,401

Page 20 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

2 Segment information (continued)

(c) Alternative reporting format – geographical segments

	Segment revenues from originating region Segment Assets Acquisition of property, plant and equipment, intangibles, and other non-current segment assets
	2007 $ 2006 $ 2007 $ 2006 $ 2007 $ 2006 $
Australia USA Asia Total	2,496,787 5,919,098 4,616,331 9,702,751 246,090 263,663 2,079,945 1,087,126 658,865 406,039 76,940 27,264 - 23,525 - 18,078 - -
	4,576,732 7,029,749 5,275,196 10,126,868 323,030 290,927

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

(i) Accounting policies

Segment information is prepared in conformity with the accounting policies of the entity as disclosed in note 1 and accounting standard AASB 114 Segment Reporting.

Segment revenues, expenses, assets and liabilities are those that are directly attributable to a segment and the relevant portion that can be allocated to the segment on a reasonable basis. Segment assets include all assets used by a segment and consist primarily of operating cash, receivables, inventories, property, plant and equipment and goodwill and other intangible assets, net of related provisions. Segment liabilities consist primarily of trade and other creditors, employee benefits and provision for service warranties. Segment assets and liabilities do not include income taxes.

(ii) Inter-segment transfers Segment revenues, expenses and results include transfers between segments. Such transfers are priced on an ''arm’s-length'' basis and are eliminated on consolidation.

3 Contributed equity

3 Contributed equity
(a) Share capital Ordinary shares (b) Movements in ordinary share capital: Date Details 01.7.05 Opening balance 10.11.05 Share issue 23.11.05 Share issue various Capital raising costs, net of tax 01.05.06 Share issue 30.06.06 Balance as at 30 June 2006	PARENT ENTITY PARENT ENTITY 2007 Share 2006 Number 2007 $ 2006 $ 156,236,408 136,898,324 101,070,398 96,808,308
	Notes 1 1 1 2	Number of shares Issue price 100,505,221 - 24,916,600 0.30 8,100,000 0.30 3,376,503 - 136,898,324	$ 87,176,402 7,474,980 2,430,000 (273,074) -
			96,808,308

Page 21 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

3 Contributed equity (continued)

(b) Movements in ordinary share capital:

Date Details Notes 26.7.06 Share issue 3 19.10.06 Share issue 4 18.4.07 Share issue 5 19.4.07 Share issue 6 various Capital raising costs, net of tax 4 30.06.07 Closing balance	Number of shares Issue price 3,931,051 - 13,333,333 0.30 1,287,038 0.25 786,662 - - 156,236,408	$ - 4,000,000 321,760 - (59,670)
		101,070,398

(c) Notes to movements in ordinary share capital

• (1) The company issued 33,016,600 ordinary shares at $0.30 each through a private placement to institutional and professional investors in Australia, the United Kingdom and the United States. Approval for the placement under ASX listing rule 7.1 was received at a general meeting of the Company on 19 October 2005.

• (2) The company issued 3,376,503 shares to employees in satisfaction of Performance Rights that vested during the period. The Performance Rights were issued under the employee Performance Rights Plan.

• (3) The company issued 3,931,051 shares to employees in satisfaction of Performance Rights that vested during the period. The Performance Rights were issued under the employee Performance Rights Plan.

• (4) The company issued 13,333,333 ordinary shares at $0.30 each through a private placement to institutional and professional investors in Australia, the United Kingdom and the United States. Approval for the placement under ASX listing rule 7.1 was received at a general meeting of the Company on 17 November 2006.

• (5) The Company acquired Eukarion Inc. in March 2005, with part of the initial equity consideration for the acquisition being withheld subject to the satisfaction of performance conditions. Certain performance conditions were satisfied in April 2007, and 1,287,038 ordinary shares were issued to the previous shareholders of Eukarion Inc. in satisfaction thereof.

• (6) The company issued 786,662 shares to employees in satisfaction of Performance Rights that vested during the period. The Performance Rights were issued under the employee Performance Rights Plan.

• (7) Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the Company in proportion to the number of and amounts paid on the shares held. Ordinary shares have a par value of $0.01.

4 Earnings per share

4	Earnings per share
		Consolidated
		2007	2006
		Cents	Cents
(a)	Basic earnings per share
Loss	from continuing operations attributable to the ordinary equity holders of the
company			(5.8)	(8.0)
(b)	Diluted earnings per share
Loss	from continuing operations attributable to the ordinary equity holders of the
company			(5.8)	(8.0)

Page 22 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

4 Earnings per share(continued)

(c) Reconciliations of earnings used in calculating earnings per share Basic earnings per share Loss from continuing operations Loss from continuing operations attributable to the ordinary equity holders of the company used in calculating basic earnings per share Diluted earnings per share Loss from continuing operations attributable to the ordinary equity holders of the company used in calculating basic earnings per share Loss attributable to the ordinary equity holders of the company used in calculating diluted earnings per share (d) Weighted average number of shares used as the denominator Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share and diluted earnings per share	(8,772,571) (10,214,981)
	(8,772,571) (10,214,981)
	(8,772,571) (10,214,981)
	(8,772,571) (10,214,981)
	150,293,459 121,857,370

(e) Information concerning the classification of securities

(i) Options and performance rights

Options and performance rights are not considered to be potential ordinary shares, because their inclusion would have a dilutive effect on the loss per share calculation. Options and rights have therefore been excluded from the determination of basic earnings per share.

5 Contingent liabilities

(a) Guarantees

The Consolidated Entity had contingent liabilities at 30 June 2007 in the form of Guarantees given in respect of leased assets and leases for operating premises. The guarantees amounted to $318,138 (2006: $698,976), and were secured by deposits held as security by the lessors.

The guarantees given in respect of leased assets amount to $44,306 (2006: $408,436), representing the outstanding lease liability included in current and non-current liabilities. The Group expects to meet all such lease obligations in full, and does not expect to make any additional payment under the guarantee.

The guarantees given in respect of leases for operating premises amount to $273,832 (2006: $290,540), and are covered by two separate deposits. The Group expects to continue to meet all payment obligations required by these lease agreements, and therefore does not expect to make any payment under the guarantees.

Further, at the expiration of each lease agreement, the Group expects the deposit held in respect of that lease to be released and made available to the Group.

(b) Additional consideration for Eukarion Inc.

In December 2004 the Company agreed to acquire Eukarion Inc. by way of subsidiary merger. Under the terms of the merger, Proteome Systems agreed to pay certain contingent consideration on the achievement of certain clinical development and revenue milestones. The Eukarion stockholders are entitled to receive a tranche of Proteome Systems' shares (to the value of USD7.25 million) on the successful completion of Phase II clinical trials of a product containing a Eukarion compound. They are also entitled to be issued with further shares (to a maximum value of USD15 million) depending on the revenue generated through licensing or sale of Eukarion products or intellectual property. These transactions are subject to Proteome Systems' shareholder approval in accordance with the ASX Listing Rules.

The Company does not consider it probable that the above milestones will be met within the required timeframes and as such has not recognised the financial effect of these in the financial statements.

Page 23 of 24

Proteome Systems Limited and Controlled Entities Notes to the financial statements 30 June 2007

(continued)

6 Events occurring after the balance sheet date

(a) Agreement to develop tuberculosis diagnostics

On 25 July 2007 the Company entered into a collaboration and Option agreement with BD (Becton, Dickinson and Company), USA, for the development and commercialisation of tuberculosis (TB) diagnostic tests. Under the terms of this agreement, BD will pay the Company upfront fees and may make further payments upon the achievement of various milestones. If BD proceeds to market point-of-care diagnostic products for rapid and cost-effective detection of active TB, the Company would be entitled to royalties on net sales of tests.

The partnership with BD will be conducted in three phases, the first of which, a co-funded product feasibility study with BD Technologies, will attract an upfront fee and milestone payments. BD has the option to then proceed with product development and, ultimately, proceed to commercialisation of products.

(b) Capital raising

The Company is currently undertaking a capital raising via the issue of fully paid shares to institutional and professional investors at a price of $0.25 per share, with the aim of raising a minimum of $5.5 million. These funds will provide the Company with working capital to further develop its Diagnostics and Therapeutics business.

It is expected that the new shares will be issued in October 2007 and will rank pari passu with the Company’s ordinary shares. The Company will apply to the ASX for quotation of the shares following their issue.

Page 24 of 24