BPH ENERGY LTD — Annual Report 2004

Sep 28, 2004

BIOPHARMICA LTD ACN 095 912 002

ANNUAL REPORT 2004

Chairman’s Letter

BioPharmica Ltd

Page Number

Chairman’s Letter .................................................................................................................................. 2 Company Focus and Developments ................................................................................................. 3 Corporate Governance ....................................................................................................................... 6 Directors’ Report.................................................................................................................................... 9 Independent Audit Report................................................................................................................. 11 Directors’ Declaration......................................................................................................................... 12 Statement of Financial Performance ............................................................................................... 13 Statement of Financial Position ......................................................................................................... 14 Statement of Cash Flows.................................................................................................................... 15 Notes to the Financial Statements .................................................................................................... 16

Company Information

Directors

David Breeze – Chairman and Managing Director Seng Yap – Non-Executive Charles Murphy – Executive Director

Scientific Advisors

Dr. Samantha Gallagher Professor Peter Klinken Dr. Benjamin Fry Dr. Viraj Nawagamuwa

Registered Office

Level 2, Hasler House 30 Hasler Road OSBORNE PARK WA 6017

Auditor

MGI Bridge Partners Level 41, Bank West Tower 108 St Georges Terrace PERTH WA 6000

Share Registry

Security Transfer Registrars Pty Ltd 770 Canning Highway APPLECROSS WA 6153 Ph: 9315 2333

Australian Business Number

64 089 311 026

Principal Business Address

Level 2, Hasler House 30 Hasler Road OSBORNE PARK WA 6017 Telephone: (08) 9244 9631 Facsimile: (08) 9244 9782 Website: www.biopharmica.com.au E-mail: admin@biopharmica.com.au

Chairman’s Letter

BioPharmica Ltd

Dear Shareholder,

Our business strategy is to commercialise breakthrough biomedical research developed in universities, medical institutes and hospitals. Our portfolio approach offers shareholders exposure to a company with a portfolio of biomedical products, as we believe this markedly increases the opportunity for sustained share price performance.

BioPharmica is working to commercialise cancer research developed by Professor Peter Klinken and his team at the internationally recognised Western Australian Institute for Medical Research (WAIMR). The institute is a venture involving the Royal Perth Hospital, Sir Charles Gairdner Hospital, Fremantle Hospital and the University of Western Australia. We intend to commercialise research into HLS5, a candidate tumour suppressor gene (a gene that allows cancer cells to grow uncontrolled when it is switched off or mutated). In recognition of it’s potential in detecting and treating cancer; HLS5 has previously attracted over $1M in research funding.

BioPharmica is also partnered with Dr Benjamin Fry and Dr Viraj Nawagamuwa from Diagnostic Array Systems Pty Ltd (DAS) who are both world leaders in understanding the genetic structure of bacteria. BioPharmica is working with DAS to commercialise biotechnology that identifies which specific bacterium is causing a disease by using the genetic structure (DNA) of bacteria. In using bacterial DNA the testing process can be faster and much more accurate. Treatment is then more effective as drugs are prescribed sooner and for the specific bacterium causing the disease.

BioPharmica has been assessing a small number of biomedical applications since our listing and have now expanded our portfolio. BioPharmica is working with Swinburne University of Technology to develop a fibre optic probe to be used in biosensors for diagnostic testing and drug development. The SERS Probe technology is being developed to enable biosensors to use light as a method to detect and monitor biological and chemical targets on the microscopic tip of an optical fibre.

The company has also entered into an agreement with Cortical Dynamics Pty Ltd and Dr David Liley to develop new methods for monitoring the effects of drugs on the brain through brain electrical activity (EEG). Potential biomedical applications are in monitoring of patients under anaesthesia or sedation, drug development and neuro-diagnostics. Postoperative recall is a serious issue for patient care and anaesthetist liability. Reports indicate about 0.1% of patients undergoing general anaesthesia (20,000 in Australia last year) have some recall of the operation, ranging from doctors comments through to surgical manipulations or even pain.

BioPharmica is working to commercialise biomedical research developed by some of Australia’s most highly skilled scientists.

Yours Sincerely,

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D L Breeze Executive Chairman 29 September 2004

Company Focus and Developments

BioPharmica Ltd

Activity

Much of the company’s efforts in the past financial year have been focused on its cancer and infectious disease biotechnologies. BioPharmica is also evaluated further world leading scientific and medical research to expand its portfolio of biomedical products.

Product development was targeted at the billion-dollar markets for the detection and treatment of breast, prostate and colorectal cancers and the diagnosis of infectious diseases caused by bacteria.

Cancer detection and treatment products are being developed with Professor Klinken and his team from the Laboratory for Cancer Medicine at the Western Australian Institute for Medical Research. The Institute combines the Royal Perth Hospital, Sir Charles Gairdner Hospital and Fremantle Hospital research foundations and the University of Western Australia.

Products that enable the DNA of Bacteria to be used in increasing the speed and accuracy of diagnosing infectious diseases such as pneumonia are being developed with Dr Benjamin Fry and Dr Viraj Nawagamuwa from Diagnostic Array Systems. BioPharmica is working with DAS to commercialise breakthrough research into the genetic structure of a large number of bacteria that cause diseases.

BioPharmica Business Model

BioPharmica develops biomedical products by contracting and collaborating with other companies, Universities, Medical Institutes and Hospitals. BioPharmica has a portfolio approach to business strategy and is developing a number of biomedical products with a range of different markets and applications. The company receives value through entering licensing, profit share and trade sale agreements or Initial Public Offerings (“IPO”) on an appropriate stock exchange.

HLS5 Cancer Gene Summary

BioPharmica is working to develop products that diagnose and treat a range of cancers. The Company is working with the University of Western Australia and Professor Peter Klinken from the Laboratory for Cancer Medicine at the Western Australian Institute for Medical Research (WAIMR).

BioPharmica is developing products from the discovery of a gene named HLS5 by Professor Klinken and his team at the Laboratory for Cancer Medicine. HLS5 is a candidate tumour suppressor gene - a gene that allows cancer cells to grow uncontrolled when it is missing or mutated.

Patents are pending for HLS5 in the United States, Europe and Australia. Once proven as a tumour suppressor gene, HLS5 has a billion-dollar market potential in detecting and treating breast, colorectal and prostate cancer. Professor Klinken is the Director of WAIMR and a world-leading scientist focusing on identifying genes, which when missing or mutated, cause leukaemias and cancers. The laboratory is recognised internationally for its research into the molecular and cellular biology of cancer.

In recognition of it’s potential in detecting and treating cancer; HLS5 has attracted over $1M in research funding from the NHMRC, Cancer Council of WA, the National Breast Cancer Foundation and the Medical Research Foundation of Royal Perth Hospital. WAIMR is a venture involving the Royal Perth Hospital, Sir Charles Gairdner Hospital, Fremantle Hospital and the University of Western Australia.

Company Focus and Developments

BioPharmica Ltd

Infectious Disease Diagnostics Summary

BioPharmica is commercialising infectious disease diagnostic products with world leading microbiologists Dr Benjamin Fry and Dr Viraj Nawagamuwa. Dr’s Fry and Nawagamuwa are recognized experts in the study and knowledge of the genetic structure (DNA) of bacteria that cause infectious diseases such as pneumonia.

To effectively treat a patient with an infectious disease (e.g. pneumonia) the specific bacteria affecting the patient must be identified and treated with drugs most effective for that particular bacterium. Current testing methods can be slow and ineffective, as they often cannot determine the specific bacterium causing the disease. This leads to treatment being less effective as drugs are prescribed to target a broad range of bacteria.

BioPharmica is commercialising patent pending biotechnology that identifies which specific bacterium is causing a disease by using the genetic structure (DNA) of bacteria. In using bacterial DNA the testing process can be faster and much more accurate, treatment is then more effective as drugs are prescribed sooner and for the specific bacterium causing the disease.

Molecular testing using DNA in clinical diagnostics has quickly developed into a very large global market that exceeds more than US$ 1 Billion worldwide (infectious disease testing comprises about 95% of the current market).

The market is growing rapidly and expanded 22.5% in 2002 with sales expected to reach US$ 2 Billion by 2008. Currently diagnostic tests for only nine infectious agents account for essentially all molecular testing kits approved by the FDA. Biotechnology being developed in conjunction with Dr’s Fry and Nawagamuwa has the potential to markedly increase the number of infectious agents able to be diagnosed through molecular testing.

Product Development

The company contracts leading Universities, Researchers and Institutes to conduct specific research projects on its behalf. It also collaborates with leading Universities, Researchers and Medical Institutes to conduct joint research and commercialisation projects. In Australia each research partner has different structures under which it conducts partnerships with industry.

BioPharmica Ltd

Company Focus and Developments

Organization Background

BioPharmica has been formed as a business to develop biotechnology research into product outcomes. The business was founded to capitalise on the significant opportunities provided by Australia’s highly skilled world leading scientists. The company progressed relationships with several Biotech companies and industry partners involved with Academic and Institute research. BioPharmica is currently evaluating further projects and opportunities in the medical device and diagnostics fields and will assess these for commercial development.

Australian Research Development Opportunity

The first wave of biotechnology, begun when Genentech produced the first commercial recombinant protein and ending with the sequencing of the human genome, has produced a young biotechnology industry generally centered around leading spires of biomedical research and innovation.

In Australia approximately 46% of core biotechnology firms are spin offs from research institutions, however without early stage commercial involvement many discoveries are remaining undeveloped or are being developed in manner that leads them to never be commercialised. BioPharmica will continue to develop products by forming alliances and relationships with scientists and researchers throughout Universities, Institutes, Hospitals and Industry.

The Australian biotechnology industry has much competitive strength. Compared to 15 countries in Europe, North America and Asia, Australia was considered (as at December 2000) the most costeffective location to conduct biotechnology research. Australia’s competitiveness in biotechnology research is supported by a strong supply of highly qualified scientists, with more graduates in the fields of science and technology (per 1000) than in the USA.

Exacerbating global economic burden is the increase in persons aged 65 or over, whose healthcare bills are generally four times those of persons under 65. When one considers that the over-65 population will go from 550 million today to over 1 billion in 2020, the strain on existing healthcare systems is evident. Coupled with the continuing expansion of managed care systems and their concomitant pressures on cost containment, these demographics are driving a profound change in the way medicine and healthcare will be delivered in the next decades.

The opportunities for medical devices are changing rapidly due to technological developments and synergies with pharmaceuticals and biotechnology. The global market for medical diagnostics and devices exceeds US$100 billion and continues to grow thanks to an aging population, improving infrastructure in second and third world countries, and technological advances that help improve health and lengthen life spans.

Commercialisation Paths

The Company will assess each commercialisation channel on the level of income that it estimates to generate, the nature of the product, the market conditions, financial position and resources available.

Corporate Governance Statement

BioPharmica Ltd

The directors are responsible for the corporate governance practice of the company. This statement sets out the main corporate governance practices that were in operation throughout the financial year, except where otherwise indicated. Exception reporting against the ASX Principles of Good Corporate Governance and Best Practice Recommendations (“Guidelines”) became mandatory during the 2003/4 financial year. Exceptions to the Guidelines are noted below:

Composition of the Board

To ensure the Board is well equipped to discharge its responsibilities it has established guidelines for the nomination and selection of directors and for the operation of the Board. The composition of the board is determined in accordance with the following principles and guidelines:

• The Board should comprise at least three directors and should maintain a majority of non-executive directors;

• The Board should comprise directors with an appropriate range of qualifications and expertise;

• The Board shall meet regularly and follow meeting guidelines set down to ensure all directors are made aware of, and have available all necessary information, to participate in an informed discussion of all agenda items;

• The principal criterion for the appointment of any new director will be the ability to add value to the Company’s business;

• Non-executive directors are expected to retire at age 72, and

• No formal procedure has been adopted for reviewing the membership of the Board but there is an informal self-assessment process facilitated, where appropriate, by the Chairman.

The Board meets as required, but at least annually, to review Board performance and to ensure that the Board continues to operate within the established guidelines, including when necessary, selecting candidates for the position of director.

The Board is responsible for determining and reviewing compensation arrangements for the directors themselves, which are subject to shareholder approval of director’s fees, and the remuneration of the Managing Director.

If any directors are called upon to perform extra services or make any special exertions on behalf of the Company or its business, the Board may remunerate such director in accordance with such services or exertions. The Board has adopted a policy that any such remuneration will be at a rate not exceeding current commercial rates for equivalent professional services.

Independent Professional Advice

With prior approval of the Chairman, each director has the right to seek independent legal and other professional advice at the company’s expense concerning any aspect of the company’s operations or undertakings in order to fulfil their duties and responsibilities as directors.

BioPharmica Ltd

Corporate Governance Statement

Board Responsibilities

As the Board acts on behalf of the shareholders and is accountable to the shareholders, the Board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. In addition, the Board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks. The Board seeks to discharge these responsibilities in a number of ways.

The responsibility for the operation and administration of the economic entity is delegated by the Board to the Managing Director and the management team. The Board ensures that this team is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the Managing Director and the management team.

The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the Board. The Board is developing a number of mechanisms to ensure this is achieved and include the following:

• Board approval of a strategic plan which encompasses the entity’s vision, mission and strategy statements, designed to meet shareholders’ needs and manage risk;

• The strategic plan is a dynamic document and the Board is actively involved in developing and approving initiatives and strategies designed to ensure the continued growth and success of the Company;

• Implementation of operating plans and budgets by management and Board monitoring of progress against budget – this includes the establishment and monitoring of key performance indicators (both financial and non-financial) for all significant business processes;

• Management of environmental issues and concerns, and occupational health and safety;

• Procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the Company’s expense.

BioPharmica Ltd

Corporate Governance Statement

Monitoring the Board Performance and Communication to Shareholders

The Board of Directors aims to ensure that the shareholders, on behalf of whom they act, are informed of all information necessary to assess the performance of the directors. Information is communicated to the shareholders through:

• the annual report which is distributed to all shareholders;

• the half-yearly report, which is distributed to all shareholders;

• the annual general meeting and other meetings so called to obtain approval for Board actions as appropriate;

• ASX releases; and

• activity updates distributed to shareholders.

The directors are responsible for the corporate governance practices of the company. This statement sets out the main corporate governance practices that were in operation throughout the financial period.

Exception Reporting

Exception reporting against the ASX Principles of Good Corporate Governance and Best Practice Recommendations (“Guidelines”) became mandatory during the 2003/4 financial year. Set out following are noted exceptions to the Guidelines.

• A separate Nomination Committee has not been formed. Note-The role of the Nomination Committee is carried out by the full Board. The Board considers that given its size, no efficiencies or other benefits would be gained by establishing a separate Nomination Committee.

• A separate Audit Committee has not been formed. Note-The role of the Audit Committee is carried out by the full Board. The Board considers that given its size, no efficiencies or other benefits would be gained by establishing a separate Audit Committee.

• There was no separate Remuneration Committee. Note-The full Board carried out the functions of the Remuneration Committee. All matters of Remuneration were determined by the Board in accordance with the Corporations Act requirements especially in respect of related party transactions. That is no Director participated in any deliberations regarding his own remuneration or related issues. The Board considers that given its size, no efficiencies or other benefits would be gained by establishing a separate Remuneration Committee.

• Composition of the Boa rd and New Appointments. Note- The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the appointment and further expense of an independent Non-Executive Chairman and additional independent Non Executive Directors.

• The roles of the Chairman and Chief Executive Officer should not be exercised by the same individual. Note - The Board considers that the Company is not currently of a size, nor are its affairs of such complexity to justify the appointment and further expense of an independent Non-Executive Chairman and separate Managing Director.

BioPharmica Ltd

Directors’ Report

The directors of BioPharmica submit herewith the financial report for the financial year ended 30 June 2004. In order to comply with the provisions of the Corporations Act 2001, the directors report as follows:

Directors

The names and particulars of the directors of the company during or since the end of the financial year are:

(1) D L Breeze (2) S K Yap and (3) C R Murphy.

Principal Activities

The principal activity of the entity during the financial year was to commercialise breakthrough biomedical research developed in universities, medical institutes and hospitals. BioPharmica is currently working with its partners to commercialise research into infectious diseases and cancer.

Review of Operations

Operating loss for the entity after tax for the year was $68,135 (2003 $287). Please refer to the Company Focus and Developments section on page 3. The Company was not listed on the ASX until 4 August 2004. This annual report is not lodged to comply with ASX requirements, accordingly the format differs from the standard annual report format and the accounts do not reflect the effect of the prospectus capital raising of $2,594,900.

Changes In State Of Affairs

The company changed its name from Grandbridge Capital Pty Ltd to BioPharmica Ltd on 16 January 2004, raised $2,594,900 capital by way of public prospectus in August 2004 and was admitted to the official list of ASX on 4 August 2004. During the financial year there were no other significant changes in the state of affairs of the entity other than that referred to in the financial statements or notes thereto.

Subsequent Events

The company raised $2,594,900 capital by way of public prospectus in August 2004 and was admitted to the official list of ASX on 4 August 2004. The company has also entered into an agreement with Swinburne University of Technology and Cortical Dynamics for biomedical commercialization. Except as referred to in note 8 to the financial statements, there have not been any further matters or circumstance that have arisen since the end of the financial year, that have significantly affected, or may significantly affect, the operations of the entity, the results of those operations, or the state of affairs of the entity in future financial years.

Future Developments

The entity will continue to commercialise breakthrough biomedical research developed in universities, medical institutes and hospitals.

Dividends

The Directors recommend that no dividend be paid in respect of the current financial year and no dividends have been paid or declared since the commencement of the financial year.

Directors’ Report (continued) BioPharmica Ltd

Indemnification of Officers and Auditors

During the financial year the company paid a premium in respect of a contract insuring the directors of the company (as named above), the company secretary, and all executive officers of the company and of any related body corporate against a liability incurred as such a director, secretary or executive officer to the extent permitted by the Corporations Act 2001. The contract of insurance prohibits disclosure of the nature of the liability and the amount of the premium.

The company has not otherwise, during or since the financial year, indemnified or agreed to indemnify an officer or auditor of the company or of any related body corporate against a liability incurred as such an officer or auditor.

Signed in accordance with a resolution of the directors made pursuant to s.298(2) of the Corporations Act 2001.

On behalf of the Directors

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D L Breeze Executive Chairman PERTH, 29 September 2004

INDEPENDENT AUDIT REPORT TO THE MEMBERS OF BIOPHARMICA LTD

Scope

The financial report and directors’ responsibility

The financial report comprises the statement of financial position, statement of financial performance, statement of cash flows, accompanying notes to the financial statements, and the directors’ declaration for BioPharmica Ltd (‘the company’) for the year ended 30 June 2004.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Corporations Act 2001. This includes responsibility for the maintenance of adequate accounting records and internal controls that are designed to prevent and detect fraud and error, and for the accounting policies and accounting estimates inherent in the financial report.

Audit Approach

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

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

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

• examining, on a test basis, information to provide evidence supporting the amounts and disclosures in the financial report, and

• assessing the appropriateness of the accounting policies and disclosures used and the reasonableness of significant accounting estimates made by the directors.

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

Independence

In conducting our audit, we followed applicable independence requirements of Australian professional ethical pronouncements and the Corporations Act 2001.

Audit Opinion

In our opinion, the financial report of BioPharmica Ltd is in accordance with:

a) the Corporations Act 2001, including:

• (i) giving a true and fair view of the company’s financial position as at 30 June 2004 and of its performance for the year ended on that date; and

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

• b) other mandatory and professional reporting requirements in Australia.

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MGI BRIDGE PARTNERS AUDIT SERVICES

TJ SPOONER Partner

DATED this 29th day of September 2004

Level 41, BankWest Tower, 108 St George’s Terrace, GPO Box 2570, Perth, Western Australia 6001 Tel: 08 9463 2463 Fax: 08 9463 2499 Email: reception@mgiperth.com.au

MGI Bridge Partners Audit Services

A member of MGI, an association of independent accounting firms with offices throughout the world

Directors’ Declaration BioPharmica Ltd

The directors of BioPharmica Ltd declare that:

• a) The attached financial statements and notes thereto comply with accounting standards;

• b) The attached financial statements and notes thereto give a true and fair view of the financial position and performance of the company and the entity;

• c) In the directors’ opinion, the attached financial statements and notes thereto are in accordance with the Corporations Act 2001; and

• d) In the directors’ opinion, there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

Signed in accordance with a resolution of the Directors.

On behalf of the Directors

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D L Breeze Executive Chairman PERTH, 29 September 2004

Statement of Financial Performance for the year ended 30 June 2004

BioPharmica Ltd

Note Revenue from ordinary activities 2 Administration expenses Consulting and Legal expenses Mailing & distribution expenses Travelling expenses Other expenses from ordinary activities Loss From Ordinary Activities Before Income Tax Expense Income tax expense relating to ordinary activities 3 Net Loss After Related Income Tax Expense Total Changes in Equity Other than those Resulting from Transactions with Owners as Owners	2004 $ 2003 $
	39 - 4,107 287 9,217 - 30,500 - 19,763 - 4,587 -
	68,135 287 - -
	68,135 287
	68,135 287

Notes to the financial statements are included on pages 16 to 20.

Statement of Financial Position as at 30 June 2004

BioPharmica Ltd

Note Current Assets Cash assets Receivables 4 Total Current Assets Non-Current Assets Other financial assets 5 Total Non-Current Assets Total Assets Current Liabilities Payables 6 Total Current Liabilities Non Current Liabilities Other financial liabilities 7 Total Current Liabilities Total Liabilities Net Assets Equity Contributed equity 8 Accumulated losses 9 Total Equity	2004 $ 2003 $
	573 - 18,080 -
	18,653 -
	359,698 300,000
	359,698 300,000
	378,351 300,000
	174,167 -
	174,167 -
	263,989 391,670
	263,989 391,670
	438,156 391,670
	(59,805) (91,670)
	110,000 10,000 (169,805) (101,670)
	(59,805) (91,670)

Notes to the financial statements are included on pages 16 to 20.

Statement of Cash Flows for the year ended 30 June 2004

BioPharmica Ltd

Note Cash Flows From Operating Activities Payments to suppliers Interest received Net cash used in operating activities 11(b) Cash Flows From Investing Activities Payment purchase of investments Net cash used in investing activities Cash Flows From Financing Activities Proceeds from capital raising Net cash provided by financing activities Net increase in Cash Held Cash At the Beginning Of The Financial Year Cash At The End Of The Financial Year 11(a)	2004 $ 2003 $
	(24,466) - 39 -
	(24,427) -
	(75,000) -
	(75,000) -
	100,000 -
	100,000 -
	573 - - - 573 -

Notes to the financial statements are included on pages 16 to 20.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

1. Summary of Accounting Policies

Financial Reporting Framework

The financial report is a general purpose financial report, which has been prepared in accordance with the Corporations Act 2001, Accounting Standards and Urgent Issues Group Consensus Views, and complies with other requirements of the law.

The financial report has been prepared on the basis of historical cost and except where stated, does not take into account changing money values or current valuations of non-current assets. Cost is based on the fair values of the consideration given in exchange for assets.

Significant Accounting Policies

Accounting policies are selected and applied in a manner which ensures that the resulting financial information satisfies the concepts of relevance and reliability, thereby ensuring that the substance of the underlying transactions or other events is reported.

The following significant accounting policies have been adopted in the preparation and presentation of the financial report:

(a) Accounts Payable

Trade payables and other accounts payable are recognised when the economic entity becomes obliged to make future payments resulting from the purchase of goods and services.

(b) Depreciation

Depreciation is calculated on a straight line basis so as to write off the net cost or other revalued amount of each asset over its expected useful life. The following estimated useful lives are used in the calculation of depreciation:

Plant and Equipment

3-6 years

(c) Employee Benefits

Provision is made for benefits accruing to employees in respect of wages and salaries, annual leave, long service leave, and sick leave when it is probable that settlement will be required and they are capable of being measured reliably.

Provisions made in respect of wages and salaries, annual leave, sick leave, and other employee benefits expected to be settled within 12 months, are measured at their nominal values using the remuneration rate expected to apply at the time of settlement.

Provisions made in respect of other employee benefits which are not expected to be settled within 12 months are measured as the present value of the estimated future cash outflows to be made by the economic entity in respect of services provided by employees up to the reporting date.

(e) Financial Instruments

Equity Instruments

Debt and equity instruments are classified as either liabilities or equity in accordance with the substance of the contractual arrangement.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

Transaction Costs on the Issue of Equity Instruments

Transaction costs arising on the issue of equity instruments are recognised directly in equity as a reduction of the proceeds of the equity instruments to which the costs relate.

Transaction costs are the costs that are incurred directly in connection with the issue of those equity instruments and which would not have been incurred had those instruments not been issued.

Interest and Dividends

Interest and dividends are classified as expenses or as distributions of profit consistent with the statement of financial position classification of the related debt or equity instruments or component parts of compound instruments.

(f) Goods and Services Tax

Revenues, expenses and assets are recognised net of the amount of goods and services tax (GST), except:

• i. where the amount of GST incurred is not recoverable from the taxation authority, it is recognised as part of the cost of acquisition of an asset or as part of an item of expense; or

• ii. for receivables and payables which are recognized inclusive of GST.

The net amount of GST recoverable from, or payable to, the taxation authority is included as part of receivables or payables.

Cash flows are included in the statement of cash flows on a gross basis. The GST component of cash flows arising from investing and financing activities which is recoverable from, or payable to, the taxation authority is classified as operating cash flows.

(g) Goodwill

Goodwill, representing the excess of the cost of acquisition over the fair value of the identifiable net assets acquired will be amortised on a straight line basis over a period of 5 years.

(h) Income Tax

Tax-effect accounting principles are adopted whereby income tax expense is calculated on pre-tax accounting profits after adjustment for permanent differences. The tax-effect of timing differences, which occur when items are included or allowed for income tax purposes in a period different to that for accounting, is shown at current taxation rates in provision for deferred income tax and future income tax benefit, as applicable.

(i) Investments

Investments are recorded at cost.

Dividend revenue is recognised on a receivable basis. Interest revenue is recognised on an accrual basis.

(j) Receivables

Trade receivables and other receivables are recorded at amounts due less any allowances for doubtful debts.

(k) Recoverable Amount of Non-Current Assets

Non-current assets are written down to recoverable amount where the carrying value of any non-current asset exceeds recoverable amount. In determining the recoverable amount underlying cash flows are not discounted.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

(l) Acquisition of Assets

Assets acquired are recorded at the cost of acquisition, being the purchase consideration determined as at the date of acquisition plus costs incidental to the acquisition.

In the event that settlement of all or part of the cash consideration given in the acquisition of an asset is deferred, the fair value of the purchase consideration is determined by discounting the amounts payable in the future to their present value as at the date of acquisition.

(m) Revenue Recognition

Rendering Services

Revenue from a corporate contract to provide services is recognised on the basis of services provided.

(n) International Financial Reporting Standards (IFRS)

The company will be required to present its financial statements in accordance with Australian Accounting Standards that are equivalent to IFRS for the financial year commencing 1 July 2005, including the interim financial report for the half year 31 December 2005 and the annual financial report for the year ending 30 June 2006.

The comparative financial statements for each of these periods will be restated using Australian Accounting Standards that are equivalent to IFRS, except for AASB 132 Financial Instruments: Disclosure and Presentation (AASB 132) and AASB 139 Financial Instruments: Recognition and Measurement (AASB 139). In order to restate the comparative information, opening undistributed income at 1 July 2004 will be adjusted to include the changes necessary to transition to the new standards, except for changes relating to AASB 132 and AASB 139 which will be adjusted in opening undistributed income at 1 July 2005.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

2. Operating Loss

The operating loss before income tax includes the following items of revenue and expense:

Operating Revenue Interest revenue Expenses Administration expenses Consulting and Legal expenses Mailing & distribution expenses Travelling expenses Other expenses from ordinary activities	2004 $ 2003 $
	39 - 4,107 287 9,217 - 30,500 - 19,763 - 4,587 -

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

ncome Tax a) The prima facie income tax benefit on pre-tax accounting loss reconciles to the income tax expense in the financial statements as follows: Operating Loss from Ordinary Activities Income tax benefit calculated at 30% (2003 30%) of operating loss Permanent Differences: Other timing differences Timing differences and tax losses not brought to account as future income tax benefits Income tax benefit attributable to operating loss b) Future income tax benefits not brought to account as assets at 30% (2003 30%): Tax losses revenue Tax losses capital Timing differences	2004 $ 2003 $
	68,135 287
	20,441 86 - - 20,441 287
	20,441 287
	20,527 287 - - - -
	20,527 287

3. Income Tax

The taxation benefits of tax losses and timing differences not brought to account will only be obtained if:

• a) assessable income is derived of a nature and of amount sufficient to enable the benefit from the deductions to be realised;

• b) conditions for deductibility imposed by the law are complied with; and

• c) no changes in tax legislation adversely affect the realisation of the benefit from the deductions.

Notes to the Financial Statements for this financial year ended 30 June 2004

BioPharmica Ltd

4. Current Receivables Receivables 5. Other Non Current Financial Assets Shares in unlisted investments (a) Recoverable amount write down – Investsmart Financial Services Pty Ltd Capital Raising Costs – Prospectus 2004 (a) Shares in unlisted investments (i) Investsmart Financial Services Pty Ltd (10% holding) (ii) University of Western Australia (ii) Diagnostic Array Systems Pty Ltd 6. Current Payable Trade payables 7. Non Current Liabilities Unsecured Loan from controlling entity: Grandbridge Ltd	2004 $ 2003 $
	18,080 -
	175,000 400,000 - (100,000) 184,698 -
	359,698 300,000
	- 300,000 75,000 - 100,000 - 174,167 -
	263,989 391,670

Notes to the Financial Statements for this financial year ended 30 June 2004

BioPharmica Ltd

			2004	2003
			$	$
Contributed Equity
Contributed Equity
5,000,500 fully paid ordinary shares (2002 5,000,500)
held by controlling entity Grandbridge Ltd			10,000	10,000
2,000,000 fully paid ordinary shares (2002 nil)
Seed Capital			100,000	-
			110,000	10,000
	2004		2003
	No ‘ 000	$	No ‘ 000	$
Fully Paid Ordinary Share Capital
Balance at beginning of financial year	5,000,500	10,000	5,000,500	10,000
Add: Issued during the year	2,000,000	100,000	-	-
Balance at end of financial year	7,000,500	110,000	5,000,500	10,000

8. Contributed Equity

Capital Raising

On 16 March 2004, the company issued Seed Capital of 2,000,000 ordinary shares at 5 cents each.

The company opened its public prospectus on 20 May 2004 and issued 12,974,500 ordinary shares at 20 cents each, thereby raising $2,594,900, on 29 July 2004. At this time a further 21,693,508 shares were issued in consideration of the acquisition of the Diagnostic Array Systems assets from Grandbridge Ltd.

The company was admitted to the official list of ASX on 4 August 2004.

Fully Paid Ordinary Share Capital

Fully paid ordinary shares carry one vote per share and carry the right to dividends.

Share Options

On 2 August 2004, the company issued 6 million options to directors and 2 million vendor options. No other options were offered during the year.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

9. Accumulated Losses

Balance at beginning of financial year Net loss Balance at end of financial year	2004 $ 2003 $
	(101,670) (101,383) (68,135) (287) (169,805) (101,670)

10. Financial Instruments

a) Significant Accounting Policies

Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which revenues and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 1 to the financial statements.

The following table details the economic entity’s exposure to interest rate risk as at 30 June 2004:

b) Interest rate risk

2004 Average Interest Rate %	Variable Interest Rate $ Non- Interest Bearing $ Total $
Financial Assets Cash at bank 0.01 Receivables - Other financial assets - Financial Liabilities Accounts Payable - Other - Unsecured Loan -	573 - 573 - 18,080 18,080 - 359,698 359,698
	573 377,778 378,351
	- 174,167 174,167 - 263,989 263,989
	- 438,156 438,156

The company held $1,425,815 in its trust account from prospectus applications at 30 June 2004, with an interest rate of 4%.

Notes to the Financial Statements for this financial year ended 30 June 2004

BioPharmica Ltd

10. Financial Instruments (continued)

2003 Average Interest Rate % Financial Assets Cash at bank - Receivables - Unlisted Investments - Financial Liabilities Accounts Payable - Other – Unsecured Loan -	Variable Interest Rate $ Non- Interest Bearing $ Total $ - - - - - - - 300,000 300,000
	- 300,000 300,000
	- - - - 391,670 391,670
	- 391,670 391,670

c) Credit Risk

Credit risk refers to the risk that a counter party will default on its contractual obligations resulting in financial loss to the economic entity. The economic entity has adopted the policy of only dealing with creditworthy counter parties and obtaining sufficient collateral or other security where appropriate, as a means of mitigating the risk of financial loss from defaults. The economic entity measures credit risk on a fair value basis.

The economic entity does not have any significant credit risk exposure to any single counterpart or any group of counter parties having similar characteristics.

The carrying amount of financial assets recorded in the financial statements, net of any provisions for losses, represents the economic entity’s maximum exposure to credit risk.

d) Net Fair Value

The carrying amount of financial assets and financial liabilities recorded in the financial statements represents their respective net fair values, determined in accordance with the accounting policies disclosed in note 1 to the financial statements.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

11. Notes to the Statement of Cash Flows

a) Reconciliation of Cash For the purposes of the statement of cash flows, cash includes cash on hand and in banks and investments in money market instruments, net of outstanding bank overdrafts. Cash at the end of the financial year as shown in the statement of cash flows is reconciled to the related items in the balance sheet as follows: Cash b) Reconciliation of Operating Loss After Income Tax to Net Cash Flows From Operating Activities Operating loss after income tax Changes in net assets and liabilities, net of effects from acquisition and disposal of businesses: (Increase)/decrease in assets: Current receivables Increase/(decrease) in liabilities: Other Financial Liabilities Current trade payables Net cash from operating activities

2004 2003 $ $ 573 - (68,135) (287) (18,080) - (112,380) 287 174,168

(24,427) -

12. Subsequent Events

Except as referred to in note 8 to the financial statements, there have not been any matters or circumstances, that have arisen since the end of the financial year, that have significantly affected, or may significantly affect, the operations of the entity, the results of those operations, or the state of affairs of the entity in future financial years.

Notes to the Financial Statements for this financial year ended 30 June 2004 BioPharmica Ltd

13. Related Party Disclosures

(a) Directors’ Equity Holdings

Ordinary Shares Issued to directors and their director- related entities by BioPharmica Ltd: During the financial year Subsequent to year end Held as at the date of this report by directors and their director-related entities in: BioPharmica Ltd Other Equity Instruments Options to directors and their director-related entities issued by BioPharmica Ltd: During the financial year Subsequent to year end Held as at the date of this report by directors and their director-related entities in: BioPharmica Ltd	Company 2004 2003 $ $
	0 - 11,351,000 -
	11,351,000 -
	0 - 6,000,000 -
	6,000,000 -

(b) Directors

The Company has agreements with Hebex Pty Ltd, Kanou Pty Ltd and Trandcorp Pty Ltd on normal commercial terms procuring the services of Charles Murphy, Seng Yap and David Breeze respectively to provide product development services ($ nil was paid during the year – each of these agreements are at the rate of $98,000 per annum).

(c) Controlling Entities

The parent entity in the economic entity is Grandbridge Ltd. Grandbridge Ltd has a three year services agreement with BioPharmica Ltd at the rate of $ 12,000 per month to provide corporate services, administration and infrastructure to the Company ($ nil was paid during the year). The Company has paid a success fee of $5000 and a corporate advisory fee of $90,000 to Grandbridge Securities Pty Ltd, a wholly owned subsidiary of Grandbridge Ltd.