BPH ENERGY LTD — Proxy Solicitation & Information Statement 2007

Aug 29, 2007

BIOPHARMICA LIMITED

ABN 41 095 912 002

NOTICE OF GENERAL MEETING

TIME : 9.00am DATE : 27[th] September 2007 PLACE : 14 VIEW STREET NORTH PERTH WA 6006

This Notice of Meeting should be read in its entirety. If Shareholders are in doubt as to how they should vote, they should seek advice from their professional advisers prior to voting.

Should you wish to discuss the matters in this Notice of Meeting please do not hesitate to contact the Company Secretary on (08) 9328 8366

CONTENTS PAGE

Notice of General Meeting (setting out the proposed resolution)

Explanatory Statement (explaining the proposed resolution)

Glossary

Proxy Form

TIME AND PLACE OF MEETING AND HOW TO VOTE

VENUE

The General Meeting of the Shareholders of BioPharmica Limited which this Notice of Meeting relates to will be held at 9.00 am on 27[th] September 2007 at:

14 View Street NORTH PERTH WA 6006

YOUR VOTE IS IMPORTANT

The business of the General Meeting affects your shareholding and your vote is important.

VOTING IN PERSON

To vote in person, attend the General Meeting on the date and at the place set out above.

VOTING BY PROXY

To vote by proxy, please complete and sign the proxy form enclosed:

• (a) send the proxy form by post to BioPharmica Limited PO Box 317, NORTH PERTH, Western Australia, 6906; or

• (b) by facsimile to the Company on facsimile number (08) 9328 8733,

so that it is received not later than 9.00am WST on 25[th] September 2007.

Proxy forms received later than this time will be invalid.

NOTICE OF GENERAL MEETING

Notice is given that the General Meeting of Shareholders of BioPharmica Limited will be held at 14 View Street, North Perth, Western Australia at 9.00am WST on 27[th] September 2007.

The Explanatory Statement to this Notice of Meeting provides additional information on matters to be considered at the General Meeting. The Explanatory Statement and the proxy form are part of this Notice of Meeting.

The Directors have determined pursuant to Regulation 7.11.37 of the Corporations Regulations 2001 (Cth) that the persons eligible to vote at the General Meeting are those who are registered Shareholders of the Company on 25[th] September 2007 at 5.00pm WST.

Terms and abbreviations used in this Notice of Meeting and Explanatory Statement are defined in the Glossary.

AGENDA

RESOLUTION 1 - APPROVAL FOR AN EQUAL REDUCTION OF CAPITAL

To consider and, if thought fit, to pass, with or without amendment, the following resolution as an ordinary resolution :

“That, for the purposes of Section 256C of the Corporations Act 2001 and for all other purposes, approval is given for the net assets of the Company to be reduced by the Company making a pro rata in specie distribution of 1 Cortical Share for every 1 BioPharmica Share held by all holders of ordinary shares in the Company on the Record Date, on the terms and conditions set out in the Explanatory Statement accompanying this Notice.”

DATED: 29[th] August 2007

BY ORDER OF THE BOARD

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David Breeze CHAIRMAN

Voting Exclusion Note:

Where a voting exclusion applies, the Company need not disregard a vote if it is cast by a person as a proxy for a person who is entitled to vote in accordance with the directions on the proxy form or it is cast by the person chairing the meeting as proxy for a person who is entitled to vote, in accordance with a direction on the proxy form to vote as the proxy decides.

EXPLANATORY STATEMENT

This Explanatory Statement has been prepared for the information of the Shareholders of the Company in connection with the business to be conducted at the General Meeting to be held at 14 View Street, North Perth, Western Australia on 27[th] September 2007at 9.00am (WST).

This purpose of this Explanatory Statement is to provide information which the Directors believe to be material to Shareholders in deciding whether or not to pass the Resolution in the Notice of Meeting.

1. RESOLUTION 1 – REDUCTION OF CAPITAL

1.1 Background and Overview of the Proposal

As announced by the Company to ASX on 14[th] June 2007, the Company proposes to undertake a restructure by ultimately splitting the separate business activities and assets of the Company into 2 separate Australian Stock Exchange (ASX) listed entities by a de-merger process. This will result in the entities having a separate focus with:

• (a) BioPharmica Limited (BioPharmica or the Company) continuing as biotechnology commercialisation and;

• (b) Cortical Dynamics (Cortical) pursuing its medical technology business.

To achieve this restructure the directors and their advisors propose an integrated approach reflecting the following key steps:

• (a) an in specie distribution of 69,125,788 Cortical shares held by the Company representing 62.20% of the issued capital in Cortical to the shareholders of the Company; and

• (b) a capital raising by Cortical with the aim of achieving a listing of Cortical shares on ASX.

Accordingly, pursuant to this Resolution the Company proposes making an equal reduction of its capital to shareholders on a 1:1 basis. That is, for every 1 BioPharmica share held on the Record Date, shareholders will receive 1 Cortical Share.

This distribution of Cortical Shares is conditional on:

• (a) Shareholders of the Company approving the in specie distribution of the Cortical Shares in general meeting; and

• (b) Compliance by the Company and Cortical in all respects with the Corporations Act and the ASX Listing Rules.

An unaudited balance sheet for Cortical for the period ended 30 June 2007 is contained in Appendix A. This shows the financial position of Cortical as a stand alone entity as it would be following completion of the transaction and the completion of a proposed initial public offering capital raising by Cortical.

1.2 Effect of Proposed Equal Capital Reduction on the Company

If the equal reduction is approved, the net assets of the Company will be reduced by approximately $777,946 (adjusted for 3.61% retained by BPH). The Reduction Amount (as defined in Section 2.5) is the book value of the Return Shares at their rounded issue price of $0.0113 each (The total book value of the capital reduction is $777,946).

A pro-forma balance sheet for the Company as at 31 December 2006 is contained in Appendix B which shows the financial impact of the capital reduction on the Company (assuming that no further shares are issued).

1.3 Effect of Proposed Equal Reduction on Shareholders in the Company

The effect of the proposed equal reduction is that shareholders in the Company will receive a pro-rata distribution in specie of Cortical Shares on the basis of 1 Cortical Share for every 1 Share held on the Record Date (rounded up to the nearest whole number).

After the distribution of 69,125,788 Cortical Shares held by the Company to its shareholders (at a deemed price of $0.0113 cents each).

This number of shares will be altered if the Company makes any further additional issue of shares between the date of this Notice and the Record Date.

As at the date of this Notice, the structure of the Company and Cortical is as follows:

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BioPharmica Shareholders
100%
100%
BioPharmica Biotechnology Projects
70.91% 100%
Cortical Medical Tech
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Immediately after the equal reduction resolution is passed, the distribution of Cortical Shares is completed and the Capital Raising is completed (assuming $1.6m is raised pursuant to the Capital Raising) the structure of the Company and Cortical will be as follows:

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Non-related entities
BioPharmica Shareholders
62.20% 26.99%
100%
3.61% 100%
BioPharmica Cortical Medical Tech
100% 7.20%
Biotechnology IPO Subscribers
Projects (including BioPharmica
Shareholders who may
participate in the IPO)
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1.4 Advantages and Disadvantages of the Proposal

The principal advantages and disadvantages to shareholders of the Company of the proposed equal capital reduction are as follows:

(a) Advantages

• all shareholders retain an interest in the development of the biotechnology interests through their individual pro-rata shareholding in BioPharmica;

• the listing of Cortical on ASX may possibly result in a higher combined market valuation for the Company and Cortical than the current market valuation of the Company;

• all shareholders retain their percentage ownership interest in the capital of the Company;

• the separate listing of the interests in the Cortical structure allows new investors to specifically focus on biotechnology through Cortical; and

• future capital raisings may be more achievable by each individual listed entity;

• Cortical can apply for a significant commercial ready grant up to $2m to match the capital raised in the initial public offer (IPO);

• Cortical can appoint a dedicated executive team to maximise the market value of Cortical; and

• A higher corporate profile for Cortical as an independent entity.

• (b)

Disadvantages

• there is no guarantee that the Cortical Shares or your holding in BioPharmica will increase in value;

• shareholders may incur additional transaction costs if they wish to dispose of the new investment in Cortical (i.e brokerage); and

• there may be a taxation consequence in respect of the distribution of the Cortical Shares to shareholders. Shareholders should obtain independent taxation advice prior to voting on this resolution.

1.5 Additional Important Information for Shareholders

In accordance with Section 256C of the Corporations Act and the ASX Listing Rules, the Company provides the following information to shareholders of the Company:

• (a) The capital reduction is subject to a conditional approval being given by ASX to Cortical to be admitted to the official list of ASX. In order to be granted this approval, Cortical is required to comply with the requirements of Chapters 1 and 2 of the ASX Listing Rules. This included the following requirements:

• (i) Cortical’s constitution being consistent with the ASX Listing Rules. This requirement has not yet been satisfied;

• (ii) The issue of a prospectus by Cortical. A copy of the Cortical prospectus will be provided to shareholders on request as part of

the listing of Cortical on ASX in accordance with the proposed timetable set out in this document;

• (iii) The spread of shareholders of Cortical being at least 400 holders having parcels with a minimum value of $2,000; and

• (iv) The net tangible assets of Cortical being at least $2,000,000 at the time of admission of Cortical to the official list of ASX. Following a minimum capital raising of $1,600,000 Cortical will (after listing costs of approximately $200,000) have estimated net tangible assets of approximately $2,000,000.

• (b) The capital structure of the Company at the date of this notice will be;

Number of Shares	Number of Options
69,125,788	11,000,000

• (c) the capital structure of Cortical (assuming a capital raising of $1,600,000 by the issue of 8,000,000 Cortical shares) should it list on ASX is anticipated to be 111,141,221 Cortical shares. The number of Cortical shares on issue will increase if the capital raising is greater than $1,600,000;

• (d) the Record Date will be 5.00pm WST on that date which is 5 business days after shareholder approval is obtained;

• (e) the proforma statement of financial position of Cortical should it list on ASX will be as set out in Appendix B;

• (f) the share capital of the Company as at the Record Date will be reduced by the dollar amount of the book value of the Return Shares ( Reduction Amount );

• (g) the Return Shares will be that number of Cortical Shares to be distributed on a pro-rata basis to all holders of ordinary shares in the capital of the Company on the Record Date by applying the formula of 1 Cortical Share for every 1 Share held (rounded up to the nearest whole number);

• (h) the Return of Capital is planned to occur within five days of the shareholders meeting to BioPharmica, who will hold the shares on trust, and the distribution of these shares will occur at a date twelve months after the listing of Cortical shares on ASX and will be effected by a pro-rata distribution of the Return Shares in specie proportionately to all of the Company’s shareholders:

• (i) registered as such as at 5.00pm WST on the Record Date; or

• (ii) entitled to be registered as a shareholder in the Company by virtue of a transfer of Shares executed before 5.00pm WST on the Record Date and lodged with the Company at that time; and

• (i) in accordance with ASX Listing Rule 7.22.3 all options on issue in the Company will have their exercise price per option reduced by the same amount as the Reduction Amount per Share.

1.6 ASX Escrow

Subject to the exceptions detailed below, those Cortical Shares distributed to BioPharmica Shareholders will not be restricted from being traded on ASX.

Cortical Shares held by the Company upon Cortical listing on ASX will be escrowed (and therefore restricted from trading) for 24 months. However, Cortical will make an application to ASX to waive any escrow requirement to permit the Company to undertake the in-specie distribution of those Cortical Shares to BioPharmica Shareholders after 6 months from the date Cortical lists on ASX.

Upon completion of that distribution, only those Cortical Shares distributed to related parties or promoters of the Company or Cortical will remain restricted for that 24 month period.

This in-specie distribution will be conditional upon, among other things, the Company obtaining approval from BioPharmica Shareholders for the in-specie distribution.

1.7 Overseas Shareholders

The distribution of the Cortical Shares to the Company’s shareholders under the reduction of capital will be subject to the legal and regulatory requirements in their relevant jurisdictions. If, in the opinion of the Directors, the requirements of any jurisdiction where a Shareholder is resident restricts or prohibits the distribution of Cortical Shares or otherwise imposes on the Company an undue burden, the Cortical Shares to which the relevant Shareholders are entitled will be sold by the Company on behalf of those Shareholders as soon as practicable after the Record Date. The Company will then account to the relevant Shareholders for the net proceeds of sale after deducting the costs and expenses of the sale. The net proceeds of sale to such Shareholders may be more or less than the notional dollar value of the return of capital as set out in this Explanatory Statement.

1.8 Details of the Resolution

The proposed reduction of capital by way of an in specie distribution to shareholders is an equal capital reduction. Under Section 256C of the Corporations Act, this must be approved by an ordinary resolution passed at a general meeting of the Company.

Under Section 256B of the Corporations Act, the Company may only reduce its capital if it:

• (a) is fair and reasonable to Shareholders as a whole;

• (b) does not materially prejudice the Company’s ability to pay its creditors; and

• (c) is approved by shareholders in accordance with Section 256C of the Corporations Act.

The Directors believe that the capital reduction is fair and reasonable to Shareholders for the reasons set out throughout this Explanatory Statement and that the capital reduction will not prejudice the Company’s ability to pay its creditors.

1.9 Directors’ Interests and Recommendations

Set out below is a table which indicates the securities in which the Directors have an interest prior to the capital reduction and the number of Cortical Shares they are likely to have an interest in if Resolution 1 is passed:

Director	BioPharmica Shares	Number of Cortical Shares each Director is likely to receive if Resolution 1 is passed
Mr Breeze	10,056,402	10,056,402
Mr Yap	725,000	725,000
Mr Murphy	700,000	700,000

After considering all relevant factors, the Directors recommend the Company’s shareholders vote in favour of Resolution 1 for the following reasons:

• (a) after a full and proper assessment of all available information they believe that the proposed transaction is in the best interests of the Company’s Shareholders; and

• (b) in the opinion of the Directors, the benefits of the proposed transaction outweigh its disadvantages as referred to in Section 1.4.

1.10 Information on Cortical Dynamics

1.10.1 Background

Cortical Dynamics

Cortical Dynamics is working with BioPharmica and Swinburne University of Technology (SUT) to commercialise and develop the Brain Anaesthesia Response (BAR) index monitoring system. The BAR Monitor is designed to detect and record the electrical activity of the human brain in order to assist anaesthetists to keep patients optimally anaesthetised during surgery.

The BAR system measures a patients brain electrical activity (EEG) to indicate how deeply anaesthetised a patient is during an operation via an adhesive sensor applied to the forehead. This monitor is designed to assist anaesthetists and intensive care staff in ensuring patients do not wake up un-expectedly, as well as reducing the incidence of side effects associated with the anaesthetic. . International patent coverage is pending regarding the use of the BAR Monitor in a range of applications.

Market

The depth of anaesthesia market is predicted to be worth AUD$1 Billion by 2008. There are eight products in the market and two companies whose focus is purely depth of anaesthesia monitoring. The benchmark monitor at present is BIS (the Bispectra Index at Aspect Medical systems Inc). It has been shown in extensive clinical trials that improved monitoring of the depth of anaesthesia reduces recovery times, the costs of anaesthesia and the incidence of postoperative recall.

Technology and Competitive Advantage

Dr David Liley, Researcher and Associate Professor in Biophysics and Deputy Director of the Centre for Intelligent Systems and Complex Process at SUT is the inventor of the technology. Dr Liley has designed a practical means to carry out a system-based analysis of brain electrical response. The BAR index or algorithm operates through detailed understanding of the physiological mechanisms that generate brain electrical activity (EEG). The scientific premise allows the BAR Monitor to be quicker, far more sensitive and accurate than current systems.

Background

When patients have a general anaesthetic, an anaesthetist may administer a combination of drugs through the intravenous drip in the patients arm. These could include an anaesthetic drug to put the patient to sleep and a morphine-like drug as a pain killer.

Once the patient is asleep, the anaesthetist keeps the patient in this state by using a drip of anaesthetic drug or by giving the patient an anaesthetic gas to breathe. Using these combination of drugs, the patient should be completely anaesthetized and not feel any pain.

Anaesthetists can currently measure the effect of these anaesthetic drugs on brain waves (also known as the electroencephalogram or EEG) using a widely available, market leading competing device. The market leader is used on many patients having general anaesthesia at hospitals. This completing monitor records EEG through a sticky sensor attached to the forehead. The monitor then produces a single number between 0 and 100 that the anaesthetist can use to adjust the depth of your anaesthetic.

Studies have shown that the use of a monitor decreases the likelihood of patients remembering parts of their surgery and also improves their recovery from anaesthesia.

However, there is evidence to suggest that some monitors may not track the effects of a number of important anaesthetic agents. This may mean that the leading offering is less accurate when these agents are used. In particular, morphine-like drugs may interfere with the ability of the leading monitor to measure the depth of anaesthesia accurately, by indicating a patient is less asleep than they really are. This means that patients may be receiving more anaesthetic than necessary.

The BAR Index method of analysing the EEG may overcome this limitation and provide a more accurate Index of the depth of anaesthesia in the presence of morphine-like drugs. The EEG information is obtained the same way, with a sticky sensor on the patient’s forehead, but the monitor uses a different, potentially more accurate, mathematical method to analyse it.

Opiod analgesics are increasingly being used as part of a drug combination in nearly all anaesthetic regimes, however current monitors of anaesthetic depth do not reflect the effect of opioids on anaesthetic depth well, possibly because opioids do not directly affect the cortical EEG.

Clinical Trials

A pilot trial at Royal Melbourne Hospital (RMH) tested the sensitivity of the BAR Monitor in quantifying the effect that various levels of the anaesthetic agent nitrous oxide have on measures of anaesthetic depth. The results of the 60-patient study indicated that the BAR index may be superior in quantifying brain function compared to current approaches. One critical discovery was that the BAR index could measure both brain state and input, something that other brain function monitors have trouble in doing separately.

A second pilot trial at RMH, that utilizes the BAR Monitor in patients given opioids as anaesthetic agents, is currently underway in order to extend the validation of the monitor. The National Health and Medical Research Council (NH&MRC) in Australia will be providing supporting funding that includes trials that are expected to take place during 2008 at various Australian hospitals.

The Cortical Anaesthetic Monitoring Device which was recently featured on ABC’s “Catalyst” on 3[rd] May 2007 was recently awarded a Federal Government National Health Medical Research Council Development Grant of $182,500.

The grant will enable further commercial development and testing of the physiologically based anaesthesia monitoring process which monitors brain electrical activity. Assistance in the ongoing commercial development of this monitor involves the services of the leading biomedical product developer, Grey Innovation. The grant is being administered through Swinburne University under the control of Dr David Liley.

Cortical Dynamics Board of Directors

Cortical Dynamics is currently a Pty Ltd entity. The company will now change its status to a limited status. Further appointments at an appropriate level of qualifications and experience will be made to the board prior to the IPO of the Company. No details are as yet available on the prospective appointees. The current Directors are :-

David Breeze B.Ec, MBA, FAICD, AIMM - Director

David Breeze is a Corporate Finance Specialist with extensive experience in the stock broking industry and capital markets. He has been a corporate consultant to Daiwa Securities; was formerly Manager of Corporate Services for Eyres Reed McIntosh and the State Manager and Associate Director for the stock broking firm BNZ North’s.

David has a Bachelor of Economics and a Masters of Business Administration, and is a Member of the Australian Institute of Management, an Associate Member of the Financial Services Institute of Australasia, and a Fellow of the Institute of Company Directors of Australia. He has published in the Journal of Securities Institute of Australia and has also acted as Independent Expert under the Corporations Act. He has worked on the structuring, capital raising and public listing of over 70 companies involving in excess of $250M. These capital raisings covered a diverse range of areas including oil and gas, gold, food, manufacturing and technology.

Bruce Whan B.E, PH.D., AIMM, FAICD - Director

Bruce Whan is Director, Swinburne Knowledge, Swinburne University’s commercialisation unit, and is CEO of Swinburne Ventures Ltd. This has involved the establishment or involvement in over 15 start-up companies, and he is currently a director of 7 of these companies.

He has been actively involved in innovation for some 20 years, and is also Chairman of INNOVIC, which evaluates new products and technologies, then plans and implements commercialisation strategies to optimise the likelihood of market place success. He runs educational programs in commercialisation for researchers, and has had close links with Swinburne’s Australian Graduate School of Entrepreneurship for many years, providing sessional teaching input on innovation and creativity to Swinburne’s Master of Entrepreneurship and Innovation program.

Previously he was General Manager, Training and Innovation, for the Strategic Industry Research Foundation, developing and delivering innovative industry training, together with a range of consulting and related activities. He also has extensive industry experience, holding a range of research, technical, operational and management positions.

1.10.2 Risk factors

Introduction

An investment in the Company is not risk free and prospective new investors should consider the risk factors described below, together with information contained elsewhere in this Prospectus, before deciding whether to apply for Shares.

The following is not intended to be an exhaustive list of the risk factors to which the Company is exposed.

ECONOMIC RISKS

General economic conditions, movements in interest and inflation rates and currency exchange rates may have an adverse effect on the Company’s development and production activities, as well as on its ability to fund those activities.

MARKET CONDITIONS

The market price of the Shares and Options can fall as well as rise and may be subject to varied and unpredictable influences on the market for equities in general. Neither the Company nor the Directors warrant the future performance of the Company or any return on an investment in the Company.

ADDITIONAL REQUIREMENTS FOR CAPITAL

The Company’s capital requirements depend on numerous factors. Depending on the Company’s ability to generate income from its investments, the Company may require further financing in addition to amounts raised in the Offer. Any additional equity financing will dilute shareholdings, and debt financing, if available, may involve restrictions on financing and operating activities. If the Company is unable to obtain additional financing as needed it may be required to reduce the scope of its operations and reduce its research and development programmes as the case may be.

RESEARCH AND DEVELOPMENT

The Company can make no representations that any of its research and development will be successful, that the Company’s development milestones will be achieved or that the Company will develop products that are commercially exploitable. There are many risks inherent in the development of biotechnology products, particularly where these are in an early stage of development.

Projects can be delayed or fail, or research may cease to be viable for a range of unexpected scientific and commercial reasons.

REGULATORY ISSUES & GOVERNMENT

Products derived from the Company’s research, development or acquisition may be subject to numerous government regulatory approvals and controls throughout the world and these will affect both the timing and the cost of bringing these products to the market. Delays or failures in obtaining regulatory approval for a product would be likely to have a serious adverse effect on the value of the Company and have a consequent impact on the financial performance of the Company.

The Company’s operations are also subject to laws, regulatory restrictions and certain government directives, recommendations and guidelines relating to, amongst other things, occupational safety, laboratory practice, the use and

handling of hazardous materials, prevention of illness and injury and environmental protection. There can be no assurance that future legislation will not impose further government regulation, which may adversely affect the business or financial condition of the Company.

INTELLECTUAL PROPERTY RIGHTS

Securing rights to intellectual property, and in particular to patents, is an integral part of securing potential product value in the outcomes of pharmaceutical and biomedical research and development. Competition in retaining and sustaining protection of intellectual property and the complex nature of intellectual property can lead to expensive and lengthy patent disputes for which there can be no guaranteed outcome. The granting of a patent does not guarantee that the rights of others are not infringed or that competitors will not develop competing intellectual property that circumvents such patents.

The Company’s success depends, in part, on its ability to obtain patents, maintain trade secret protection and operate without infringing the proprietary rights of third parties. Because the patent positions of biotechnology companies can be highly uncertain and frequently involve complex legal and scientific evaluation, neither the breadth of claims allowed in medical device patents nor their enforceability can be predicted.

There can be no assurance that any patents that the Company may own or control or licence now and in the future will afford the Company commercially significant protection of its intellectual property or its projects or have commercial application. While the Company is not aware of any third party interests in its intellectual property rights and has taken steps to protect and confirm its interest in these rights, there is always a risk of third parties claiming involvement in technological and medical discoveries and if any such disputes arise, they could adversely affect the Company.

KEY PERSONNEL AND QUALIFIED STAFF

The Company is dependent on its management, the loss of whose services could materially and adversely affect the Company and impede the achievements of its research and development objectives. Because of the specialised nature of the Company’s business, its ability to commercialise its products and maintain its research programme will depend in part upon its ability to attract and retain suitably qualified management, scientists and research people over time. There can be no assurance that the Company will be able to attract or retain sufficiently qualified personnel on a timely basis, retain its key scientific and management personnel, or maintain its relationship with key scientific organisations.

RISK OF PRODUCT LIABILITY & UNINSURED RISKS

The Company’s business exposes it to potential product liability risks that are inherent in the research and development, manufacturing, marketing and use of its products. It will be necessary for the Company to secure sufficient levels of insurance to cover various product liability risks in the course of maintaining its business.

However, there can be no assurance that adequate or necessary insurance coverage will be available at an acceptable cost or in sufficient amounts, if at all, or that product liability or other claims would not materially and adversely affect the business or financial condition of the Company.

UNCERTAINTY OF FUTURE PROFITABILITY

The Company’s ability to operate profitably in the future will depend on its ability to commercialise its products with other organizations on commercial terms for onward sale to customers. This will depend on the ultimate demand for its products by consumers, which cannot be guaranteed. There is no certainty therefore that the Company can successfully commercialise its projects.

Other factors that will determine the Company’s profitability are its ability to manage its costs, to execute its development and growth strategies, economic conditions in the markets the Company operates, competitive factors and regulatory developments. Accordingly, the extent of future profits, if any, and the time required to achieve a sustained profitability is uncertain. Moreover, the level of such profitability cannot be predicted.

INDUSTRY RISKS

The Company’s current and future potential competitors include companies with substantially greater resources than it. There is no assurance that competitors will not succeed in developing products that are more effective or economic than the current products or any of those being developed by the Company or which would render the products obsolete and/or otherwise uncompetitive. In addition, the Company may not be able to compete successfully against current or future competitors where aggressive pricing policies are employed to capture market share. Such competition could result in price reductions, reduced gross margins and loss of market share, any of which could materially adversely affect the Company’s future business, operating results and financial position.

POTENTIAL ACQUISITIONS

As part of its business strategy, the Company may make acquisitions of or significant investments in complementary companies, products or technologies.

Any such future transactions would be accompanied by the risks commonly encountered in making acquisitions of companies, products and technologies.

SPECULATIVE INVESTMENT

The above list of risk factors ought not to be taken as exhaustive of the risks faced by the Company or by investors in the Company. The above factors, and others not specifically referred to above, may in the future materially affect the financial performance of the Company and the value of the securities. Therefore, the securities carry no guarantee with respect to the payment of dividends, returns of capital or the market value of those securities.

Potential investors should consider that the investment in the Company is speculative and should consult their professional advisers.

ASX LISTING

Cortical may not be successful in an application for listing on ASX and if this occurs then Cortical shares may not have a market.

1.10.3 Information concerning Cortical Shares

Cortical Shares are not currently listed for quotation on any stock exchange. It is the intention of the Board of Cortical to apply for quotation of Cortical Shares on ASX upon successful completion of an IPO capital raising of Cortical.

A summary of the more significant rights attaching to the Cortical Shares will be set out in the Prospectus. This summary will not be exhaustive and does not constitute a definitive statement of the rights and liabilities of the Cortical Shareholders.

Full details of the rights attaching to the Cortical Shares are set out in Cortical Constitution, a copy of which is available on request.

(a) General Meetings

Shareholders are entitled to be present in person, or by proxy, attorney or representative to attend and vote at general meetings of the Company.

Shareholders may requisition meetings in accordance with Section 249D of the Corporations Act and the Constitution of the Company.

(b)

Voting Rights

Subject to any rights or restrictions for the time being attached to any class or classes of shares, at general meetings of shareholders or classes of shareholders:

• (i) each shareholder entitled to vote may vote in person or by proxy, attorney or representative;

• (ii) on a show of hands, every person present who is a shareholder or a proxy, attorney or representative of a shareholder has one vote; and

• (iii) on a poll, every person present who is a shareholder or a proxy, attorney or representative of a shareholder shall, in respect of each fully paid share held by him, or in respect of which he is appointed a proxy, attorney or representative, have one vote for the share, but in respect of partly paid shares shall have such number of votes as bears the same proportion to the total of such shares registered in the shareholder’s name as the amount paid (not credited) bears to the total amounts paid and payable (excluding amounts credited).

(c)

Dividend Rights

Subject to the rights of persons (if any) entitled to shares with special rights to dividend, the Directors may declare a final dividend out of profits in accordance with the Corporations Act and may authorise the payment or crediting by the Company to the shareholders of such a dividend. The Directors may authorise the payment or crediting by the Company to the shareholders of such interim dividends as appear to the Directors to be justified by the profits of the Company. Subject to the rights of persons (if any) entitled to shares with special rights as to dividend all dividends are to be declared and paid according to the proportions that the amounts paid (not credited) is of the total amounts paid and payable (excluding amounts credited) in respect of the shares in respect of which the dividend is paid. Interest may not be paid by the Company in respect of any dividend, whether final or interim.

(d)

Winding-Up

If the Company is wound up, the liquidator may, with the authority of a special resolution of the Company, divide among the shareholders in kind the whole or any part of the property of the Company, and may for that purpose set such value as he considers fair upon any property to be so

divided, and may determine how the division is to be carried out as between the shareholders or different classes of shareholders. The liquidator may, with the authority of a special resolution of the Company, vest the whole or any part of any such property in trustees upon such trusts for the benefit of the contributories as the liquidator thinks fit, but so that no shareholder is compelled to accept any shares or other securities in respect of which there is any liability. Where an order is made for the winding up of the Company or it is resolved by special resolution to wind up the Company, then on a distribution of assets to members, shares classified by ASX as restricted securities at the time of the commencement of the winding up shall rank in priority after all other shares.

(e)

Transfer of Shares

Generally, shares in the Company are freely transferable, subject to formal requirements, the registration of the transfer not resulting in a contravention of or failure to observe the provisions of a law of Australia and the transfer not being in breach of the Corporations Act or the Listing Rules.

(f)

Variation of Rights

Pursuant to Section 246B of the Corporations Act, the Company may, with the sanction of a special resolution passed at a meeting of shareholders vary or abrogate the rights attaching to shares.

If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class), whether or not the Company is being wound up may be varied or abrogated with the consent in writing of the holders of three-quarters of the issued shares of that class, or if authorised by a special resolution passed at a separate meeting of the holders of the shares of that class.

1.10.4 Information concerning BioPharmica’s Shares

BioPharmica Ltd manages a strong portfolio of biomedical technologies emerging from research by leading universities, medical institutes and hospitals. The technologies that BioPharmica is working to commercialise include diagnosis of infectious disease, brain function monitoring, pre-clinical molecules with potential in oncology, metabolic, neurodegenerative and infectious disease and a nanotechnology probe.

BioPharmica is an Australian Securities Exchange (ASX) listed company. It provides product development and commercial direction, whilst the institutional partner provides a majority of the infrastructure and research expertise. It provides early stage funding for direct collaboration, or seed funds for a spin out company.

BioPharmica works to develop commercial relationships with companies and institutions interested in co-development or collaboration in the following areas:

• Opportunities in diagnosis and therapy in the areas of oncology, neurodegenerative and infectious disease.

• Array based detection system for the accurate and rapid detection of bacterial species in clinical samples.

• The use of brain function monitoring capability in animals and man.

• The incorporation of SERS fibre optic nanoprobe into sensor devices.

The rights attaching to the ordinary shares in BioPharmica will not alter. It should be noted however that the net assets of BioPhamica will be reduced by $777,946. This is set out in Section Appendix B to this Explanatory Statement.

For the information of shareholders, the highest and lowest recorded sale prices of the Company’s Shares as traded on ASX during the 12 months immediately preceding the date of this Explanatory Statement, and the respective dates of those sales were:

	Date	Highest Price	Date	Lowest Price
28	June 2007	$0.245	4 June 2007	$0.081

The latest available closing price of the Shares on ASX prior to the date of this Notice was $0.18 on 28[th] August 2007.

The Company’s Shares are not listed for quotation on any other stock exchange.

1.11 Disclosure to ASX

BioPharmica, as a company whose shares are quoted on the stock market of ASX, is a disclosing entity and, as such, is subject to regular reporting and disclosure obligations. Copies of documents lodged in relation to BioPharmica may be obtained for a fee from, or inspected at, an office of the ASIC.

1.12 Taxation

The following comments are based on the application of Australian taxation laws in force at the date of this Explanatory Statement.

The views expressed in this summary are not intended as specific advice to Shareholders. The application of tax legislation may vary according to the individual circumstances of Shareholders. It should be emphasised that these comments are general in nature, may not be applicable to your individual circumstances and cannot be relied upon for accuracy or completeness.

Demerger under Division 125

For shareholders who choose to utilise the demerger provisions under Division 125, they can defer the capital gains tax (CGT) consequences of the demerger until they sell their Cortical shares. What will occur is the apportionment of the current CGT cost base of the BioPharmica shares across both the BioPharmica and Cortical shares, based on their respective market values immediately after the capital reduction. It is expected that BioPharmica would advise its shareholders of the respective values.

In addition, for the purposes of applying the CGT discount rules to individual, trust and superannuation fund BioPharmica shareholders, upon a valid demerger, the distributed Cortical shares would be taken to have been acquired at the same time as the underlying BioPharmica shares. The 6 month holding period would therefore be aligned with the period of the BioPharmica shares.

Furthermore, the in specie distribution of the shares should not be considered to be a dividend to BioPharmica shareholders, provided the capital streaming rules under section 45B do not apply.

The taxation consequences for BioPharmica are also more beneficial through a demerger in that any capital gain derived by BioPharmica on the in specie distribution of the Cortical shares would be disregarded.

What this means for BioPharmica

Where the Cortical restructure qualifies as a demerger, the CGT rollover is automatic for BioPharmica, such that the distribution of the Cortical shares will be disregarded for CGT purposes. Accordingly, no capital gain will accrue to BioPharmica on this transaction.

In respect to the shareholders, provided BioPharmica debited the value of the Cortical shares to its share capital account, the distribution would not be a dividend under ordinary rules.

1.13 Lodgement with the Australian Securities and Investments Commission

The Company has lodged with the ASIC a copy of this Notice and the Explanatory Statement in accordance with Section 256C(5) of the Corporations Act. If Resolution 1 is passed the reduction of capital will take effect in accordance with the timetable set out below:

Event	Business Day
The Company announces the reorganisation and sends out this Notice of Meeting	Before day 0
The Company advises ASX that shareholder approval for the capital reduction has been obtained	0
Trading in Shares starts on an “ex return of capital basis”	1
Record Date	5

The Company intends to distribute the Cortical Shares to BioPharmica Shareholders (registered as at the Record Date), approximately 6 months from the date Cortical Shares commence trading on ASX. Application for quotation of the Cortical Shares will be made to ASX. Prior to seeking a listing Cortical intends making application for a grant of up to $2 million under the Commercial Ready Grant scheme. The timing of the listing will be dependent on the grant scheme process and there is no guarantee that any grant application will be successful.

1.14 Other Material Information

There is no information material to the making of a decision by a shareholder in the Company whether or not to approve Resolution 1 (being information that is known to any of the Directors and which has not been previously disclosed to shareholders in the Company) other than as disclosed in this Explanatory Statement and all relevant annexures.

GLOSSARY

ASIC means the Australian Securities and Investments Commission.

ASX means Australian Stock Exchange Limited.

Listing Rules or ASX Listing Rules means the Listing Rules of ASX.

Board means the current board of directors of the Company.

Chairman means the chairman of the Company.

Company and the Company means BioPharmica Limited (ABN 41 095 912 002).

Constitution means the Company’s constitution.

Corporations Act means the Corporations Act 2001 (Cth).

Directors mean the current directors of the Company.

Explanatory Statement means the Explanatory Statement to the Explanatory Statement.

General Meeting means the meeting convened by the Notice.

Investment means the investment held by the Company in Cortical as described in 1 of the Explanatory Statement.

Explanatory Statement means this information memorandum.

Cortical means Cortical Dynamics (ABN 88 107 557 620).

Cortical Share means a share in the capital of Cortical.

Non-Executive Director means a Non Executive Director of the Company.

Notice means the notice of meeting which forms part of this Explanatory Statement.

Official List means the official list of ASX.

Prospectus means the prospectus to be issued by Cortical.

Resolutions means the resolutions set out in the Notice, or any one of them, as the context requires.

Share means a fully paid ordinary share in the capital of the Company.

Shareholder means a holder of a Share.

WST means Western Standard Time, Perth, Western Australia.

APPENDIX A

Unaudited Balance Sheets – Cortical Dynamics

CURRENT ASSETS Cash Assets Total Current Assets TOTAL ASSETS CURRENT LIABILITIES Payables Total Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Contributed Equity Accumulated (Losses) TOTAL EQUITY	Cortical Unaudited 30 June 2007 $ Pro-forma 30 June 2007 (minimum issue) $ 10,245 2,010,245
	10,245 2,010,245
	19,354 2,019,354
	(12,546) (12,546)
	(12,546) (12,546)
	(78,546) (12,546)
	(59,192) 2,006,808
	275,200 2,341,200 (334,392) (334,392)
	(59,192) 2,006,808

APPENDIX B

BIOPHARMICA LIMITED

Consolidated Proforma Balance Sheet as at 31 December 2006 adjusted for inspecie distribution + cash raised from Shareholder Share Purchase Plan and conversion of 30[th] June 2007 options

Note Current Assets Cash assets Receivables Total Current Assets Non-Current Assets Investment in Cortical Financial assets Intangible assets Investments accounted for using the equity method Property, plant & equipment Total Non-Current Assets Total Assets Current Liabilities Trade and other payables Short-term borrowings Short-term provisions Total Current Liabilities Non-Current Liabilities Long-term borrowings Total Non-Current Liabilities Total Liabilities Net Assets Equity Contributed equity Accumulated losses Total Equity	Consolidated 2006 $
	4,238,982 3,831
	4,242,813
	43,788 211,998 633,000 349,967 558,514
	1,797,267
	6,040,080
	80,694 156,222 16,416
	253,332
	385,929
	385,929
	639,261
	5,400,819
	7,662,997 (2,262,178)
	5,400,819

Note:

The above Proforma Balance Sheet is based on the Balance Sheet at 31 December 2006 adjusted for:

1. Distribution of 69,125,788 shares pursuant to this Resolution.

2. The value of the holding in Cortical will be reduced by an amount of $777,946 being the value of the quantum of shares distributed to BioPharmica shareholders in the in-specie distribution. This calculation is based on the net holding value of Cortical in the accounts of BioPharmica adjusted for BioPharmica’s share of Cortical’s losses in 2006 ($33,533) and 2007 ($86,147).

3. Total consolidated equity will decrease by $777,946 as a result of the in-specie distribution and an increase of $1,562,846 from the capital raising carried out by BioPharmica during the second half of the 2007 financial year.

4. The consolidated entity’s accounts are currently being audited with the audit scheduled for completion in September 2007. The consolidated entity anticipates a full year ended 30 June 2007 operating loss before tax of approximately $1.096m. The loss has not been incorporated into this proforma.

BIOPHARMICA LIMITED ABN 41 095 912 002

Instructions for Completing ‘Appointment of Proxy’ Form

1. A member entitled to attend and vote at a Meeting is entitled to appoint not more than two proxies to attend and vote on their behalf. Where more than one proxy is appointed, such proxy must be allocated a proportion of the member’s voting rights. If the shareholder appoints two proxies and the appointment do not specify this proportion, each proxy may exercise half the votes.

2. A duly appointed proxy need not be a member of the Company. In the case of joint holders, all must sign.

3. Corporate shareholders should comply with the execution requirements set out on the proxy form or otherwise with the provisions of Section 127 of the Corporations Act. Section 127 of the Corporations Act provides that a company may execute a document without using its common seal if the document is signed by:

4. directors of the company;

5. a director and a company secretary of the company; or

6. for a proprietary company that has a sole director who is also the sole company secretary – that director.

For the Company to rely on the assumptions set out in Section 129(5) and (6) of the Corporations Act, a document must appear to have been executed in accordance with Section 127(1) or (2). This effectively means that the status of the persons signing the document or witnessing the affixing of the seal must be set out and conform to the requirements of Section 127(1) or (2) as applicable. In particular, a person who witnesses the affixing of a common seal and who is the sole director and sole company secretary of the company must state that next to his or her signature.

1. Completion of a proxy form will not prevent individual shareholders from attending the meeting in person if they wish. Where a shareholder completes and lodges a valid proxy form and attends the meeting in person, then the proxy’s authority to speak and vote for that shareholder is suspended while the shareholder is present at the meeting

2. Where a proxy form or form of appointment of corporate representative is lodged and is executed under power of attorney, the power of attorney must be lodged in like manner as this proxy.

4. To vote by proxy, please complete and sign the proxy form enclosed:

5. (a) send the proxy form by post to BioPharmica Limited, PO Box 317, NORTH PERTH, Western Australia, 6906 or

6. (b) by facsimile to the Company on facsimile number (08) 9328 8733,

so that it is received not later than 9.00 WST on 25[th] September 2007.

Proxy forms received later than this time will be invalid.

PROXY FORM

APPOINTMENT OF PROXY BIOPHARMICA LIMITED ABN 41 095 912 002

I/We

Appoint

being a Member of BioPharmica Limited entitled to attend and vote at the Meeting, hereby Name of proxy

or failing the person so named or, if no person is named, the Chairman of the Meeting or the Chairman’s nominee, to vote in accordance with the following directions or, if no directions have been given, as the proxy sees fit at the General Meeting to be held at 9.00am on 27[th] September 2007 at 14 View Street, North Perth, Western Australia and at any adjournment thereof. If no directions are given, the Chairman will vote in favour of all of the resolutions.

Voting on Business of the General Meeting

FOR AGAINST ABSTAIN

Resolution 1 Equal Reduction of Capital

In relation to Resolution 1, if the Chairman is to be your proxy and you do not wish to direct your proxy how to vote on this Resolution, please place a mark in this box

By marking this box, you acknowledge that the Chairman of the meeting may exercise your proxy even if he has an interest in the outcome of the resolution and votes cast by him other than as proxy holder will be disregarded because of that interest. If you do not mark this box, and you have not directed your proxy how to vote, the Chairman of the meeting will not cast your votes on Resolution 1 and your vote will not be counted in computing the required majority if a poll is called on this Resolution. The Chairman intends to vote in favour of this Resolution.

IF THE CHAIRMAN IS TO BE YOUR PROXY IN RELATION TO RESOLUTION 1 YOU MUST EITHER MARK THE BOX DIRECTING YOUR PROXY HOW TO VOTE OR MARK THE BOX INDICATING THAT YOU DO NOT WISH TO DIRECT YOUR PROXY HOW TO VOTE, OTHERWISE THIS APPOINTMENT OF PROXY IN RELATION TO RESOLUTION 1 WILL BE DISREGARDED.

If you mark the abstain box, you are directing your proxy not to vote on that item on a show of hands or on a poll and that your shares are not to be counted in computing the required majority on a poll.

If two proxies are being appointed, the proportion of voting rights this proxy represents is

Signed this day of 2007

By: Individuals and joint holders Companies (affix common seal if appropriate) Signature Director Signature Director/Company Secretary Signature Sole Director and Sole Company Secretary