Immuron Ltd — Regulatory Filings 2005

Sep 26, 2005

Delivering on Biotechnology

ANADIS Limited ANNUAL REPORT 2005

ABN: 80 063 114 045

CONTENTS

Highlights	1
Charman's report	V.
CEO1 report	2
theard of Directors	4Í
Technical Advisors	H
Anadis Research & Product Portfolio	Ħ
Anada Manutacturing	T.
Pinancial Maternomia	29

Notice of Annual General Meeting

The Anadis Annual General Meeting will be held at St Michaels Uniting Church Hall 120 Collins Street. Melbourne at 200pm B November 2005

Anadis Limited ANNUAL REPORT 2005

HIC: HIGH SE

Total Revenue increased again for the year up 35% to over \$5.7m

DE SAN ARTICA

• National Release of Travelan Progressing in all States
• Travelan Website Launched, visit www.travelan.com.au
• EV-71 Project Team Strengthened with appointment of a Senior Virsi saka
• EV-71 Project announces the successful Development of a Protective Therapy against Enterovirus 71.
• Anadis & Tatura Milk Industries win \$1m grant for research IndU "Immune Stimulating Infant Formula".
• Innovex Australia, part of the Quintiles Transmitional Group appointed as National Sales Force for Travelan.
• Anadis collaborates with Starpharma Holdings, as a possible hyppe in regards to our Respiratory Protection / Biodeferice project. New Marketing Manager appointed to strengthen product commercialisation efforts.
• Proven that EV-71 Laboratory results can be scaled to commercially required levels

Chairman's Report

Dear fellow shareholders.

The year to 30 June 2005 has been both successful and challenging. Firstly, our contract manufacturing operation continued to expand, this year by a little over 30%. The growth in this activity is very encouraging, and the spread of clients

expands. Aussie Bodies, now part of the Healtheries group of companies, continues to be our major client, and we have enjoyed the benefits of their on-going snecess.

The contribution that this activity makes to Anadis' research programmes is very important, and enables the company to continue its research work without the continual need to raise capital.

You will also note that other income, comprising interest and grants also increased over the previous year. This was helped by the investment from the capital raised in the placement during 2004.

In the research area, we have been pleased with our achievement in the Enterovirus 71 project, particularly the success in obtaining the preventative protein bioactives from dairy cows. This means that we are well placed to embark upon large scale commercial production of the preventative.

We were also very pleased to have won, with Tatura Milk Industries, a \$1 million Food Innovation Grant ("FIG"), aimed at developing a specialty milk powder for human infants. This product is focused on the Asian markets, where enhancing immunity in infants is an important consideration.

Our biodefence/respiratory initiative continues to develop well. The support of the Australian government has been instrumental in boosting this project. This support has been through direct funding and also through the co-operation of scientists with the Department of Defence. The project funding has also enabled us to establish liaisons with key defence scientists in the USA The initial research program has now been further extended to include antibody based diagnostic products.

The challenge this year has been the marketing of our first product, Travelan - requiring additional expertise than in a usual research company. The company has been expanding its marketing and commercial capabilities. We are running a significant marketing campaign and have entered distribution agreements whereby the distributor gains from the successful sale of the product. And finally, we are exploring overseas markets.

I would like to thank Conor Graham, our CEO and managing director for his efforts during the year. Conor is supported by an excellent team of committed people. Also, my thank you to my fellow directors for their continuing support and advice.

P Molyneux Chairman

CEO's Report

Dear Shareholders,

The 2004/05 financial year was a year of increasing activity across the range of company activities with further growth in our toll manufacturing arm, the national launch of Travelan into the Australian market and further advancements made across our research and development portfolio-

The launch of Travelan has been of major significance during the year and has required a great deal of work to be done to prepare this product for marketing. We have had to scale-up our hyperimmune vaccine manufacture from laboratory bench scale to production scale and select and hyperimmunise some 3,600 dairy cows across a number of dairy farms. After calving, the colostrum then had to be collected and on-processed from a liquid to a powder suitable for tableting, then packaged into a final product ready for sale. We happily report that all these systems have operated beyond our expectations on a first time basis, giving us a great deal of confidence about the future expansion of our production capacity and abilities.

We however still have a great deal to further accomplish moving forwards. Regarding Travelan we are now making a concerted effort to establish markets

for this overseas and are actively pursuing both product registration and marketing/sales linkages in a number of overseas countries. Likewise with our EV-71 project we are currently seeking registration of our hyperimmune vaccine, vaccine manufacture scaleup, colostrum production and fast tracking to market. Our research into Bio-Warfare protective technologies in conjunction with the Australian Department of Defence and the support of the Mid-Atlantic Regional Centre of Excellence (MARCE) in Biodefence and Emerging Infectious Diseases is making solid progress. The project now has the added potential of being applied to detection/diagnostic kits as well as respiratory protection. In addition to these three projects, all our other research and development projects are likewise being advanced at the fastest possible rate.

The commitment and support of our shareholders is for us a matter of great importance and I would like to take this opportunity to thank you for your on-going loyalty as Anadis continues to Deliver on the Promise of Biotechnology.

C Graham CEO & Managing Director

Board of Directors

Pictured from left to right:

Roman Zwolenski

Prof. Roy Robins-Browne

Dr Peter Jerskins

Philip Molyneux

Arie Nudel

Conor Graham

Roman Zwolenski B.Sc Biosciences

Non Executive Director and Non Executive Director of several other Australian biotech companies. Roman is currently the CEO of Ambri Limited. Over 30 years senior management experience with multinational corporations and with Australian companies in the biomedical and biotech sectors.

Professor Roy Robins-Browne MB BCh PhD FRCPA FRCPath FASM

Non Executive Director, Professor of Microbiology & Immunology - University of Melbourne. Head of Microbiological Research - Murdoch Children's Research Institute.

Dr Peter Jenkins MBBS FRACP

Non Executive Director

Consultant Physician & Gastroenterologist. CEO of Aus Bio. Director of listed and unlisted public biotechnology companies and experience in the management of gastrointestinal diseases and the challenges facing biotech companies.

Philip Molyneux B.Econ FCA

Chairman & Non Executive Director Chartered accountant - professional experience in excess of 30 years. Former Partner of Ernst & Young. Experienced in public company accountability, finance and corporate governance. Director of a number of listed public companies for over 10 years. Also involved with a number of not-for-profit organisations.

Arie Nudel B.Comm B.Sci

Non-executive director. His career includes roles as a Network Engineer, Systems Analyst and Dealer for a Funds Management organization. Arie consults for Anadis Ltd as well as a number of other private companies.

Conor Graham

Managing Director & CEO Extensive background in both the management of bioscience companies and in the development and marketing of bioscience related products.

Technical Advisors

Professor Colin Chapman BPharm BVSc(Hons) PhD FPS Advisor - Pharmaceutical products & formulations. Head of Pharmacy College Monash University.

Associate Professor JG (Hans) Kusters PhD Advisor - Gastromtestinal Disease Associate Professor, Department of Gastroenterology & Hepatology Vrije Universiteit, Amsterdam, Academic Hospital Digzigt, Rotterdam, The Netherlands.

Professor Andrew Sinclair BAgSc PhD

Advisor - Nutracenticals & Nutritional Physiology Professor Food Sciences RMIT University

Professor Frank Dudley 11Sc(Med) MBBS FRACP MD Advisor - Gastrointestinal Disease & Clinical Management Head of Gastroenterology - Melbourne's Alfred Hospital.

Dr David Anderson

Deputy Director McFarlane Burnet Institute in Melbourne David is an internationally recognised virologist with particular expertise in picornaviruses (such as Enterovirus 71).

Anadis Product & Research Portfolio

The financial year, 2004-05, will most likely be remembered at Anadis as the year in which Travelan was commercialised, distributed to pharmacies nationally, and began its passage to the international market place. Yet, although this is a very significant milestone for an Australian biotechnology company, it is only part of the Anadis success story over the past 12 months.

Anadis' ability to successfully develop research projects which result in the steady achievement of key milestones, continues to show the market our ability to develop products and technologies.

The success in our EV-71 project, for the development of a preventative against Enterovirus 71, is the key research highlight of this financial year. With two very significant achievements over the past 12 month with this project, we are now in the commercialisation phase of this potentially lifesaving product.

Success in research, leading to the creation of shareholder value, remains the key endeavour for Anadis Limited. Unlike most Australian biopharmaceutical companies, Anadis believes in the benefit of releasing "Early to Market" products, such as "over-the-counter" (OTC) nutraceuticals, in order to accelerate the commercial success of the company. This early commercial success will allow Anadis to create shareholder value sooner, help to cover our R&D expenditure, and allow expansion of the company.

Anadis success with government and industry grants highlights not only the outside support for such projects, but also the strong commercial focus of the R&D of the company.

Being committed to 'delivering on the promise of biotechnology' - Anadis is proud to present our product and research portfolio.

Travelan

Travelan^®

Travelan, our lead research based product, is a world first over the counter (OTC) that significantly reduces the risk of getting Bali Belly, Delhi Belly, Montezuma's Revenge - medically known as Travellers Diarrhoea. Travelan is now available nationally, and on the verge to being available in a number of overseas markets - in particular the US. Travelan began sales in Victoria during late 2004 and

during early 2005. With the marketing and national distribution managed internally, we are able to ensure that future profits from sales will remain with the company. This internal effort is a key difference to Anadis' approach to commercialisation - for the benefit of shareholders in the long term.

moved nationally

Coinciding with the launch of Travelan, a new website has been set

The sale of the first box of Travelan, on the 4th October 2004, at our Campbellfield beadquarters.

up specifically for the product. Visit www.travelan.com.au. This website gives the opportunity for Travelan to be available for personal use, by international customers, though our on-line ordering facility in US dollars.

During March 2005, Anadis appointed Innovex Australia as the national sales force for Travelan. Innovex Australia, a business unit of Quintiles Transnational, has established nationwide distribution and sales capabilities, with its sales teams being well known to doctors and pharmacists around the country. Quintiles provides a broad range of professional services, information and partnering solutions to the pharmaceutical, biotechnology and healthcare industries, and is the world's leading pharmaceutical services organization. Anadis sees this arrangement as a key endorsement of Travelan and one likely to accelerate its commercial success.

Travelan Internationally

Obviously, Australia is only a small percentage of the world travellers market, and hence a major focus for Anadis is to have Travelan available in key international destinations. It is not surprising that Travelan has generated so much interest from the international community, 'Travellers' Diarrhoea is a serious problem – and Travelan is a natural and effective product. Initially Travelan is set for the US market. This is a key market with an estimated 25 million travellers to Travellers' Diarrhoea "high risk" destinations each year. This does not include the larger number of travellers to "medium risk" destinations.

Travelan is currently in the process of registration in Singapore and the United Kingdom (EU). Further, Travelan is being considered by potential commercialisation partners for the markets of Japan, Thailand, India, the Middle East and Pakistan.

The National Advertising Campaign

Travelan is a new product and has no real substitute competition, because quite simply, before Travelan there was no easy, safe and natural OTC way for a traveller to reduce their risk of Travellers' Diarrhoea. It was only possible for travellers to do something after they had already been ill and inconvenienced.

The national advertising campaign has been focusing on radio and print media in order to inform the public about Travelan. In addition to this, billboards and signed advertising has been used in and around major national airport locations.

What is Travellers' Diarrhoea (TD)?

TD, otherwise known as Bali Belly, Montezuma's Revenge, Delhi Belly, Tourist Trot - amongst others; is the number one health problem in international travel in terms of frequency and economic impact. Infection with the enterotoxigenic E.coli (ETEC) bacteria is the most common cause. This can be through drinking water, or even eating food that has been washed in the local water, or through local poor sanitary practices. The E.coli, once inside the body, attach to the small intestine wall from where they release toxins which cause the intestinal reaction that is TD.

The symptoms of TD can include vomiting, abdominal cramps, fever and diarrhoea. Up until now it was only possible to treat the symptoms, and only in extremely severe cases, antibiotics can be used. In any case, having any symptoms, however mild, can be disconcerting and disruptive, or even ruin an important business trip, or a well deserved holiday.

TD affects numerous travellers worldwide - approximately to $40\%$ of the millions of international travellers. Over one third of these travellers become ill enough to require medical attention.

How does Travelan Work?

Travelan is packed full of antibodies (specific proteins that bind to the bacteria) against most of the major strains of ETEC. These antibodies attach themselves to the ETEC bacteria and prevent the E.coll from attaching to the body. See following diagram

The unprotected 'control' cells. The bundreds of little black dots are E. coli bacteria attaching to the cell walls. In the body, it is from this point that the E. colt will release toxins. It is these toxins which are the main cause of Travellers' Diarrhoea.

(ETEC strain H10407 adhering to differentiated Caco-2 cell line (colon carcinoma))

Healthy cells. At normal Travelan doses there are practically no E. coli attaching to the cell walls. This is because the antibodies within Travelan have attached to the E. coli, preventing them from attaching to the cells.

(Inbibition of adberence of H10407 to Caco-2 cell line in the presence of 500pg/ml hyperimmune colostrum)

(Photos from approx. 40x magnification, Phase-contrast, Giemsa stain)

The active ingredient in Travelan is Hyperimmune Bovine Colostrum Powder (BCP). Colostrum is the first milk given by the cow after calving. Because only the first milking is collected and processed for Travelan, Anadis Hyperimmune BCP has the highest available level of antibodies and other natural antimicrobials.

Our patented method of bovine colostrum collection and processing, through the use of the TACHS collection system, ensures an extremely high concentration and stability of antibody molecules, growth factors and other natural antimicrobials. Anadis BCP has three main functions:

$\mathcal{L}_{\mathcal{A}}$

$\mathcal{L}_{\mathrm{eff}}$

$\mathcal{L}^{\mathcal{A}}$ and $\mathcal{L}^{\mathcal{A}}$ and the support of the con- $\sim 10^{-1}$ i. Passiye immunity transfer. The BCP used in Travelan is harvested from Australian dairy cows that have been immunised with a patented vaccine to produce very high levels of specific antibodies against select surface antigens from the 13 most common strains of Enterotoxigenic E.coli. These specific. antibodies bind to E.coli and inhibit their attachment to the gut wall. ii. Anadis Hyperimmune BCP naturally has high levels of lactoferrin and all actoperoxidase that have non-specific anti-microbial properties iii, Anadis Hyperimmune BCP also naturally contains factors that aid in the relief of symptoms of non life threatening gastrointestinal complaints.

Anadis is proud to have developed and commercialised a unique and useful product which can enhance the safety and enjoyment for the hundreds of millions of travellers around the world. We look forward to the commercial success of this product, both locally and internationally and associated rewards for our shareholders.

Enterovirus 71 (EV-71)

In the 2004 Annual Report, the EV-71 update focused on the intense development of this medically and commercially important project where the active ingredient is hyperimmune bovine colostrum. It is with considerable pride that Anadis was able to announce two extremely important milestones: (1) during August 2004 the development of a protective therapy against Enterovirus 71 - it had been proved that the methodology will provide effective candidate materials for controlling EV71; and (2) the obtaining of preventative bioactive proteins against Enterovirus 71 from

dairy cows, confirming that the outcomes previously achieved in laboratory models can now be transposed to a commercial scale

As a result of these two accomplishments, Anadis is now able to begin the commercialization phase of the EV-71 project. The EV-71 project is of

major commercial significance to Anadis. Anadis receives the exclusive global manufacturing rights of the bioactive materials, and the product, for a minimum of five years; royalties from all sales in Asia; and sole distribution rights for all markets outside Asia. We are currently working on the registration in Taiwan and the details of the joint marketing agreement for sales of the product in Asia – this would further enhance the potential return for Anadis and its shareholders.

The necessity to control Enterovirus $71$ – particularly in Taiwan (and southern Asia) – continues to be evident: Up to mid June this year $(2005)$ 60 severe Enterovirus infections were confirmed in Taiwan - all of these occurred in children under 5 years of age. Of these 60 severe cases, 5 have tragically resulted in the deaths of children, each one less than 4 years old. This is far higher than last year, which during the same period, only 14 severe cases were reported with no fatalities.

During the second half of 2004, Anadis announced the appointment of Dr David Anderson, an internationally recognised Virologist, to our Scientific Advisory Panel and Dr David DeLaney, our full time Senior Virologist, who joined our team located at Melbourne University (specifically focused on the commercialisation of the EV-71 Project).

The development of a natural and effective protective therapy against Enterovirus 71, being achieved at first attempt, in an extremely short time frame compared to typical drug development timelines in Australia, and around the world, is a testament to the effort and commitment of the Anadis Scientific Team.

We are now preparing for registration and commercial scale manufacture of the bovine vaccine, to be followed by production of the actual preventative. The preventative will act as a 'suit of armour' over an epidemic. By taking the Anadis EV-71 preparation children will be less likely to contract the disease or be harmed by it.

What is EV-71?

Enterovirus 71, a polio like disease, is one of the viruses that causes 'hand, foot and mouth' or 'slapped cheek' disease in young children. It's severity ranges from mild symptoms usually including a rash and quieter than normal behavior, while a significant proportion of younger childrencan develop nervous signs such as fits, paralysis and even death.

According to Taiwanese government figures, since 1998 there have been millions of cases reported with thousands of severe cases and hundreds of deaths. In 1998 alone, more than four and a half million illnesses were caused by the virus including 500 severe neurological cases and 78 deaths. Most of these were children under the age of four.

Enterovirus 71 isn't as yet well known in Australia, yet in the Asia-Pacific region - mainly Taiwan and China - major outbreaks are becoming increasingly common. Enterovirus 71 is an emerging 'disease state', and medical authorities

are comparing the disease with the spread of polio in Europe and North America in the late 19th century.

Market for the EV-71 Protective Therapy

The protective therapy is taken daily, during the high risk (summer) period. The Taiwanese Development Centre for Biotechnology (DCB) anticipates the market in Taiwan, alone, to be in excess of one hundred and ten million doses per annum. Following an initial launch in Taiwan, Anadis in conjunction with the DCB can then introduce this product into other parts of Asia and the rest of the world.

H.pylori Program - Treatment of gastritis and gastric ulcers (H. pylori)

H. pylori is associated with the development of most duodenal and gastric ulcers and. additionally, some forms of gastric cancer

The World Health Organisation has declared the bacterium H.pylori a Class 1 carcinogen, equivalent in seriousness to tobacco smoke.

During the 2003-04 financial year, Anadis announced the successful completion of a Phase II clinical trial in the Alfred Hospital Melbourne. This trial, under the supervision of Professor Frank Dudley, demonstrated that bioactive developed in the Anadis $H.pylori$ program, is of significant benefit to patients suffering from gastritis associated with the bacterium, H. pylori, and a good adjunct ulcer therapy.

Patients participating in this trial were suffering from non-ulcer dyspepsia with symptoms of nausea, abdominal discomfort/pain and bloating. Those that received the Anadis product showed significant relief in symptoms and a significant reduction in H. pylori infection.

One of the issues with H.pylori is due to the alarmingly high rate of carriers of the bacteria. Recent research suggests over 30% of people in the western world, and more than 50% in Asia, are carriers of H, pylori. Of these people, a minimum of 20% will develop ulcers or other gastrointestinal symptoms.

	Prevalence of H pylori infection .
- Korea : Taiwan	$>$ > 20 million a na na na na na na na na na . 医急性热性热性热性热性热性热性热性热性热性热性热性热性热性 $\approx 8$ million and the contract of the contract of the contract of the contract of the contract of the contract of the . Na kaominina mpikambana ny kaominina mpikambana ny kaominina mpikambana ny kaominina mpikambana ny kaominina m $\approx$ 50 million which has a man of the company of the company of the company of the company of the company of the company of the . $\cdots$ = 108 million
$\forall$ UK, France, Italy $\Rightarrow$ 70 million

Why is the Anadis H.pylori program different from conventional treatments?

Conventional treatments exist, but they have their limitations. e.g. Inhibitor drugs are typically given for long periods and don't address the infection. While intensive antibiotic therapy is currently used, emerging antibiotic resistance is potentially compromising this treatment, and the associated side effects from antibiotic therapy can pose further health risks.

In contrast to conventional treatment, the Anadis treatment offers a highly promising complement to current treatments. Our first derivative of this treatment to begin commercialisation in the Asian market is Pyloran. The treatment is nonantibiotic and therefore has no risk

of antibiotic resistance. The product is natural and well tolerated, minimising adverse impact on a patient's wellbeing. Anadis is currently discussing with a suitable partner to bring Pyloran to market initially in Asia.

The H.pylori Research Project

Anadis' intellectual property and experience with H.pylori, passive immunity, vaccine manufacture, protein shielding technology, formulation and manufacturing have inspired funding from AusIndustry. Commonwealth 'START' grants totaling \$525,203 have been received to assist Anadis in the development of a series of treatments. Work on a candidate vaccine against H.pylori is also in progress.

Continuing product development involves scientists and technicians based at Melbourne University, the Murdoch Children's Research Institute, the Alfred Hospital, Vrije University in Rotterdam and Anadis' own facility.

Provisional patents have been lodged to protect the technological advances of the H.pylori project.

H.pylori vaccine Research Project

Anadis is currently involved in work to develop a candidate vaccine against H.pylori. As mentioned before in regards to Pyloran, H.pylori has been declared a Class 1 carcinogen by the World Health Organisation, as serious as tobacco smoke. Initial findings are showing promising results, and research continues. More information will be published as soon as findings and results are available.

BioShield

The Anadis BioShield program has now expanded, to a set of "Bio Shield" technologies - each with its own method of bioactive protection. BioShield is a set of techniques for the protection of human friendly bacteria (probiotics), vaccines, enzymes, delicate proteins & antibiotics, as these delicate molecules pass through the hostile stomach environment.

Anadis BioShield technologies are key components in the H.pylori treatment, the Enterovirus 71 preventative and are utilized in the Bio-warfare Respiratory Protection program.

Anadis' technology for delivering pharmaceutical and other bioactive molecules to the stomach wall and the small intestine, is a spin-off from the H.pylori research. As the technology develops, it appears to offer delivery solutions to a wide range of proteins and drugs that are sensitive to digestive acids. These technologies could give new life to a variety of other manufacturers products that would otherwise be destroyed in the stomach.

Tests conducted by Anadis have demonstrated that 90 per cent of probiotics taken orally are destroyed in the harsh stomach environment within 10 minutes. In contrast, BioShielding techniques protects the probiotics to the degree that 90 per cent are still alive after one hour of exposure, thereby allowing greater numbers of probiotic bacteria into the intestine to promote positive gut health.

"Probiotics are human friendly bacteria that can be used to 'crowd out' pathogenic gut bacteria and promote the health of the digestive tract. Currently, they are mainly presented in natural yogurts and fermented drinks.'

Anadis received an Auslndustry grant for A\$250,000 under the Biotech Innovation Fund to help take BioShield to a commercial level focusing on probiotics. The research focuses on demonstrating the ability of bioshielding beneficial bacteria (probiotics) in a range of gut-benefiting foods.

Commercialisation

A hurdle for probiotic manufactures has been the short shelf life and the need for continuous refrigeration of the probiotics. This has lead to the desire for a stable "delivery system" with emphasis on temperature (non-refrigerated) and dry form delivery for use in a wider variety of applications. Anadis has a BioShield probiotic viable Corn Flakes, kept at room temperature, for well over 5 months. The application of this technology is through tasteless and odorless spray, this opens the door for a vast number of "Functional Food" opportunities from probiotic breakfast cereal to probiotic hamburger buns for fast food outlets.

Serious interest in BioShield has been expressed by a number of companies and negotiations are underway for a variety of potential applications for these technologies. BioShield also has the potential for use with some vaccines &

prescription drugs to improve efficacy, lower dosage requirements and allow for oral delivery.

Provisional patents have been lodged to protect the technological advances of the Bioshield 10 project.

Anadis has recently been approached by a major American vaccine development institute to help them with delivery of new oral vaccines that have already been developed with support from the Gates Foundation and the World Health Organisation, for use in children in tropical regions. The institute proposes to fully fund pre-clinical and clinical trials of a co-formulation of their vaccines and Anadis Bioshielding technologies. Negotiations are continuing, to make this Anadis technology integral to delivery of cutting edge vaccines against enteric agents.

Bio-Warfare Respiratory Protection -Combating Bioterrorism

The Anadis project: "Neutralisation of Respiratory Toxins and Pathogens" for temporary protection against respiratory pathogens, continues to make significant progress. Work in this area is funded from a major research grant from the Commonwealth Government for \$786,500, won in February 2004.

Early work on this technology is already the subject of collaboration between Anadis and the Australian Department of Defence to develop short-term respiratory protection for military personnel and civilian emergency workers, against a range of airborne biological warfare agents - initially Anthrax and Plague.

This project focuses on the protective actions of antibodies and their ability to bind and coat bacteria within the respiratory tract, reducing the capacity of airborne pathogens to affect humans.

Prestigious International Support

The extra funding, from the above mentioned grant, enables Anadis to interact with international researchers and manufacturers. In particular, support and input has been offered from MARCE (the Mid-Atlantic Regional Centre of Excellence in Biodefense and Emerging Infectious Diseases) headquartered in Baltimore, USA. MARCE is a multi-campus organisation that was recently funded by the US government for US\$42 million and has input from 16 prestigious Government, commercial and academic institution from around Washington DC.

The Director of MARCE, Professor Mike Levine has commented on the importance of this US-Australian collaboration, in strengthening the biodefense efforts for both countries. This assistance from MARCE will provide Anadis with expertise in key areas such as: scientific input from some of the world's top medical researchers, access to secure test facilities and field readiness evaluation reports.

Professor Mike Levine, Professor of Medicine and Pediatrics, in addition to being Director of MARCE, is the Director, Center for Vaccine Development, University of Maryland School of Medicine and, amongst others, sits on the NIAID (National Institute of Allergy and Infection Diseases) Blue Ribbon Panel on Bioterrorism Committee.

What is the Bioterrorism Respiratory Protection project?

The Respiratory Protection project focuses on the protective actions of antibodies due to their ability to bind and coat bacteria within the respiratory tract, and thus reduce the capacity of the pathogen to affect humans. These protective antibodies can be prepared in a large scale utilizing bovine colostrum, a field in which Anadis is a world leader.

In the past, bacteria that cause Plague and Anthrax have proved to be very difficult to vaccinate against or to treat with antibiotics because they survive within immune cells in the lungs. Laboratory trials have since shown the Anadis technology to be highly successful in protecting the lungs against a Yersinia Pestis, a bacterium that is closely related to the species that causes Plague.

Conventional approaches to fight these diseases rely on vaccines that need to be taken months before exposure or treatments given after exposure. Anadis' breakthrough technology has potential to offer immediate protection against airborne virus and bacteria such as Anthrax and the Plague, and improve responsiveness to conventional therapy after exposure.

Integration of the technology into future emergency and medical plans will be assisted by an advisory network, from a joint effort with expertise in Defence and Emergency Management, Public Health and Biotechnology both in Australia and the USA.

Working with Starpharma Holdings Limited

During February 2005, Anadis announced collaboration with Starpharma Holdings

(ASX:SPL, USOTC:SPHRY) to investigate applications of our combined technologies for use in the fields of respiratory protection and biodefense.

This research involves the use of Anadis' polyclonal antibodies and antibody fragments, harvested from bovine colostrum combined with Starpharma's nano-scale dendrimer molecules to provide immediate short term respiratory protection from airborne biological agents.

The aim is to create highly potent "molecular mops" which can capture toxins or infectious agents before they cause harm.

Dendrimers are a type of nanoparticle. They are man-made chemicals that form tiny balls made up of a dense network of branches. Dendrimers have applications in the medical, electronics, chemicals and materials industries.

The threat of terrorism, as well as exposure to pathogens caused by natural disasters such as the Asian Tsunami, confirm the urgent need for new technologies that offer fast-acting prevention or treatment. Combining the Starpharma and Anadis technologies may offer a unique solution to these problems.

Anadis sees this collaboration as a potential avenue for this research program. This work will run concurrently with the existing research methodologies.

Opportunities

The joint research agreement, with MARCE, is based around two key pieces of intellectual property owned by Anadis. The first covers immediate protection against bacteria such as Yersinia pestis (the Plague bacteria), Bacillus anthracis (Anthrax bacteria) and shigatoxin (a bacterial toxin made deadly through delivery by air). The second is Anadis' fast-developing expertise and intellectual property on shielding delicate bioactive proteins in hostile environments (BioShield 10).

The respiratory technology will be supported by production techniques that Anadís has developed for other products. This ensures that mass production of the future products can be accomplished quickly and effectively in Australia.

Importantly, Anadis also views this research as a spring-board for further development opportunities in civilian applications. These applications include the prevention and treatment of allergic respiratory diseases such as Asthma and Hay-fever.

Immune Stimulating Infant Formula

During November 2004 Anadis and Tatura Milk Industries announced the winning of a Commonwealth Government Food Innovation Grant ("FIG" grant) for approximately one million dollars. This grant is for research aimed at developing a specialty milk powder for human infant formula for the Asian market.

This aim is for this new product to contain naturally high levels of anti-oxidants - which appear to be important in the immune development of children. Infants are born with poorly developed immune systems, and immune health is more significant in Asia than in the West because of enhanced risks from diseases such as viral and bacterial gastroenteritis, respiratory diseases and Enterovirus 71.

The research for this program is expected to run for two years.

Market Potential	Markets % by Volume
Total market size for infant formula in Asia is	52%. - China
approx. 290,000 metric ton, with a wholesale	Indonesia $\sim$ 16% i
value in the order of AUD\$1.6 Billion -	$-12\%$ ≅lapan -
growing around 5% per annum.	South Korea [10%]
	Taiwan.

Expected benefits of this formula include:

• Enhanced immune protection for infants arising from the capacity of antioxidants to stimulate immune function.
• Safe and effective function based on matching the anti-oxidant function levels found in human breast milk.
• Strong natural pathways for enhancing the anti-oxidant content. This is extremely favorable around the world and especially in Asia.
• Evidence of health benefits for the cow arising from the specialty diet. The inference is that healthier cows will provide more healthy milk.

This project is based on the development of health branded infant and child formula product for Asia (market approximately AUD \$1.6B). One of the major differences in this project, from the usual approach to spiking infant formula with artificial chemical forms of bio-actives, is this proposed formula is made naturally i.e. the cow includes the antioxidant in the milk – packaged much the same way it is in human mothers' milk.

TACHS-Tatura Anadis Colostrum Harvesting System

Anadis Scientific and Field staff, together with Tatura Milk Industries and its farmers, have developed a revolutionary way to collect and process colostrum. resulting in a higher quality, higher value product.

This innovation, the Tatura Anadis Colostrum Harvesting System (TACHS) has substantially altered the economics of small volume, specialty products collection. For the first time ever, farmers can easily and cost-effectively collect large volumes of top quality colostrum with very little impact on the flow of farm life and the usual dairy process.

The system allows for separation and selection on an animal by animal basis, with close monitoring

of animal health - resulting in excellent quality control. Because only the first milking of colostrum is taken, there is more than enough colostrum left to feed the calves. Only the first milking colostrum is collected as this contains the highest levels of antibodies (1gG) and other desired bioactives.

The colostrum is "milked" from the cow into the TACHS system, where it is packaged, and then frozen almost immediately. Each cow's product is separate and can be tracked by a unique identifier. An integrated sampling pouch is part of the system, so quality testing can be carried out on an individual cow basis, well before bulking product at the factory. Once frozen the bioactivity of the colostrum remains intact. This is opposed to conventional methods where the colostrum may be sitting for days, before it is frozen, where it begins to spoil.

Colostrum can now be collected from all stages of the calving period, not just at peak calving times. This is particularly important for hyper immune programs where the animals are specially vaccinated. TACHS works well for all farms from small to large, thus allowing us to access TMI's entire supplier base. Transportation by refrigerated van, rather than liquid tanker, is more efficient and cost-effective.

High quality product can be stock piled while frozen and processed as needed, and product not suitable for human consumption can be returned to the farm for calves. We also restrict collection to no more than 80% on any one farm, so as to ensure there is plenty of high quality colostrum for the calves.

Intellectual property

A patent has been lodged to protect TACHS from unlicensed use.

TACHS benefits

Set-up costs are small, and savings in collection and processing costs can be handed back to farmers, providing greater returns and acceptance of the system - TACHS has proved to be profitable and efficient.

TACHS allows for the strict quality

control that is necessary for nutraceutical and pharmaceutical products. In addition to first milking colostrum, other high value milk fractions can be collected using TACHS.

Anadis Manufacturing

The Anadis toll manufacturing facility continues to build on its experience, quality, speed, cost effectiveness, and responsiveness to meet customers production needs. This facility has enabled Anadis to partially offset its Research and Development costs internally.

Our manufacturing customers recognize the many advantages of working with a biopharmaceutical based R & D Company which can provide access to new ideas and discussion on further product development.

Our customers and prospects recognise the many advantages of contract packaging such as reduced staffing, training & maintenance costs, fixed unit cost with no capital investment and none of the problems associated with the setting up new production lines.

Anadis is committed to form strategic partnerships with our customers to ensure that their products succeed in the market place and establishing long-term consultancy support in the fields of government, food and veterinary regulations

Well qualified and experienced production staff are highly regarded assets of the production facility. Every employee has enthusiastically contributed to the realisation of a culture of quality and is regularly trained in aspects of quality, hygiene, safety and customer relations.

Accordingly, Anadis continues being certified by State and Federal authorities as an A-rated facility for processing quality foodstuffs, nutraceuticals and more recently, veterinary preparations. Anadis has established strong links with

major manufacturing, trading organisations and government bodies. Anadis has officially received HACCP (Hazard Analysis and Critical Control Point) registration under the internationally recognized CODEX standard. The manufacturing facility has been HACCP compliant for some time under state and federal government requirements. HACCP recognizes and addresses all issues of food

production relating to Quality, Risk Assessment and Control, as well as Food Safety for local and overseas markets.

Our accreditation includes the following:

• Federal State & Local Legislative requirements for food processing & packaging, including to the requirements of Food Standards Australia New Zealand (FSANZ), their standards and regulations.
• Australian Quarantine & Inspection Service (AQIS) regulations for the export of food products.
• International Accreditation for quality manufacture under Codex International externally audited by SAI Global
• Practices & procedures are based on the National Code of Good Manufacturing Practice (GMP), and a HACCP program that has been developed with Australian and International accreditation is in place.
• Dairy Food Safety Victoria accreditation for the production of dairy products and its derivatives.
• Australian Pesticides & Veterinary Medicines Authority (APVMA) Manufacturers Licence

Freeze drying services add value to health & food industry

Contract freeze drying caters to boutique requirements for value-added products and allows for pilot scale assessment for other research and development organisations. Anadís has assisted in R&D programs involved in the freeze drying of active materials from a variety of sources for later extraction. Upon completion of their research and development, Anadis is then in a position to gain commercial scale manufacturing rights from these customers.

$28\,$

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Contents

Page

Company Particulars	31
Directors' Report	32.
Auditors' Independence Declaration	41
Corporate governance statement	42
Statement of financial performance	47
Statement of financial position	48
Statement of cash flows	49.
Notes to the Financial Statements	50.
Directors' Declaration	69.
Independent Audit Report to the Members	70
Additional ASX Information	72.

Anadis Limited Company Particulars

Directors	Mr Philip Molyneux Chairman
	Mr Conor Graham Managing Director and CEO
	Dr Peter Jenkins
	Mr. Arie Nudel (Appointed 12 July, 2005).
	Professor Roy Robins-Browne
	Mr. Roman Zwolenski
Secretary	Mr David Woods
Notice of Annual General Meeting	The Annual General Meeting of Anadis Limited
	will be held in:	St. Michael's Hall, 120 Collins Street, Melbourne
	time:	$2:00~\rm{pm}$
	date:	8 November, 2005.
Principal registered office in Australia	4 Capital Link Drive, Campbellfield. Victoria 3061 Telephone: (61) 3 9358 6388 Facsimile: (61) 3 9358 6399 www.anadis.com.au
Country of incorporation	Australia
Share register	Computershare Registry Services Pty Ltd Yarra Falls, 452 Johnston Street. Abbotsford VIC 3067 Telephone: 1300 850 505
Auditor	PricewaterhouseCoopers Freshwater Place 2 Southbank Blvd. Southbank VIC 3006
Solicitors	Landers & Rogers Lawyers Level 12, 600 Bourke Street Melbourne VIC 3000
Bankers	Australia and New Zealand Banking Group Limited 222 Exhibition Street Melbourne VIC 3000
Stock Exchange Listing		Anadis Limited shares are listed on the Australian Stock Exchange

Your directors present their report on Anadis Limited for the year ended 30 June 2005.

Directors

The names and details of the Directors of the Company in office during the financial year and until the date of this report sire:

Philip Molyneux Conor Graham Dr Peter Jenkins Professor Roy Robins-Browne Roman Zwolenski

Mr. Arie Nudel was appointed a director on 12 July, 2005 and continues in office at the date of this report.

Principal activities

Anadis Limited is an Australian biopharmaceutical Company, which specialises in research and development of bovine colostrum derived products for therapeutic use in humans and animals.

Anadis Limited also carries on a manufacturing operation in health foods.

Operating results and dividends

The operating loss of the Company for the year ended 30 June 2005 was \$1,333,389 (2004: \$1,162,035). No dividends were paid or declared during the period.

Review of operations and results

During the year the Company continued to pursue a comprehensive research and development programme. Travelan, the first product to be marketed from the research and development programme, was launched during the year.

The manufacturing facility continues to generate cash flow for the Company.

Significant changes in the state of affairs

There are no significant changes to the Company's state of affairs.

Significant events after the balance date

There are no significant events which have occurred since 30 June 2005.

Future developments and results

Anadis Limited continues to be principally a research company developing human therapeutics from bovine colostrum. The development of a nutracenticals business alongside the research programme allows the Company to exploit the research results at an earlier stage than pharmaceutical proof. In addition, the manufacturing facility, is regarded as an important adjunct to the Company's research activities. It is providing an early revenue source which will partly underwrite the balance of the research programme.

Further information on likely developments in the operations of the Company and the expected results of operations have not been included in this report because the Directors believe it could be likely to result in unreasonable prejudice to the Company.

Environmental regulation

Anadis Limited complies with all State and Local Health standards for the manufacture of dairy based products and is approved as a registered food processing facility (licence number 20379) under the Australian Code of Practice for Dairy Factories, Dairy Food Safety Act (Victoria).

Anadis Limited has also obtained registration;

• As an export establishment for the production of prescribed goods within the Australian Quarantine Inspection Service (AQIS). The Company is HACCP and GMP accredited, and
• To produce veterinary products under an Australian Pesticides & Veterinary Medicines Authority (APVMA) Manufacturers Licence.

Information on directors

Philip Molyneux B. Econ. FCA, Chairman - non-executive. Age 61

Experience and expertise

Independent non-executive chairman for 7 years. Philip is a chartered accountant and was a partner of Ernst & Young. He is a director of several listed and unlisted companies as well as not-for-profit organisations.

Other current directorships

Equity Trustees Limited -Non-executive director (since 1992) & Chairman (since 2003) Pro Medicus Lumited - Non-executive director (since 2000)

Former directorships in last 3 years

QSR Limited. Non-executive director from September 2003 to June 2004 Sundowner Motor Inns Limited. Non-executive director from July 2003 to Jime 2004

Special responsibilities

Chairman of the Board Member of the Audit & Risk Management Committee

Interests in shares and options 250,000 ordinary shares in Anadis Limited 350,000 options over ordinary shares in Anadis Limited

Conor Graham, Managing Director and Chief Executive Officer. Age 54

Experience and expertise

Managing Director and CEO for 8 years. Conor has an extensive background in the management of bioscience companies and in the development and marketing of bioscience related products.

Other current directorships

None

Former directorships in last 3 years None

Special responsibilities Managing Director and CEO

Interests in shares and options

4,098,690 ordinary shares in Anadis Limited 750,000 options over ordinary shares in Anadis Limited

Dr Peter Jenkins MBBS, FRACP. Independent non-executive director. Age 59

Experience and expertise

Independent non-executive director for 11 years. Peter is a practising gastroenterologist with experience in the management of gastrointestinal diseases and also extensive experience in the challenges facing biotech companies.

Other current directorships

Starpharma Holdings Ltd. Non-executive director (since 1996).

Former directorships in last 3 years None

Special responsibilities Chairman of Audit & Risk Management Committee Member of Scientific Committee

Information on directors (continued)

Interests in shares and options

1,400,000 ordinary shares in Anadis Limited 250,000 options over ordinary shares in Anadis Limited

Arie Nudel, B.Comm, B.Sci Non-executive director. Age 29

Mr. Arie Nudel was appointed a director on 12 July, 2005 and continues in office at the date of this report.

Experience and expertise

Non-executive director appointed July 2005. Arie is a director of Paracroft Ltd, and conducts a private consulting business. His career includes roles as a Network Engineer, Systems Analyst and Dealer for a Funds Management organization. Arie consults for Anadis Ltd as well as a number of other private companies.

Other current directorships

None

Former directorships in last 3 years None

Special responsibilities Member of the Audit & Risk Management Committee

Interests in shares and options 10,817,051 ordinary shares in Anadis Limited

Professor Roy Robins-Browne MB, BCh, PhD, FRCPA, FRCPath, FASM. Independent non-executive director Age 58

Experience and expertise

Non-executive director for 7 years. Roy is Professor of Microbiology & Immunology at University of Melbourne. He is also Head of Microbiological Research, Murdoch Children's Research Institute.

Other current directorships None

Former directorships in last 3 years None

Special responsibilities Chairman of Scientific Committee

Interests in shares and options

15,000 ordinary shares in Anadis Limited 250,000 options over ordinary shares in Anadis Limited

Roman Zwolenski B. Se Independent non-executive director. Age 58

Experience and expertise

Non-executive director for 3 years. Roman is Managing Director of ASX listed biotech company AMBRI Ltd. His career includes 11 years in senior management with major healthcare corporation Roche Diagnostics Division and then 6 years as CEO of ASX listed Agen Biomedical Ltd.

Other current directorships

AMBRI Ltd - Non-executive director since September 2003, Managing Director October 2003. USCOM Ltd - Non-executive director since October 2002.

Former directorships in last 3 years

None

Information on directors (continued)

Special responsibilities Member of the Audit & Risk Management Committee

Interests in shares and options 250,000 options over ordinary shares in Anadis Limited

Company Secretary.

The Company Secretary is Mr. David Woods FCPA, ACTS. Mr Woods was appointed to the position in 2000. Before joining Anadis Limited he held a similar position in another listed public company for 4 years and prior to that was employed as company secretary/chief financial officer of an unlisted public company in the petroleum exploration and production industry.

Directors meetings

The number of Directors meetings (including meetings of committees of Directors) held during the year and the number of meetings attended by each Director were as follows:

	Full meetings		Meeting of				Meeting of committees
	of directors		non-executive directors		Audit & Risk Management		Scientific
	а	b	a	b	a	b	а	b
Philip Molyneux	12	Ŧ2	4	4	4	4	**	**
Conor Graham	12	12	÷.	*	**	**	**	**
Dr. Peter Jenkins	12	Ħ	4	4	4	4	10	10
Professor Roy Robins-Browne	12	Εŧ	4	4	孝孝	**	10	10
Roman Zwolenski	12	Ħ	4	4	4	4	**	多多

a = Number of meeting held during the time the director held office or was a member of the committee during the year.

b = Number of meetings attended.

* = Not a non-executive director

** = Not a member of the relevant committee

Remuneration report

The remimeration report is set out under the following main headings:

• Principles used to determine the nature and amount of remuneration, Á
• R Details of remaneration
• $\mathcal{C}$ Service agreements, and
• Đ Share-based compensation.

Á. Principles used to determine the nature and amount of remuneration

Anadis Limited is a research and development company specializing in products derived from bovine colostrum. As such, it generates cash from capital raisings. It supplements this cash from contract manufacture at its plant in Campbellfield.

Anadis is also a company listed on the Australian Stock Exchange ("ASX"). It currently incurs losses as its research expenditure exceeds the cash inflow. However, its first product, Travelan, was released to the market in late 2004.

Shareholder wealth is best measured by reference to success in research activities, and the price quoted on the ASX. The price at year end is in excess of the listing price (20 cents), and research into major potential products such as Travelan, EV 71 (for the prevention of enterovirus 71), and other general "gut health" items is progressing well.

The Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, the chief executive officer and the executive team. The Board assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from retention of a high quality Board and executive team.

Remuneration report (continued)

Á. Principles used to determine the nature and amount of remuneration (continued)

The framework provides a mix of fixed and variable pay and long-term incentives.

Non-executive directors

Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Board. The Chairman's fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. Directors do receive share options when approved by shareholders.

Directors' fees

The current base remuneration was last reviewed with effect from 1 July, 2003. The Chairman's remuneration is inclusive of committee fees while additional fees are also paid to non-executive directors for their membership of Board committees. Bonuses are not paid.

Non-executive directors fees are determined within an aggregate directors' fee pool limit, which is periodically recommended for approval by shareholders. The pool, which was last varied by shareholders on 11 November, 2003, stands at \$250,000 for cash remuneration. The Company will seek shareholder approval at the 2005 AGM to increase the pool to \$350,000 to allow for routine increases and additional directors, should that be warranted.

Retirement allowances for directors.

Non-executive directors retirement payments are limited to compulsory employer superannuation.

Executive pay

The executive pay and reward framework has three components:

• · Base pay and benefits, and
• Long term incentives through participation in the Anadis Limited Employee Share Option Plan, and
• ٠ Other remuneration such as superanmation.

The combination of these comprises the executive's total remuneration.

Base pay

Executives are given the opportunity to receive the base emolument in a variety of forms including cash and benefits. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company. The base pay is set to reflect the market for a comparable role and is reviewed annually to ensure the executive's pay is competitive with the market.

There are no guaranteed base pay increases included in any senior executives' contracts.

Benefits

Executives receive benefits including motor vehicle allowances and expense payment plans.

Retirement benefits

Retirement benefits are delivered by payments to an executive's approved superannuation fund.

Anadis Employee Option Plan

Information on the Anadis Option Plan is set out on page 38

Remuneration report (continued)

B. Details of remuneration

Amounts of remuneration

Details of the nature and amount of each element of the emolument of each director of the Company and each of the executive officers of the Company receiving the highest remuneration for the year ended 30 June, 2005 are set out in the following tables.

Directors

	Primarv	Post- employment	Equity
Name	Cash salary and fees	Super- annuation	Options	Total
	S	S	S	S
Executive director
Conor Graham	193,000	82.000		275,000
Non-executive directors
Philip Molyneux (Chairman)	61,250	5,512		66,762
Dr Peter Jenkins	37.500	3.375		40,875
Professor Roy Robins-Browne	37.500	3.375		40,875
Roman Zwolenski	37,500.	3.375		40,875

Primary

Other executives of the Company

	Cash salary and fees	Non- monetary benefits	Superannuation	Options	Total
Name	Ś,	S	S	Ś	S
Fred Mears (Operations Mgr)	120,815	۰	29,185		150,000
Dr. Grant Rawlin	171,617	٠	25,606		197,223
(GM R&D)
Steven Skorobogaty	179.465	٠	16.292		195,757
(GM Commercial)

Post-employment

Equity

C. Service agreements

Remuneration and other terms of employment for the Managing Director, and specified executives are formalised in service agreements. Each of these agreements provide for the provision of a total package which can be taken in any form agreed by the Company and participation, when eligible, in the Anadis Executive Share Option Plan No. 1 (for directors) or the Anadis Limited Employee Share Option Plan (for executives). Other major provisions of the agreement relating to remuneration are set out below.

C Graham, Managing Directors & Chief Executive Officer

• Term of agreement ~ 3 years commencing 1 July, 2005.
• Base salary, inclusive of superannuation, for the year ending 30 June, 2006 of \$375,000, to be reviewed annually by $\ddot{\phantom{0}}$ the Board
• In the first three years there is no provision to terminate the agreement other than for breach of the agreement.

F Mears, Operations Manager

• · Term of agreement ~ 2 years commencing 1 January, 2004.
• Base salary, inclusive of superannuation, for the year ending 31 December, 2005 of \$160,000, to be reviewed annually by the Board
• In the first two years there is no provision to terminate the agreement other than for breach of the agreement.

Remuneration report (continued)

$\cal C$ Service agreements (continued)

Dr. G Rawlin, General Manager - Research & Development

• Term of agreement ~ 3 years commencing 1 January, 2005.
• Base salary, inclusive of superanmuation, for the year ending 31 December, 2005 of \$225,000, to be reviewed annually by the Board
• In the first three years there is no provision to terminate the agreement other than for breach of the agreement.

S Skorobogaty, General Manager - Commercial

• Term of agreement ~ 3 years commencing 1 January, 2005.
• Base salary, inclusive of superannuation, for the year ending 31 December, 2005 of \$225,000, to be reviewed annually $\bullet$ by the Board
• In the first three years there is no provision to terminate the agreement other than for breach of the agreement.

Share-based compensation - options. D.

Options are granted to directors under the Anadis Executive Share Option Plan No. 1, which was approved by shareholders prior to listing in 1999. Options are granted to staff, at the discretion of the Board, under the Anadis Limited Employee Share Option Plan which was approved by directors on 14 May, 2002.

Options are granted under the Plans for no consideration. Options can be granted for up to a five year period with a vesting date set by the Board.

Options granted under the Plans carry no dividend or voting rights.

When exercisable, each option is convertible into one ordinary share in Anadis Limited.

All options are issued with an exercise price set considerably in excess of the market price at the time of grant.

Share options granted to directors and the most highly remunerated officers

There were no options issued to directors or executives during the year or since the end of the financial year.

Loans to directors and executives.

There are no loans to any director or employee, including their personally related entities (2004 - nil).

Shares under options

As at the date of this report, there were 3,500,000 unissued shares under option as follows:

Number under	Issue Price of Shares	Expiry date
option
50.000	\$0.35	15 August, 2005
50.000	\$0.39	15 August, 2005
50.000	\$0.24	25 November, 2005
50.000	\$0.27	25 November, 2005
250,000	\$0.35	10 December, 2005
700,000	\$0.50	31 May, 2006
50.000	\$0.22	5 June, 2006
50.000	\$0.25	5 June, 2006
50.000	\$0.34	18 September, 2006
50.000	\$0.38	18 September, 2006
850,000	\$0.55	11 November, 2006
750,000	\$0.55	14 November, 2006
50.000	\$0.41	7 April, 2007
50.000	\$0.46	7 April, 2007
50.000	\$0.76	1 November, 2007
50.000	\$0.85	1 November, 2007
250,000	\$0.62	16 August, 2008
50.000	\$0.56	1 March, 2008
50,000	\$0.63	1 March, 2008
3.500.000

The vesting date for the options expiring on 31 May, 2006 was 31 May, 2004. The vesting date for the options expiring 16 August, 2008 is 16 August, 2006. All other options can be exercised at any time.

No option holder has any right under the options to participate in any other share issue of the Company.

During the year:

400,000 options held by Sequence Capital Pty. Ltd lapsed,

• 300,000 options were issued with an exercise price of 62 cent per share,
• 50,000 options were issued with an exercise price of 41 cent per share,
• 50,000 options were issued with an exercise price of 46 cent per share,
• 50,000 options were issued with an exercise price of 76 cent per share, and
• 50,000 options were issued with an exercise price of 85 cent per share,
• 50,000 options were issued with an exercise price of 56 cent per share,
• 50,000 options were issued with an exercise price of 63 cent per share,
• 50,000 options with an exercise price of 62 cents per share were cancelled.

Indemnification and insurance of directors

During the financial year, the Company has to insure directors and officers of the Company. The premium paid is commercially sensitive and so is not disclosed.

Indemnification and insurance of directors (continued)

The liabilities insured are legal costs that may be incurred in defending civil or criminal proceedings that may be brought against the officers in their capacity as officers of the Company and any other payments arising from liabilities incurred by the officers in connection with such proceedings, other than where such liabilities arise out of conduct involving a wilful breach of duty by the officers or the improper use by the officers of their position or of information to gain advantage for themselves or someone else or to cause detriment to the Company. It is not possible to apportion the premium between amounts relating to the insurance against legal costs and those relating to other liabilities.

Non-audit services

During the year the Company did not use the auditor (PricewaterhouseCoopers) for any non-audit services, except the provision of services related to the transition to Australian equivalent to International Financial Reporting Standards (IFRS).

Details of the amounts paid or payable to the auditor (PricewaterhouseCoopers) for non-audit services provided during the year are set out below.

The board of directors has considered the position and, in accordance with the advice received from the Audit & Risk Management Committee is satisfied that the provision of the non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001. The directors are satisfied that the provision of non-audit services by the auditor, as set out below, did not compromise the auditor independence requirements of the Corporations Act 2001 for the following reasons:

• all non-audit services have been reviewed by the audit & risk management committee to ensure they do not impact the impartiality and objectivity of the auditor
• none of the services undermine the general principles relating to auditor independence as set out in Professional Statement F1, including reviewing or auditing the auditor's own work, acting in a management or a decision-making capacity for the company, acting as advocate for the company or jointly sharing economic risk and rewards.

	2005	2004
Other assurance services
Fees paid to PricewaterhouseCoopers Australian firm:
Other audit related services		2.350
IFRS accounting services	7.000	4.500
Total remaneration for other assurance services	7.000	6.850

Auditors' Independence Declaration

A copy of the Auditors' independence declaration, as required under section 307C of the Corporations Act 2001, is set out on page 41.

Signed in accordance with a resolution of the Directors

LQ.

P MOLYNEUX Director

Melbourne 9 August 2005.

C GRAHAM Director

PRICEWATERHOUSE COPERS @

PricewaterhouseCoopers ABN 52 780 433 757

Freshwater Place 2 Southbank Boulevard SOUTHBANK VIC 3006 GPO Box 1331f. MELBOURNE VIC 3001 DX 77 Website:www.pwc.com/au Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999

Auditors' Independence Declaration

As lead auditor for the audit of Anadis Limited for the year ended 30 June 2005, I declare that to the best of my knowledge and belief, there have been:

• a) no contraventions of the auditor independence requirements of the Corporations Act 2001 in relation to the audit; and
• b) no contraventions of any applicable code of professional conduct in relation to the audit.

This declaration is in respect of Anadis Limited during the period.

4 Sehski

Anton Linschoten Partner

Melbourne 9 August 2005

Corporate Governance

The Board of Anadis Limited is accountable to the shareholders and other stakeholders for the performance of the Company. To this end, the Board is committed to maintaining the highest ethical standards and best practice in the area of corporate governance to ensure that the Company's business is conducted in the best interests of all concerned.

The Company has prepared and implemented practices that address all the Principles set out by the ASX Corporate Governance Council. These practices will be reviewed regularly to ensure their relevance and application to the Company's responsibilities and activities.

By adopting these Principles, the Board seeks to create value and provide accountability commensurate with the risks involved.

ASX Principle 1: Lay solid foundations for management and oversight.

Role of the Board.

The primary role of the Board is to provide effective governance over the Company's affairs to ensure the interests of the shareholders are protected and the confidence of the investing market is maintained whilst having regard for the interests of all the stakeholders.

This role is exercised by the Board, as whole, and each director exercising diligent attention to the affairs of the Company. In particular the Board is responsible for:

• 1. Setting the Company's values and standards of conduct and ensuring that these are adhered to,
• 1. Providing strategic direction and approving corporate strategic initiatives,
• Oversight of the Company, including its control and accountability systems, $3₁$
• $4¹$ Appointing and removing the chief executive officer,
• 1. Reviewing and ratifying systems of risk management and internal compliance and controls, codes of conduct and legal compliance.
• 1. Monitoring senior management performance and ensuring appropriate resources are available,
• 1. Approving and monitoring the progress of major capital expenditure, capital management and acquisitions and divestitures, and
• 1. Approving and monitoring financial and other reporting to shareholders and regulatory authorities.

To ensure that all new Board members understand what is expected of them, in addition to their obligations under the Corporation Law, the Company provides them with a letter setting out the key terms and conditions relating to their appointment.

Role of Management.

Through the chief executive officer, management is responsible to the Board for the;

• 1. Development and implementation of agreed corporate strategy and performance objectives,
• 1. Undertaking the day to day activities of the Company,
• 1. Identifying all matters to be included in a risk profile of the Company and ensuring that effective risk management systems are implemented and adhered to,
• 1. Observing the code of conduct, and
• 1. Ensuring that the Board is fully informed of all matters which may have a material impact on the ability of the Company to meet its obligations.

ASX Principle 2: Structure the Board to add value.

Board Composition.

The Board determines its size and composition, subject to the limits imposed by the Company's Constitution, which requires a minimum of three and a maximum of ten. Currently there are six (6) directors.

The Company will at all times bear in mind the need to have a majority of independent directors. An independent director is independent of management and free of any business or other relationship that could materially interfere with the exercise of their unfettered and independent judgment.

Notwithstanding this, the Board recognises that in a small, specialised industry such as biotechnology, it is very desirable that board members have some industry background and therefore may not be completely independent.

Currently all non-executive directors, including the Chairman, are considered to be independent except Mr. Nudel.

In particular, the Board has considered the independence of Professor Roy Robins-Browne.

Much of the Company's research work is done at the University of Melbourne in departments managed by Professor Robins-Browne. The work was initially won on a competitive basis and no personal benefit is earned by Professor Robins-Browne as a consequence of this work. In fact, the Company believes it benefits from the oversight of research consequent upon Professor Robins-Browne's supervision.

Mr. Nudel is not considered to be independent as he is a director of Paracroft Pty. Ltd. a member of the Anadis Group who is a substantial shareholder.

The current Board members are:
--------------------------------	--	--	--	--	--

Director	Independent	Non-executive	Board roles
Philip G. Molyneux	YES	YES.	Board Chairman
Appointed: 15/1/1998			Audit & Risk Committee
Re-elected: 2004
Conor J. Graham		NO.	CEO/MD
Appointed: 1/5/1997
Dr. Peter J. Jenkins	YES	YES	Chair Audit & Risk
Appointed: 17/1/94			Committee
Re-elected: 2002			Science Committee
Arie L. Nudel	NO	YES	Audit & Risk Committee
Appointed 12/7/2005
Prof Roy Robins-	YES	YES	Chair Science Committee
Browne
Appointed: 2/2/98
Re-elected: 2003
Roman Zwolenski	YES	VES	Audit & Risk Committee
Appointed: 24/9/02
Elected: 2002

The skills, experience and expertise of each director is set in the Directors Report in the annual report.

The Board collectively and each director individually may take, at the expense of the Company, such independent professional advice as is considered necessary to fulfil their relevant duties and responsibilities.

Board Committees

The Board has established two committees, Audit & Risk and Science, to assist in the execution of its duties and to allow detailed consideration of complex issues.

The Company does not have a separate nomination committee or a remuneration committee as these tasks are carried out by the full Board. The Board believes that, at this stage of the Company's development, these functions are best handled by the full Board. The Board will establish other committees, either permanent or ad hoc, as required by the Company's future development. In addition and for the reasons mentioned, the Board does not currently have a formal policy on selecting new directors.

ASX Principle 2: Structure the Board to add value. (continued)

Audit & Risk Management Committee.

The Committee is dedicated to independently:

• Verifying and safeguarding the integrity of the company's reporting, 1
• $\overline{2}$ Identifying, assessing and monitoring management applications of risk minimisation procedures, and
• $\ddot{\mathbf{3}}$ Informing the Board of material changes to the Company's risk profile.

The Board has given the Committee all the necessary powers to carry out the above.

Science Committee

The primary objective of the Committee is to provide technical support to management in the conduct of the Company's research programs and to critically review the research findings.

This is achieved by undertaking regular meetings with management and providing access to a wide range of scientific knowledge including a number of technical advisors retained by the Company.

ASX Principle 3: Promote ethical and responsible decision- making.

The Company has adopted the Australian National Health and Medical Research Council guidelines on ethical research practices.

Code of Conduct.

Anadis is guided in all its activities by respect for all its stakeholders including employees, shareholders, contractors, customers and suppliers.

The Board has articulated the Company's requirements for standards of conduct, from directors and senior management, based on the following principles;

• 1. Directors are subject to re-election every three years,
• The Chairman must be independent, 2.
• Conflict of interest must be avoided wherever possible. If, for any reason, a potential conflict arises, the $3₁$ director/employee must declare the conflict and absent themselves from all discussions and decisions on the relevant matter.
• 1. Employees and directors must respect the confidentiality of the Company's assets, including intellectual property, both during and after employment,
• The Company will comply with all relevant legislation and regulation, 5.
• The Company will deal fairly with all its stakeholders, and 6.
• 1. The Company will promote a culture of ethical behavior, encouraging openness amongst employees, directors and contractors.

Trading in Company Securities.

The Company's policy is that there be no dealings in the Company's securities, whether in permitted periods or at any other firme:

• $\mathbf{1}$ . When a designated officer is in possession of inside information, or
• $2^{\circ}$ Where the dealing is for short-term or speculative gain, or
• Within a period that is 72 hours prior to and 48 hours after any announcement. $\ddot{\mathbf{3}}$

Apart from these restrictions a designated officer can, unless there are special circumstances, only deal in the Company's securities in the following periods:

Within the period commencing 48 hours after the announcement of the half year and full year financial results respectively and ending 1 month after each of those announcements.

ASX Principle 3: Promote ethical and responsible decision- making. (continued)

Within the period commencing 48 hours after the dispatch of the annual report made to shareholders through to one month after the annual general meeting.

Each director has entered into an agreement with the Company to provide information to allow the Company to notify the ASX of any share transaction within five business days.

ASX Principle 4: Safeguard integrity in financial reporting.

In addition to the financial review functions of the Audit & Risk Committee referred to above, the Board regularly reviews the monthly financial reports. It also requires the Chief Executive Officer to provide written assurances in respect to the accuracy and compliance of the annual and half yearly published financial statements. Due to the size of the Company, there is not a separate role for a Chief Financial Officer and, as a result, the Chief Executive Officer fills that role.

The Audit & Risk Committee has its own Charter, three non-executive members (all of whom are independent) and is chaired by an independent member who is not the chairman of the Board. Details of the number of meetings are set out in the Directors Report in the annual report.

The auditor provides a certificate to the Company confirming their independence. Rotation of the auditor will proceed as required by Law or Regulation. The Company currently has no intention of replacing the existing auditors, however should this arise it will made a selection following a competitive process. Non audit work is arranged based on cost and the needs of the Company

ASX Principle 5: Making timely and balanced disclosure.

As a company whose shares are traded on the Australian Stock Exchange (ASX), Anadis is very conscious that it has an obligation to ensure that the market is both fully and accurately informed about material matters by timely and balanced disclosure.

The information disclosed will be factual and presented in a clear and balanced way. The Company has prepared and issued to all senior staff a written policy document on this matter and requires strict adherence to this policy. Continuous disclosure is a standard agenda item at all Board meetings.

ASX Principle 6: Respect the rights of shareholders.

The Company is committed to respecting the rights of shareholders and facilitating the effective exercise of those rights.

This is achieved by:

• 1. Effective and regular communications including a regular newsletter and modern up to date website.
• 1. Providing access to timely, balanced and understandable information about the Company and its current and future direction, and
• 1. Facilitating easy participation at general meetings.

The Company's external auditor attends each general meeting and is available to answer any questions with regard to the conduct of the audit and their report.

ASX Principle 7: Recognise and managing risk.

In addition to the risk review functions of the Audit & Risk Committee referred to above, the Board receives regular written reports from the Science Committee and the Chief Executive Officer covering all matters within their respective portfolios.

As part of its Charter, the Audit & Risk Committee has prepared an annual checklist of risk management and internal control matters which it systematically reviews with senior staff including external consultants. The Chief Executive Officer also provides a written statement that the control systems are operating efficiently and effectively in all material respects.

In addition to the usual business risks, the particular risks associated with the Company's activities are:

• 1. long lead times and high costs associated with biotech R&D,
• 1. the low success rate of biotech research in Australia,
• 1. stringent health regulations which are subject to regular change,
• 1. the high level of funding required over a long period of time, and
• 1. securing intellectual property.

ASX Principle 8: Encourage enhanced performance.

To ensure that the directors and key executives are equipped to develop the Company, the directors are committed to fairly review and actively encourage enhanced board and management effectiveness.

This will be achieved by informing, training, and evaluating individual and collective performance regularly and fairly.

Measurable and qualitative indicators will be established for board members (including their roles on committees) and key executives and their performance will be regularly reviewed against these indicators. This is an ongoing process achieved through the completion of questionnaires and peer assessment.

ASX Principle 9: Remunerate fairly and responsibly.

The Board notes the Corporate Governance Council recognises that, for small companies, the efficiencies expected to flow from a formal committee structure may not be apparent. The Board agrees with this view.

The full Board will exercise these responsibilities and set the policies for remaneration of directors and senior managers so as to comply with the Corporation Act, accounting standards and the ASX Listing Rules. Remuneration for executive directors and staff is determined by reference to market rates. From time to time employees are offered Options under plans previously agreed by shareholders. In a company at this stage of its development, the only meaningful performance target is the share price and the exercise price for such options are set well in advance of where the shares are trading at the time of issue and, for executives, usually have a two year vesting period.

As the number of options on issue at anyone time is low and the price and exercise periods differ, the Board considers that the exercise of such options will have little or no effect on the Company's share price or Earnings Per Share.

In setting remuneration for non-executive directors, the Board will use the following principles;

• 1. Non-executive directors shall be paid fees and superannuation plus supplements for committee work within the aggregate amount set by shareholders in general meeting (last set in 2003 at \$250,000 for cash remuneration),
• 1. Non-executive directors participate in options arrangements subject to shareholder approval. The Board does not accept that options should not be given to non-executive directors as it believes (and shareholders have previously agreed) that in an R&D company their particular expertise is vital to the team effort and therefore options are a valid incentive,
• 1. Non-executive directors retirement payments are limited to compulsory employer superannuation, and
• 1. Bonuses will not be paid to non-executive directors.

Details of remuneration paid to directors and senior staff is set out in the Directors Report in the annual report.

ASX Principle 10: Recognise the legitimate interests of stakeholders.

The Board is committed to delivering maximum share value to the shareholders while maintaining high standards of customer service and employment. In addition, the Company aims to achieve full compliance with relevant legislation and contribute to the wider community and therefore all stakeholders.

This will be achieved by the application of the principles set out in this Corporate Governance Statement.

Anadis Limited Statement of Financial Performance For the year ended 30 June 2005

	Note	2005	2004
		Ŝ	S
Revenue from ordinary activities	Ż	5,789,760	4,284,872
Raw materials and consumables used		(3,065,639)	(2.354.881)
Employee benefits expense		(1,930,897)	(1.641, 501)
Depreciation and amortisation expenses		(189,005)	(183, 341)
Borrowing costs		(168)	(2,434)
Research and development - external		(789,069)	(587, 072)
Factory overheads		(263, 208)	(244.021)
Directors' fees		(173,750)	(162, 500)
Travel expenses		(93.282)	(81, 855)
Product marketing/advertising		(377.696)	(4,693)
Corporate and administrative expenses		(540.314)	(517, 362)
Profit/ (loss) from ordinary activities before income tax
benefit	3	(1,633,268)	(1.494.788)
Income tax benefit	4	299,879	332,753
Profit/ (loss) from ordinary activities after income tax
benefit	16	(1,333,389)	(1,162,035)
		Cents	Cents
Basic earnings per share	26	(1.45)	(1.43)
Diluted earnings per share	26	(1.45)	(1.43)

The above statement of financial performance should be read in conjunction with the accompanying notes.

Anadis Limited Statement of Financial Position As at 30 June 2005

	Note	2005	2004
		Ŝ	\$
CURRENT ASSETS
Cash	5	178,660	311,834
Receivables	6	967,985	605,313
Investments	7	3,479,217	1,000,000
Inventories	8	1,288,980	802,309
Other assets	G)	126,219	128,131
TOTAL CURRENT ASSETS		6,041,061	2,847,587
NON-CURRENT ASSETS
Plant and equipment	10 °	1,738,671	1,769,059
Intangible assets	11	275,173	293,119
TOTAL NON-CURRENT ASSETS		2,013,844	2,062,178
TOTAL ASSETS		8,054,905	4,909,765
CURRENT LIABILITIES
Accounts payable	12	773,954	677,483
Interest bearing liabilities	13		26,974
Provisions	14	192,601	127,234
Other	15	125,000
TOTAL CURRENT LIABILITIES		1,091,555	831,691
NON-CURRENT LIABILITIES
Provisions	14	22.898	46,746
TOTAL NON-CURRENT LIABILITIES		22.898	46,746
TOTAL LIABILITIES		1,114,453	878,437
NET ASSETS		6,940,452	4,031,328
EOUITY
Share capital	17	16,984,561	12,742,048
Accumulated losses	16	(10.044, 109)	(8.710, 720)
TOTAL EQUITY		6,940,452	4,031,328

The above statement of financial position should be read in conjunction with the accompanying notes.

Anadis Limited Statement of Cash Flows For the year ended 30 June 2005

	2005 Inflow / Note (Outflow)		2004 Inflow/ (Outflow)
		S	S
CASH FLOWS FROM OPERATING ACTIVITIES
Receipts from customers (inclusive of goods and services
tax)		5,041,619	4,079,287
Payments to suppliers and employees (inclusive of goods
and services tax)		(8,107,640)	(6,081,966)
Interest received		184,854	101,389
Grants received		825,657	335,409
R&D tax rebate		299,879	332,753
Borrowing costs		(168)	(2,434)
Net Cash Flow from Operating Activities	22	(1,755,799)	(1, 235, 562)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of plant and equipment		(140,671)	(114.424)
Proceeds from maturing debentures			1,130,000
Investments in debentures		(2.479.217)
Net Cash Flow from Investing Activities		(2.619, 888)	1,015.576
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issue of shares		4.251,000	150,000
Share placement cost		(8, 487)
Net Cash Flow from Financing Activities		4,242,513	150,000
Net increase/(decrease) in cash held		(133, 174)	(69,986)
Cash at beginning of financial year		311,834	381,820
Cash at end of financial year	21	178,660	311,834

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

Note 1. Summary of significant accounting policies

$(a)$ Basis of Accounting

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

It is prepared in accordance with the historical cost convention, except for certain assets which, as noted, are at valuation. Unless otherwise stated, the accounting policies adopted are consistent with those of the previous year.

$(b)$ Foreign Currency Translation

Transactions in foreign currencies are converted to Australian dollars at the rates of exchange ruling at the date of each transaction. At balance date, amounts outstanding in foreign currencies are converted to Australian dollars at the rate of exchange ruling at the end of the financial year. All gains and losses are brought to account in determining the profit or loss for the year.

$\epsilon$ Cash

For the purpose of the Statement of Cash Flows, cash includes cash on hand and in banks, money market investments, bank term deposits readily convertible to cash, net of outstanding bank overdrafts.

$(d)$ Inventories

Raw materials and stores, work in progress and finished goods are stated at the lower of cost and net realisable value. Cost comprises direct materials, direct labour and an appropriate proportion of variable and fixed overheads expenditure, the latter being allocated on the basis of normal operating capacity.

$(e)$ Property, plant and equipment

Property, plant and equipment are carried at the lower of cost and recoverable amount.

Depreciation on plant and equipment is calculated on a diminishing value basis to write off the net cost or revalued amount of each item of plant and equipment (excluding land) over its expected useful life to the Company. Depreciation on buildings is calculated on a straight line basis to write off the net cost or revalued amount of the property (excluding land) over its expected useful life to the Company.

Estimates of remaining useful lives are made on a regular basis for all assets, with annual reassessments for major items. Profits and losses on disposals of plant and equipment are taken into account in determining the result for the period.

The expected useful lives are as follows:

Buildings	50 years
Building Improvements	$10 - 40$ years
Plant & Equipment	$3 - 15$ years
Computers	$2 - 4$ years
Furniture and Fittings	$5 - 15$ years

$(0)$ Intangible assets

Goodwill

Where a Company or operation is acquired, the identifiable net assets acquired are measured at fair value. The excess of the fair value of the cost of acquisition over the fair value of the identifiable net assets acquired, including any liability for restructuring costs, is brought to account as goodwill and amortised on a straight line basis over 20 years, being the period during which the benefits are expected to arise.

Revenue Recognition (g)

Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Company and the revenue can be reliably measured. The following specific revenue criteria must be met before revenue is recognised:

Sale of Goods - Control of the goods has passed to the buyer.

Interest -- When the right to receive consideration for the investment has been attained.

Grant revenue - recognised a percentage completion basis within the relevant project's timetable.

Note 1. Summary of significant accounting policies (continued)

$(h)$ Employee Benefits

The amounts expected to be paid to employees for their pro-rata entitlements to long service and annual leave are accrued annually on the basis of statutory and contractual requirements. The contributions made to superannuation funds are charged against the profit and loss account.

Earnings Per Share (j)

Basic earnings per share is determined by dividing the operating profit or loss after income tax attributable to members of the Company by the weighted average number of ordinary shares outstanding during the financial year.

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

$\ddot{\mathbf{u}}$ Income Tax

Tax effect accounting procedures are followed whereby the income tax expense in the statement of financial performance is matched with the accounting profit after allowing for permanent differences. The future tax benefit relating to tax losses is not carried forward as an asset unless the benefit is virtually certain of realisation.

Income tax on cumulative timing differences is set aside to the deferred income tax or future income tax benefit accounts at the rates which are expected to apply when those timing differences reverse.

Research & Development $\left( \mathbf{k}\right)$

Costs incurred on research and development projects are deferred to future periods to the extent they are expected beyond any reasonable doubt to be recoverable.

Directors' and Executive Remaneration $(1)$

Equity-based compensation benefits

Equity-based compensation benefits are provided to Directors and Executives via the Anadis Executive Share Option Plan $No.1.$

No accounting entries are made in relation to the Anadis Executive Share Option Plan No.1 until options are exercised, at which time the amounts receivable from employees are recognised in the statement of financial position as share capital. In accordance with AASB 1046 Director and Executive Disclosures by Disclosing Entities, the amounts disclosed for remuneration of directors and executives in note 28 include the assessed fair values of options at the date they were granted.

Borrowing costs $(m)$

Borrowing costs are recognised as an expense in the period in which they are incurred.

$(n)$ Receivables

All trade debtors are recognised at the amounts receivable as they are due for settlement no more than 45 days from the date of recognition.

Collectibility of trade debtors is reviewed on an ongoing basis. Debts, which are known to be uncollectible, are written off. A provision for doubtful debts is raised when some doubt as to collection exists.

Trade and other creditors $(\alpha)$

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

$(1)$ Maintenance and repairs

Routine operating maintenance, repair and minor renewal costs are also charged as expenses as incurred.

Recoverable amount of non-current assets $\left( q\right)$

The recoverable amount of an asset is the net amount expected to be recovered through the cash inflows and outflows arising from its continued use and subsequent disposal.

The expected net cash flows included in determining recoverable amounts of non-current assets have been discounted to their present values.

52

Anadis Limited Notes to the Financial Statements 30 June 2005

Summary of significant accounting policies (continued) Note 1.

Recoverable amount of non-current assets (continued) $(q)$

Where the carrying amount of a non-current asset is greater than its recoverable amount, the asset is written down to its recoverable amount. Where net cash inflows are derived from a group of assets working together, recoverable amount is determined on the basis of the relevant group of assets. The decrement in the carrying amount is recognised as an expense in net profit or loss in the reporting period in which the recoverable amount write-down occurs.

Note 2. Revenue

		2005	2004
		S	Ŝ
	Revenue from Operating Activities
Sale of goods		4,867,597	3,677,553
	Revenue from Outside Operating Activities
Interest		234.788	86,588
Government grants		471,868	424,019
Other grants		215,507	96.712
		922,163	607.319
Total Revenue		5.789,760	4,284.872
Note 3.	Operating loss
	Operating profit/(loss) before income tax expense includes the following specific expenses:

Research and development expenditure - net of Grants-	905.114	762.872
Borrowing costs expensed	168	2.434
Depreciation	171.059	165.395
Amortisation -- Goodwill	17 946	17.946
Cost of sales of 200ds	4.004.243	3.072.443

Note 4. Income tax

	2005 ×.	2004 S
The income tax expense for the financial year differs from the amount calculated on the profit/(loss). The differences are reconciled
as follows
Loss from ordinary activities before income tax expense	(1,633,268)	(1,494,788)
Income tax calculated $(a)$ 30% (2004 - 30%)	(489,980)	(448.436)
Tax effect of permanent differences:
Research and development tax concession	(7,500)	(57,270)
Research and development tax rebate	(299, 879)	(332,753)
Timing differences and tax losses not brought to account	491,324	498,182
Other items	6,156	7,524
Income tax expense/(benefit) attributable to operating profit/(loss).	(299.879)	(332,753)
The future income tax benefit arising from tax losses not brought
to account at balance date as a result of realisation of the
benefit not being virtually certain:	1.794,182	2,155,546

This benefit for tax losses will only be obtained if:

(a) the Company derives future assessable income of a nature and of an amount sufficient to enable the benefit from the deductions for the losses to be realised;

(b) the Company continues to comply with the conditions for deductibility imposed by the tax legislation; and

(c) no changes in tax legislation adversely affect the Company in realising the benefit from the deductions for the losses.

		2005 S	2004 S
Note 5.	Cash
Cash at bank and on hand		178,660	203,409
Short term deposits			108,425
		178,660	311,834
	Short term deposits were held in a cash 'at call' account.
Note 6.	Receivables
Trade debiors		909.495	596,757
Other debtors		58,490	8,556
		967.985	605,313
Note 7.	Investments
Debentures		3,479,217	1,000,000

The debentures have been issued by a subsidiary of the Company's bankers to mature within the next 12 months.

Note 8. Inventories

	2005	2004
		S.
Raw materials - at cost	806.391	421,737
Work in progress - at cost	129.343	88.825
Finished Goods - at cost	353.246	291.747
	1.288.980	802.309

Note 9. Other assets

Prepayments	68,007	56.636
Accrued Revenue	58.212	71.495
	126.219	128.131

Note 10. Plant and equipment

Land
At cost	73,647	73,647
	73,647	73.647
Buildings
At Cost	655,155	655,155
Accumulated depreciation	(59,223)	(46, 120)
	595,932	609,035
Building Improvements
At Cost	296,940	267,412
Accumulated depreciation	(60, 427)	(45, 892)
	236,513	221,520
Plant and equipment
At cost	1,130,859	1,037,543
Accumulated depreciation	(408,701)	(290, 487)
	722,158	747,056
Computer Equipment
At Cost	76,080	73.240
Accumulated depreciation	(51,440)	(44,933)
	24,640	28.307

Note 10.	Plant and equipment (continued)	2005 S	2004 Ŝ
Furniture & Fittings
At Cost		150.744	141,353
	Accumulated depreciation	(64.963)	(51, 859)
		85,781	89.494
Total Cost		2.383,425	2,248.350
	Total Accumulated Depreciation	(644,754)	(479.291)
		1.738,671	1,769,059

Reconciliations of the carrying amounts of each class of property, plant and equipment at the beginning and end of the current financial year are set out below.

	Land	Buildings	Building improvement	Plant and equipment	Computer equipment	Furniture & Fittings	Total
		S	S				S
Carrying amount at
1 July 2004	73.647	609.035	221.520	747.056	28,307	89.494	.769,059
Additions		۰	29.528	93,317	8.435	9.391	140.671
Depreciation expense		(13,103)	(14.535)	(118, 215)	(12.102)	(13.104)	(171.059)
Carrying amount at
30 June 2005	73,647	595,932	236.513	722.158	24,640	85,781	1.738.671

Included in the Plant and Equipment are assets with a carrying value of \$NIL (2004 - \$20,490) which have been financed under a hire purchase agreement.

The basis of valuation of land and buildings is at cost and written down value respectively. The most recent appraisal was at 9 August, 2004 and was based on independent assessments that valued the land and building at between \$1,050,000 and \$1,150,000.

Note 11. Intangible assets

		2005	2004
		S	S
Goodwill		358,921	358,921
	Less Accumulated Amortisation	(83,748)	(65, 802)
		275,173	293,119
Note 12.	Accounts Payable
Trade creditors		672,856	515,454
Sundry creditors and accruals		101,098	162,029
		773.954	677,483
Note 13.	Interest Bearing Liabilities
Current liabilities

Hire purchase 26,974 $\Box$

		2005 S		2004 S
Note 14.	Provisions
Current liabilities
	Employee entitlements	192,601		127,234
Non-current liabilities
	Employee entitlements	22,898		46,746
	Employee numbers Number of employees at reporting date	25		$^{18}$
Note 15.	Other
Current liabilities	Income received in advance	125,000
Note 16.	Accumulated losses
	Accumulated losses at the beginning of the financial year Net (loss)/ profit attributable to the members of Anadis Accumalated (losses) at the end of the financial year	(8,710,720) (1,333,389) (10,044,109)		(7,548,685) (1,162,035) (8,710,720)
Note 17.	Share Capital
	Issued and Paid Up Capital 92,563,403 (2004: 81,663,403) ordinary shares fully paid	16,984,561		12,742,048
Date	Movements in share capital Details	Number of Shares	Issue Price	S
30/06/03	Balance	81,163,403		12,592,048
29/01/04	Share Issue/exercise of options	500,000	0.30	150,000
30/06/04	Balance	81,663,403		12,742,048
21/7/04 30/7/04	Share placement Share placement	800,000 10,100,000	0.39 0.39	312,000 3,939,000
	Share placement costs			(8, 487)
30/6/05	Balance	92,563,403		16,984,561

Ordinary Shares

Ordinary shares entitle the holder to participate in dividends and the proceeds on winding up of the company in proportion to the number of and amount paid on the shares held.

On a show of hands every holder of ordinary shares present at a meeting in person or by proxy, is entitled to one vote, and upon a poll each share is entitled to one vote.

Note 17 Share Capital (continued)

Share Options

Unissued ordinary shares under option at balance date:

$\sim$

Namber 50.000	Issue Price of Shares \$0.35	Expiry date 15 August, 2005
50,000	\$0.39	15 August, 2005
50.000	\$0.24	25 November, 2005
50.000	\$0.27	25 November, 2005
250,000	\$0.35	10 December, 2005
700.000	\$0.50	31 May, 2006
50.000	\$0.22	5 June, 2006
50.000	\$0.25	5 June, 2006
50.000	\$0.34	18 September, 2006
50,000	\$0.38	18 September, 2006
850,000	\$0.55	11 November, 2006
750,000	\$0.55	14 November, 2006
50.000	\$0.41	7 April, 2007
50.000	\$0.46	7 April, 2007
50.000	\$0.76	1 November, 2007
50.000	\$0.85	1 November, 2007
250,000	\$0.62	16 August, 2008
50.000	\$0.56	1 March, 2008.
50.000	\$0.63	1 March, 2008.

3,500,000

Movement in share options during the year

100,000 options were granted on 18 August 2004 pursuant to an agreement with Oatlie Properties Pty. Ltd. under which it is providing professional services to the Company. Each option is convertible to one ordinary share at any time on or before 7 April, 2007 at a fixed price of \$0.41 for 50,000 and \$0.46 for the remaining 50,000.

100,000 options were granted on 14 December, 2004 pursuant to an agreement with Oatlie Properties Pty. Ltd. under which it is providing professional services to the Company. Each option is convertible to one ordinary share at any time on or before 1 November, 2007 at a fixed price of \$0.76 for 50,000 and \$0.85 for the remaining 50,000.

300,000 options were granted on 2 September 2004 pursuant to the Anadis Limited Employee Share Option Plan. Each option is convertible to one ordinary share after the Vesting date and before 16 August, 2008 at a fixed price of \$0.62 per share. The options were granted for no consideration. Subsequently 50,000 of these options were cancelled

100,000 options were granted on 1 March, 2005 pursuant to an agreement with Oatlie Properties Pty. Ltd. under which it is providing professional services to the Company. Each option is convertible to one ordinary share at any time on or before 1 March, 2008 at a fixed price of \$0.56 for 50,000 and \$0.63 for the remaining 50,000.

400,000 options held by Sequence Capital Pty. Ltd lapsed.

Note 18. Superannuation Commitments

All employees are entitled to various levels of benefits on retirement, disability or death. The superannuation plans are accumulation plans. The Company contributes a percentage of the directors fees and salaries of employees to the superanniation plans.

Related Parties Note 19.

Directors

The Directors of the Company during the financial year were: Philip Molyneux Conor Graham Dr Peter Jenkins Professor Rov Robins-Browne Roman Zwolenski Remineration received or receivable by the directors of the Company is disclosed in Note 28.

After the balance date, Mr. Arie Nudel was appointed a director on 12 July, 2005

Transactions with Directors and their Director related companies are as follows:

In the 1999/00 year, the Company agreed to pay a royalty to Mr Conor Graham on all worldwide sales of the antibody tablet manufactured by the Company or any licence of the Company and incorporating the invention described as "pharmaceutical composition containing antibodies" and the subject of Australian patent application number PM1313. The royalty is set at one and a half percent (1.5%) of the wholesale price received by the Company for the product. In the event the Company sells its manufacturing and marketing rights on the basis of receiving one up front payment the only royalty payable is set at 1.5% of the amount received by the Company for those rights. To date, there have been no payments. On 22 June, 2005 the Board accepted Mr. Graham's offer to cancel this agreement and the cancellation was signed on 9 August, 2005.

Share and share option transactions with Directors and their Director related entities

The aggregate number of shares and share options held by the Directors of the Company and their Director related entities at balance date were: سيدع $\sim$ $\sim$ $\sim$

Class of share or option	2005	2004
Ordinary shares	8.418.690	8.453.690
Options over ordinary shares	1.850.000	1.850.000

Note 20. Economic Dependency

Anadis Limited depends for a significant volume of revenue on Aussie Bodies Pty Ltd. During the year ended 30 June 2005, approximately 83% (2004 - 85%) of the Company's revenue from sale of goods was sourced from this customer. The Company has a five year contract with Aussie Bodies Pty Ltd to manufacture milk based products, this commenced in April 2001.

Note 21. Cash Reconciliation for the Statement of Cash Flows

	2005	2004
		S
Cash	178.660	203,409
Short term deposits	۰	108,425
Balance per statement of cash flows	178.660	311.834

Reconciliation of net cash used in operating activities to operating loss Note 22. after income tax

	2005	2004
	S	Ŝ
Operating loss after income tax	(1.333,389)	(1,162.035)
Adjustments:
Depreciation and amortisation	189.005	183,341
Change in Assets & Liabilities:
(Increase) in inventories	(486,671)	(201.408)
(Increase) in debtors and prepayments	(360,760)	(32,746)
Increase in accounts payable	96.471	11.389
Increase/(Decrease) in other liabilities	125,000	(113.828)
(Decrease) in horrowings	(26,974)
Increase in employee benefits provisions	41,519	79.725
Net cash used by operating activities	(1.755,799)	(1,235,562)

Note 23. Remuneration of Auditors

During the year the following fees were paid for services provided by the auditor of the Company:

Assurance services

1. Audit services Fees paid to PricewaterhouseCoopers Australian firm: Audit and review of financial reports and other audit work
under the Corporations Act 2001	55.250	53.750
Total remuneration for audit services	55.250	53.750
2. Other assurance services
Fees paid to PricewaterhouseCoopers Australian firm:
Other audit related services		2.350
IFRS accounting services	7,000	4,500
Total remaneration for other assurance services	7,000	6,850
Total remaneration for assurance services	62.250	60.600

The Company's policy on the engagement of auditors is set out in the Corporate Governance Statement (ASX Principle 4) in this Report.

Note 24. Segment Information

Business Segment:

The Company operates in two business segments being the conduct of Research & Development activities and the manufacture of health foods.

Geographical Segment:

The Company operates in one geographical segment, Australia.

Primary reporting - business segments	Ś Manufacturing	S Research &	\$ Unaflocated	Ŝ Total
2005		Development
Operating revenue	4,867,597			4,867,597
Other revenue		687,375		687,375
Interest revenue			234,788	234,788
Total segment revenue	4,867,597	687,375	234,788	5,789,760
Segment result	485,658	(905, 114)	(1,213,812)	(1,633,268)
Taxation		299,879		299,879
Profit/(Loss) after tax	485,658	(605,235)	(1,213,812)	(1,333,389)
Segment assets	3,751,687	466,913	3,836,305	8,054,905
Segment liabilities	446,852	315,975	351,626	1,114,453
Depreciation & amortisation expense	108,204	55,592	25,209	189,005
Other non-cash expense	14,995	5.798	20,726	41,519
Acquisition of non-current segment assets	122,843		17,828	140,671
Primary reporting - business segments	Ň,	Ś,	S	Ŝ
2004	Manufacturing	Research & Development	Unaflocated	Total
Operating revenue	3,677,553			3,677,553
Other revenue		520,731		520,731
Interest revenue			86.588	86,588
Total segment revenue	3,677,553	520.731	86,588	4,284,872
Segment result	605,110	(762,872)	(1,337.026)	(1,494,788)
Taxation		332,753		332,753
Profit/(Loss) after tax	605,110	(430, 119)	(1,337,026)	(1,162,035)
Segment assets	2,987,583	435,910	1,486,272	4,909,765
Segment Itabilities	318,802	310,304	249,331	878,437
Depreciation & amortisation expense	98,398	55,612	29,331	183,341
Other non-cash expense	8,285	17.438	54.002	79,725

Note 25.	Research Commitments	2005 ×.	2004 S
as follows:	The Company has entered into agreements with certain research organisations for ongoing research. Under these agreements the Company is committed to providing funds over future periods
Payable within one year		75,000	75,000
Pavable within 13-24 months Pavable within 25-36 months
	Research commitments not recognised in the financial statements	75,000	75,000
Note 26.	Earnings Per Share
		2005	2004
		Cents	Cents
Basic earnings per share		(1.45)	(1.43)
Diluted earnings per share		(1.45)	(1.43)
		2005	2004
	Weighted average number of shares used as the denominator	Number	Number
	Weighted average number of ordinary shares used as the denominator in calculating basic earnings per share	91.687.239	81,310,802
share	Weighted average number of ordinary shares and potential ordinary shares used as the denominator in calculating diluted earnings per	91.687.239	81.310.802

Reconciliation of earnings used in calculating earnings per share

The numerator used in calculation of both Basic EPS and Diluted EPS is a loss of \$1,333,389 (2004 - \$1,162,035) and there are no reconciling items to the loss from ordinary activities before income tax expense.

Options

Options that have been granted are considered to be potential ordinary shares, however their conversion to ordinary shares does not increase the loss per share, as such the options are not dilutive and have not been included in the determination of diluted earnings per share. The options have not been included in the determination of basic earnings per share. Details of options are set out in Note 17.

Note 27. Financial Instruments

$(a)$ Credit risk exposures

The credit risk on financial assets of the Company which have been recognised on the balance sheet is generally the carrying amount, net of any provision for doubtful debts.

Note 27. Financial Instruments (continued)

(b) Interest rate risk exposures

The Company is exposed to interest rate risk through primary financial assets and liabilities. The following tables summarise interest rate risk for the Company, together with effective interest rates as at balance date.

2005	Note		Fixed interest maturing in:
		Floating	1 year or	over i to	Non interest	Total
		mterest	less	5 years	bearing
		rate
		\$	\$	\$	Š.	\$
Financial assets
Cash	5	178,660				178,660
Receivables	6				909,495	909,495
Other debtors	6			ä,	58,490	58,490
Debentures	7		3,479,217	÷,		3,479,217
		178,660	3,479,217	÷,	967,985	4,625,862
Weighted average interest rate %		3.57	5.41
Financial liabilities
Accounts payable	12				773,954	773,954
Other	15				125,000	125,000
		÷,	÷,	÷,	898,954	898,954
Weighted average interest rate %
Net flaancial assets (liabilities)		178,660	3,479,217		69.031	3,726,908
2004	Note		Fixed interest maturing in:
		Floating	I year or	over 1 to	Non interest	Total
		interest	less	5 years	bearing
		rate
		Š.	\$	\$	Š.	\$
Financial assets
Cash	5	203,409	108,425			311,834
Receivables	6			ä,	596,757	596,757
Other debtors	6 7			$\frac{1}{2}$	8,556	8,556
Debentures		203,409	1,000,000	÷.	605,313	1,000,000
			1,108,425			1,917,147
Weighted average interest rate %		3.02	5.47
Financial liabilities
Accounts payable	12				677.483	677,483
Interest bearing liabilities	13	$\overline{\phantom{a}}$	26,974	$\overline{\phantom{a}}$		26,974
		$\overline{a}$	26,974	u,	677,483	704,457
Weighted average interest rate %			6.88
Net fluancial assets (liabilities)		203.409	1,081,451		(72.170)	1,212,690

Note 27. Financial Instruments (continued)

(c) Net fair values

The financial assets and liabilities as shown above are disclosed at their aggregate net fair values. With respect to assets, net fair values are determined using the cost to the Company to acquire the asset. Net fair values for liabilities are determined by reference to the value of the liability when incurred

Note 28. Directors and executive disclosures

Directors

The following persons were directors of Anadis Limited during the financial year:

Chairman - non-executive

P Molyneux

Executive director C Graham, Managing director and chief executive officer

Non executive directors

Dr P. fenkins Professor R Robins-Browne R Zwołenski

After the balance date, Mr. Arie Nudel was appointed a director on 12 July, 2005

Executives (other than directors) with the greatest authority for strategic direction and management

The following persons were the executives with the greatest authority for the strategic direction and management of the Company during the financial year:

Name	Position
F Mears	Operations Manager
Dr G Rawlin	General Manager -- Research and Development
S Skorobogaty	General Manager - Commercial

All of the above persons were also specified executives during the year ended 30 June, 2004.

Remuneration of directors and executives

Principles used to determine the nature and amount of remuneration

The Board of Directors is responsible for determining and reviewing compensation arrangements for the Directors, the chief executive officer and the executive team. The Board assess the appropriateness of the nature and amount of emoluments of such officers on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum stakeholder benefit from retention of a high quality Board and executive team. The chief executive officer and members of the senior management team have employment contracts.

The framework provides a mix of fixed and variable pay and a blend of short and long-term incentives.

Non-executive directors

Fees and payments to non-executive directors reflect the demands which are made on, and the responsibilities of, the directors. Non-executive directors' fees and payments are reviewed annually by the Board. The Chairman's fees are determined independently to the fees of non-executive directors based on comparative roles in the external market. Directors do receive share options when approved by shareholders.

Directors' fees

The current base remuneration was last reviewed with effect from 1 July, 2003. The Chairman's remuneration is inclusive of committee fees while additional fees are also paid to non-executive directors for their membership of Board committees. Bonuses are not paid.

Non-executive directors fees are determined within an aggregate directors' fee pool limit, which is periodically recommended for approval by shareholders. The pool, which was last varied by shareholders on 11 November, 2003, stands at \$250,000 for cash remuneration.

Note 28. Directors and executive disclosures (continued)

Retirement allowances for directors.

Non-executive directors retirement payments are limited to compulsory employer superannuation.

Executive pay

Executives are given the opportunity to receive the base emolument in a variety of forms including cash and fringe benefits such as motor vehicles and expense payment plans. It is intended that the manner of payment chosen will be optimal for the recipient without creating undue cost for the Company.

Details of remineration

Details of the remaneration of each director of the Company and each of the executives of the Company, including their personally related entities, are set out in the following table.

Directors

2005.	Primary	Post- employment	Equity
Name	Cash salary and fees S	Superannuation s	Options S	Total S
Executive director
Conor Graham Non-executive directors	193.000	82.000		275,000
Philip Molyneux (Chairman)	61,250	5,512		66,762
Dr Peter Jenkins	37.500	3.375		40.875
Professor Roy Robins-Browne	37,500	3.375		40,875
Roman Zwolenski	37,500	3.375		40,875
Total	366 750	97.637		464.387

2004.	Primary	Post- employment	Equity
Name	Cash salary and fees	Superannuation	Options	Total
	S	S	S	S
Executive director
Conor Graham	203.000	72,000	94.500	369.500
Non-executive directors
Philip Molyneux (Chairman)	50,000	4.500	44.100	98,600
Dr Peter Jenkins	37.500	3.375	31.500	72.375
Professor Roy Robins-Browne	37.500	3.375	31.500	72.375
Roman Zwolenski	37.500	3.375	21.000	61.875
Total	365.500	86.625	222.600	674.725

At the 2003 Annual General Meeting the shareholders approved the issue options to non-executive and executive Directors under the Anadis Executive Share Option Plan No. 1. The options are for 3 years with immediate vesting and have been valued using Black-Scholes method with a volatility of 90% (The three years for Mr. Zwolenski commenced in December 2002 when the volatility was 76%.)

Note 28. Directors and executive disclosures (continued)

Other executives of the Company

2005.		Ртіпіагу	Post-employment	Equity
	Cash salary and fees	Non- monetarv benefits	Superannuation	Options	Total
Name	S	S	S	Ŝ	S
Fred Mears (Operations Mgr)	120,815	$\overline{\phantom{0}}$	29,185		150,000
Dr. Grant Rawlin	171,617	$\overline{\phantom{0}}$	25,606		197,223
(GM R&D)
Steven Skorobogaty	179,465	۰	16.292		195,757
(GM Commercial)
Total	471.897		71.083		542,980

2004.		Primary Post-employment		Equity
	Cash salary and fees	Non- monetary benefits	Superannuation	Options	Total
Name	S	S	S	Ŝ	Ŝ
Fred Mears (Factory Manager)	109.807	۰	30,193	13.200	153,200
Dr. Grant Rawlin	139.372	3.084	12,544	13.200	168.200
(GM R&D)
Steven Skorobogaty	138.954	3.540	12.506	13.200	168.200
(GM Nutraceuticals Division)
Total	388,133	6.624	55.243	39.600	489.600

Options Granted. Options were issued to the executives on 31 May, 2002. They are for 4 years with a 2 year vesting period and have been valued using the Black-Scholes method with a volatility of 74%.

Total remuneration of the executives of the Company for the year ended 30 June, 2005 is set out below. Information for individual executives is not shown as this is the first financial report prepared since the issue of AASB 1046 Director and Executive Disclosures by Disclosing Entities.

Service agreements

Remuneration and other terms of employment for the Managing Director, and specified executives are formalised in service agreements. Each of these agreements provide for the provision of a total package which can be taken in any form agreed by the Company and participation, when eligible, in the Anadis Executive Share Option Plan No. 1 (for directors) or the Anadis Limited Employee Share Option Plan (for executives). Other major provisions of the agreement relating to remuneration are set out below.

C Graham, Managing Directors & Chief Executive Officer

• Term of agreement ~ 3 years commencing 1 July, 2005
• · Base salary, inclusive of superannuation, for the year ending 30 June, 2006 of \$375,000, to be reviewed annually by the Board
• In the first three years there is no provision to terminate the agreement other than for breach of the agreement.

F Mears, Operations Manager

• · Term of agreement ~ 2 years commencing 1 January, 2004.
• Base salary, inclusive of superannuation, for the year ending 31 December, 2005 of \$160,000, to be reviewed annually by the Board
• * In the first two years there is no provision to terminate the agreement other than for breach of the agreement.

Note 28. Directors and executive disclosures (continued)

Service agreements (continued)

Dr. G Rawlin, General Manager - Research & Development

• Term of agreement 3 years commencing 1 January, 2005.
• Base salary, inclusive of superannuation, for the year ending 31 December, 2005 of \$225,000, to be reviewed annually by the Board
• In the first three years there is no provision to terminate the agreement other than for breach of the agreement.

S Skorobogaty, General Manager - Commercial

• · Term of agreement 3 years commencing 1 January, 2005.
• Base salary, inclusive of superannuation, for the year ending 31 December, 2005 of \$225,000, to be reviewed annually $\ddot{\phantom{a}}$ by the Board
• In the first three years there is no provision to terminate the agreement other than for breach of the agreement.

Share based compensation -- options

The terms and conditions of each grant of options affecting remuneration in this or future reporting periods are as follows:

Grant date	Expiry date	Exercise orice	Value per option at grant date	Date exercisable
-H November, 2003.	10 December, 2005	0.35	0.084	100% after 11 November, 2003.
H November, 2003	11 November, 2006	0.55	0.126	100% after 11 November, 2003.
14 November, 2003.	14 November, 2006	0.55	0.126	100% after 14 November, 2003.
31 May, 2002	31 May, 2006	0.50	0.144	100% after 31 May, 2004.

Options are granted to directors under the Anadis Executive Share Option Plan No. 1, which was approved by shareholders prior to listing in 1999. Options are granted to staff, at the discretion of the Board, under the Anadis Limited Employee Share Option Plan which was approved by directors on 14 May, 2002.

Options are granted under the Plans for no consideration. Options can be granted for up to a five year period with a vesting date set by the Board.

Options granted under the Plans carry no dividend or voting rights.

When exercisable, each option is convertible into one ordinary share.

All options are issued with an exercise price set considerably in excess of the market price at the time of grant.

Equity instrument disclosures relating to directors and executives.

Options provided as remuneration

Details of options over ordinary shares in the Company provided to each director and each of the executives are set out below. When exercisable, each option is convertible into one ordinary share in Anadis Limited. Further information on the options is set out in Note 17.

Name	Number of options granted during the year	Number of options vested during the year
Directors
P Molyneux	0	0
C Graham	0	Ô
P Jenkins	0	0
R Robins-Browne	0	0
R Zwolenski	0	O
Executives
F Mears	0	0
G Rawlin	0	0
S Skorobogaty	1.)	0

Note 28. Directors and executive disclosures (continued)

Option holdings

The number of options over ordinary shares in the Company held during the year by each director of the Company and each of the executives, including personally related entities, are set out below.

Name	Balance at the	Granted during	Exercised	Other changes	Balance at the	Vested and
	start of the	the year as	during the year	during the year	end of the vear	exercisable at the end of the
	vear	remuneration		(lapsed)
						vear

Directors

P Molyneux	350,000		350,000	350,000
C Graham	750.000		750,000	750,000
P Jenkins	250,000		250,000	250,000
R Robins-	250,000		250,000	250.000
Browne
R Zwolenski	250.000		250,000	250,000

Executives

200.000 200.000 200,000 G Rawlin 200.000 Skorobogatv 200.000 200,000	° Mears	200.000		200,000	200,000

No options are vested and unexercisable at the end of the year.

Share holdings

The number of shares over ordinary shares in the Company held during the year by each director of the Company and each of the executives, including personally related entities, are set out below.

Name	Balance at the start of the vear	Received during the vear on the exercise of the year options	Other changes during	Balance at the end of the vear
------	-------------------------------------	----------------------------------------------------------------------	----------------------	-----------------------------------

Directors

P Molyneux	250,000		250.000
C Graham	4,098,690		4,098,690
P Jenkins	4,090.000	35.000	4,055,000
R Robins-Browne	15.000		15.000
R Zwolenski

Executives

e Mears
27 M l se
C C $\sim$	"GO- נוטיג.		$\overline{\phantom{a}}$ 7,500

Leans to directors and executives.

There are no loans to any director or employee, including their personally related entities (2004 - nil).

Note 29. Impact of adopting Australian equivalents to IFRS

The Australian Accounting Standards Board (AASB) is adopting International Financial Reporting Standards (IFRS) for application to reporting periods beginning on or after 1 January 2005. The AASB has issued Australian equivalents to IFRS, and the Urgent Issues Group has issue interpretations corresponding to IASB interpretations originated by the International Financial Reporting Interpretations Committee or the former Standing Interpretations Committee. These Australian equivalents to IFRS are referred to hereafter as AIFRS. The adoption of AIFRS will be first reflected in the company's financial statements for the half-year ending 31 December 2005 and the year ending 30 June 2006.

Entities complying with AIFRS for the first time will be required to restate their comparative financial statements to amounts reflecting the application of AIFRS to that comparative period. Most adjustments required on transition to AIFRS will be made, retrospectively, against opening retained earnings as at 1 July 2004.

The Company Secretary has attended relevant training to assess the financial reporting implications of the above standards and a transition plan has been prepared for and approved by the Audit & Risk Committee to ensure the timely implementation of the new standards.

An analysis of all the AIFRS has identified the accounting policy changes that will be required. In some cased choices of accounting policies are available, including elective exemptions under Accounting Standard AASB 1 First-time Adoption of Australian Equivalents to International Financial Reporting Standards. These choices have been analysed to determine the most appropriate accounting policy for the Company.

The known or reliably estimated impacts on the financial report for the year ended 30 June, 2005 had it been prepared using AIFRS are set out below.

Although the adjustments disclosed in this note are based on management's best knowledge of the expected standards and interpretations, and current facts and circumstances, these may change. For example, amended or additional standards or interpretations may be issued by AASB and IASB. Therefore, until the Company prepares its first full AIFRS financial statements, the possibility cannot be excluded that the accompanying disclosures may have to be adjusted.

Major changes identified to date that will be required to the Company's existing accounting policies include the following: Intangible assets - goodwill

Under AASB 3 Business Combinations, amortisation of goodwill will be prohibited, and will be replaced by annual impairment testing focusing on the cash flows of the related cash generating unit.

This will result in a change to the current accounting policy, under which goodwill is amortised on a straight line basis over the period during which the benefits are expected to arise and not exceeding 20 years.

If the poticy required by AASB 3 had been applied during the year ended 30 June, 2005, goodwill at 30 June, 2005. would have been \$17,946 higher and amortisation expense for the year ended 30 June, 2005 would have been \$17.946 lower.

Equity-based compensation benefits.

Under AASB 2 Share-based Payment, from 1 July, 2004 the Company is required to recognise an expense for those options that were issued to employees under the Anadis Limited Employee Share Option Plan after 7 November, 2002 but that had not vested by 1 January, 2005. Options issued to contractors in lieu of fees will also need to be recognised as an expenses.

This will result in a change to the current accounting policy, under which no expense is recognised for equity-based compensation.

If the poticy required by AASB 2 had been applied during the year ended 30 June, 2005, retained losses at 30 June, 2005 would have increased by \$43,260, with a corresponding increase in the share-based payment reserve. For the year ended 30 June, 2005 employee benefits expense would have been \$23,260 higher and Contractors Expense \$20,000 higher with corresponding increases in the net movement in the share-based payment reserve.

Note 30. Events occurring after reporting date

Mr. Arie Nudel was appointed a director on 12 July, 2005. Refer to the Directors' Report (page 34) for details concerning Mr Nudel.

Anadis Limited Directors' Declaration

Directors' Declaration for the year ended 30 June, 2005.

In the directors' opinion:

• $(a)$ the financial statements and notes set out on pages 29 to 68 are in accordance with the Corporations Act 2001 including:
• (i) complying with Accounting Standards, the Corporations Regulations 2001 and other mandatory professional reporting requirements; and
• (ii) giving a true and fair view of the Company's financial position as at 30 June 2005 and of its performance, as represented by the results of its operations and its cash flows, for the financial year ended on that date; and
• there are reasonable grounds to believe that the Company will be able to pay its debts as and when $(b)$ they become due and payable.

The directors have been given the declarations by the chief executive officer and chief financial officer required by section 295A of the Corporations Act 2001.

This declaration is made in accordance with a resolution of the directors.

lly Ma

P MOLYNEUX Director

U
M

C GRAHAM Director

Melbourne 9 August 2005.

PRICEWATERHOUSE COPERS

Independent audit report to the members of Anadis Limited

PricewaterhouseCooners ABN 52 780 433 757

Freshwater Place 2 Southbank Bondevard SOUTHBANK VIC 3006 GPO Box 1331L MELBOURNE VIC 3001 DX 77 Website:www.pwc.com/au Telephone 61 3 8603 1000 Facsimile 61 3 8603 1999

Audit opinion

In our opinion, the financial report of Anadis Limited:

• gives a true and fair view, as required by the Corporations Act 2001 in Australia, of the financial position of Anadis Limited as at 30 June 2005, and of its performance for the year ended on that date, and
• is presented in accordance with the Corporations Act 2001, Accounting Standards and other mandatory financial reporting requirements in Australia, and the Corporations Regulations 2001.

This opinion must be read in conjunction with the rest of our audit report.

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 Anadis Limited (the company), for the year ended 30 June 2005.

The directors of the company are responsible for the preparation and true and fair presentation of the financial report in accordance with the Carporations 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 judgement, 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. For further explanation of an audit, visit our website http://www.pwc.com/au/financialstatementaudit.

PRICEWATERHOUSE COPERS

We performed procedures to assess whether in all material respects the financial report presents fairly, in accordance with the Corporations Act 2001, 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 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.

Our procedures include reading the other information in the Annual Report to determine whether it contains any material inconsistencies with the financial report.

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.

Our audit did not involve an analysis of the prudence of business decisions made by directors or management.

Independence

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

/recumbran topers

PricewaterhouseCoopers

/Sehko

Anton Linschoten Partner

Melbourne 9 August 2005

Anadis Limited Additional ASX Information For the year ended 30 June 2005

Additional information required by the Australian Stock Exchange not shown elsewhere in this report is as follows. The information was applicable at 31 August, 2005

a) Statement of shareholdings

Analysis of numbers of equity security holders by size of holding

	Class of equity security
	Shares	Options
$1 - 1.000$	80	0
$1.001 - 5.000$	502	0
$5,001 - 10,000$	396	0
10.001 - 100.000	815	6
100.001 and over	112	9
	1,905	١Š

There were 105 holders of less than a marketable parcel of ordinary shares.

b) Equity security holders

Twenty largest quoted equity security holders

The names of the twenty largest holders of quoted equity securities are listed below:

	Ordinary Shares
	Number held	Percentage of
		Issued Shares
Tatera Milk Industries Limited	F0,100,000	10.91
Paracroft Pty. Ltd	9,571,051	10.34
Westpac Custodian Nominees Limited	2,339,880	2.53
Mrs. Ese Behari	1,970,718	2.13
Equity Trustees Limited	1,614.219	1.74
Mr. Peter James Jenkins	E,400,000 -	1.51
Kobyboyn Pty, Limited	1,237.500	1.34
Paracroft Ptv, Ltd	1.200.000	1.30
Pepella Pty. Ltd.	1,153.163	1.25
Tartan Pines Pty. Ltd	1,000.000	1.08
Charmof Nominees Pty. Ltd	999.999	1.08
Drill Investments Ptv. Ltd.	932.000	1.01
S.C. Driver & J.L. Driver < SC. Driver Super Fund A/C>	878.395	0.95
First Guardian Capital Pty. Limited	716.767	0.77
Ginga Piv. Ltd.	710.802	0.77
National Nominees Limited	698.825	0.75
Mr. Richard Wilson Dawson	676.875	0.73
KPL Limited	656.000	0.71
Lander Custodians Pty. Ltd	644.277	0.70
HSBC Custody Nominees (Aust) Limited. - GSI ECSA	634.642	0.69
	39,135,113	42.29

c) Voting rights

All ordinary shares carry one vote per share without restriction.

Anadis Limited Additional ASX Information For the year ended 30 June 2005

d) Unquoted equity securities	Number on issue	Number of holders
Options issued to take up ordinary shares	3,400,000*	15
*Number of unissued ordinary shares under the options.
Holders of 20% or more of unquoted equity securities in the Company are set out below:
	Number held	Percentage
Options issued to take up ordinary shares Mr. Conor Graham	750,000	22.05
e) Substantial holders
Substantial holders in the Company are set out below:
	Number held	Percentage
Ordinary Shares
Anadis Group	11.095.121	11.99
Tatura Milk industries Limited	10.100.000	10.91

$74$

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$76$

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4 Capital Link Drive, Campbellfield 3061 Victoria Australia - www.anadis.com.au