Notice of Annual General Meeting and Explanatory Memorandum

Circadian Technologies Limited ACN 006 340 567

Date: 24 November 2011 Time: 11.00 am Location: Computershare Conference Centre Yarra Falls 452 Johnston Street Abbotsford, Melbourne, Victoria

Notice of Annual General Meetin g

Notice is given that the Annual General Meeting of the Shareholders of Circadian Technologies Limited ( Company ) will be held at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria on Thursday, 24 November 2011 at 11.00 am ( AGM ).

Ordinary Business

1. Financial statements and reports

To receive and consider:

(a) the financial report;
(b) the directors' report; and
(c) the auditor's report

of the Company for the year ended 30 June 2011.

2. Remuneration Report (Resolution 1)

To consider and, if thought fit, pass the following as a non-binding ordinary resolution:

'That the Remuneration Report as set out in the Annual Report for the financial year ended 30 June 2011 be adopted.'

3. Appointment of Auditor (Resolution 2)

To consider and, if thought fit, pass the following as an ordinary resolution:

'That, for the purpose of section 327B of the Corporations Act 2001 (Cth) ( Corporations Act ), Deloitte Touche Tohmatsu, having been nominated and consented in writing to act as the Company’s auditor, be appointed as auditor of the Company with effect from the passing of this resolution.'

4. Re-election of Ms Tina McMeckan as a director (Resolution 3)

To consider and, if thought fit, pass the following as an ordinary resolution:

'That Ms Tina McMeckan, a director retiring by rotation in accordance with clause 58 of the Company's constitution, and being eligible, be re-elected as a director of the Company.'

5. Other business

To transact any other business which may legally be brought before the meeting.

By order of the Board

24 October 2011

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Susan Madden Company Secretary

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Notes

Proxies

A Shareholder entitled to attend and vote at the meeting has a right to appoint a proxy to attend and vote in the Shareholder's place.
The proxy need not be a Shareholder of the Company.
The proxy form included in this Notice of AGM must be signed by the Shareholder or the Shareholder’s attorney and, in the case of a joint holding, by each of the joint holders.
A Shareholder who is entitled to cast two or more votes may appoint up to two proxies to attend and vote at the meeting and, in the case of such an appointment, should specify the proportion or number of votes each proxy is appointed to exercise. If no such proportion or number is specified, each proxy may exercise half of the votes. Fractions of votes will be disregarded.
Where a Shareholder appoints two proxies, on a show of hands neither proxy may vote if more than one proxy attends and on a poll each proxy may only exercise votes in respect of those shares or voting rights the proxy represents.
The appointment of one or more duly appointed proxies will not preclude a Shareholder from attending this meeting and voting personally. If the member votes on a resolution, the proxy must not vote as the member’s proxy on that resolution.
Any instrument appointing a proxy in which the name of the appointee is not completed is regarded as given in favour of the chairman of the meeting.
In the case of joint holders of shares, if more than one holder votes at any meeting, only the vote of the first named of the joint holders in the share register of the Company will be counted.
To be valid, the form appointing the proxy and the power of attorney or other authority (if any) under which it is signed (or a certified copy of it) must be lodged with the Share Registry - Computershare Investor Services Pty Limited at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria 3067, using the reply paid envelope supplied or by facsimile to 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia) as soon as possible and in any event not later than 48 hours prior to the time appointed for the meeting.
Proxies given by a corporation must be signed either under seal or under the hand of a duly authorised attorney. In addition, should the constitution of a corporation permit the execution of documents without using a common seal, the documents must be signed by two directors or a director and a company secretary, or for a proprietary company that has a sole director who is also a company secretary, that director.
If a body corporate is appointed as proxy, please write the full name of that body corporate (e.g. Company X Pty Ltd). Do not use abbreviations. The body corporate will need to ensure that it:
(a) appoints an individual as its corporate representative to exercise its powers at meetings, in accordance with section 250D of the Corporations Act; and
(b) provides satisfactory evidence of the appointment of its corporate representative prior to commencement of the meeting.

If no such evidence is received before the meeting, then the body corporate (through its representative) will not be permitted to act as your proxy.

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Body corporate representatives

A corporation, by resolution of its directors, may authorise a person to act as its representative to vote at the meeting.
A representative appointed by a corporation may be entitled to execute the same powers on behalf of the corporation as the corporation could exercise if it were an individual shareholder of the Company.
To evidence the authorisation, either a certificate of body corporate representative executed by the corporation or under the hand of its attorney or an equivalent document evidencing the appointment will be required.
The certificate or equivalent document must be produced prior to the meeting.

Undirected proxies

The chairman of the meeting will vote undirected proxies in favour of all resolutions on the agenda for the meeting. The Company recommends that Shareholders who submit proxies should consider giving 'how to vote' directions to their proxyholder on each resolution.

If you complete a proxy form that authorises the chairman of the meeting to vote on your behalf as proxyholder, and you do not mark any of the boxes so as to give her directions about how your vote should be cast, then your proxy will automatically become a directed proxy in favour of the resolution to adopt the Remuneration Report for the year ended 30 June 2011, and the chairman of the meeting will vote accordingly. If you wish to appoint the chairman of the meeting as your proxyholder but you do not want to put her in the position to cast your votes in favour of the Remuneration Report for the year ended 30 June 2011, you should complete the appropriate box on the proxy form, directing her to vote against or abstain from voting on the resolution.

Definitions

Words that are defined in the Glossary have the same meaning when used in this Notice of AGM unless the context requires, or the definitions in the Glossary provide, otherwise.

Recent Amendments

Amendments to the Corporations Act have been made recently and apply to proxy voting on or after 1 August 2011 (whether or not the proxy was appointed before, on or after that date). Shareholders and their proxies should be aware of these changes to the Corporations Act as they will apply to this meeting. Broadly, the changes mean that:

if proxy holders vote, they must cast all directed proxies as directed (this requirement has been strengthened); and
any directed proxies which are not voted will automatically default to the chairman of the meeting, who must vote the proxies as directed.

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More detail on these changes is provided below.

Proxy vote if appointment specifies way to vote

The new section 250BB provides that an appointment of a proxy may specify the way the proxy is to vote on a particular resolution and, if it does:

the proxy need not vote on a show of hands, but if the proxy does so, the proxy must vote that way;
if the proxy has two or more appointments that specify different ways to vote on the resolution – the proxy must not vote on a show of hands;
if the proxy is the chairman of the meeting at which the resolution is voted on – the proxy must vote on a poll, and must vote that way (i.e. as directed); and
if the proxy is not the chairman of the meeting – the proxy need not vote on the poll, but if the proxy does so, the proxy must vote that way (i.e. as directed).

Transfer of non-chair proxy to chair in certain circumstances

The new section 250BC provides that, if

an appointment of a proxy specifies the way the proxy is to vote on a particular resolution at a meeting of the company's members; and
the appointed proxy is not the chairman of the meeting; and
at the meeting, a poll is duly demanded on the resolution; and
either of the following applies:
(a) the proxy is not recorded as attending the meeting; or
(b) the proxy does not vote on the resolution,

the chairman of the meeting is taken, before voting on the resolution closes, to have been appointed as the proxy for the purposes of voting on the resolution at that meeting.

Voting entitlements

In accordance with section 1074E(2)(g) of the Corporations Act and regulation 7.11.37 of the Corporations Regulations 2001 (Cth) for the purposes of the meeting, persons holding shares at 7.00 pm (Melbourne time) on 22 November 2011 will be treated as Shareholders. This means that if you are not the registered holder of a relevant Share at that time you will not be entitled to attend and vote in respect of that Share at the meeting.

Voting Exclusion Statements

Resolution 1:

Pursuant to section 250R of the Corporations Act, the Company will disregard all votes cast on Resolution 1, by or on behalf of:

(a) a member of the key management personnel ( KMP ), details of whose remuneration are included in the Remuneration Report for the year ended 30 June 2011; or
(b) a closely related party of a KMP;

whether the votes are cast as a shareholder, proxy or in any other capacity.

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However, the Company will not disregard a vote cast on Resolution 1 by a KMP or a closely related party of a KMP if:

(a) it is cast as a proxy;
(b) the proxy is appointed by writing that specifies how the proxy is to vote on the resolution proposed in Resolution 1; and
(c) it is not cast on behalf of a KMP or a closely related party of a KMP.

If you are a KMP or a closely related party of a KMP (or are acting on behalf of any such person) and purport to cast a vote that will be disregarded by the Company (as indicated above), you may be liable for an offence for breach of voting restrictions that apply to you under the Corporations Act.

Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Company, whether directly or indirectly. Members of key management personnel include its directors and certain senior executives.

A closely related party of a member of the key management personnel means any of the following:

a spouse, child or dependent of the member;
a child or dependent of the member's spouse;
anyone else who is one of the member's family and may be expected to influence, or be influenced by, the member in the member's dealings with the Company;
a company the member controls; or
a person prescribed by regulations (as at the date of this Notice of AGM, no additional persons have been prescribed by regulation).

The proxy form accompanying this Notice of AGM contains detailed instructions regarding how to complete the proxy form if a Shareholder wishes to appoint the chairman of the meeting as his or her proxy. You should read those instructions carefully.

Questions and comments by Shareholders at the meeting

In accordance with the Corporations Act, a reasonable opportunity will be given to Shareholders - as a whole - to ask questions about or to make comments on the Company's management or its Remuneration Report for the year ended 30 June 2011 at the meeting. Similarly, a reasonable opportunity will be given to Shareholders - as a whole - to ask the Company's auditor, Ernst & Young, questions about:

the conduct of the audit;
the preparation and content of the auditor’s report;
the accounting policies adopted by the Company in relation to the preparation of its financial statements; and
the independence of the auditor in relation to the conduct of the audit.

Shareholders may also provide written questions to the auditor concerning the content of the auditor's report or the conduct of the audit of the Company's financial report for the financial year ended 30 June 2011 in advance of the meeting. Written questions must be submitted to the Company no later than 5.00pm on Thursday 17 November 2011, and should be addressed as follows:

The Company Secretary Circadian Technologies Limited Level 1, 10 Wallace Avenue Toorak VIC 3142

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Ex lanator Memorandum p y

1. Purpose of information

The purpose of this Explanatory Memorandum (which is included in and forms part of the Notice of AGM dated 24 October 2011) is to provide Shareholders with an explanation of the business of the meeting and of the resolutions to be proposed and considered at the AGM to be held on 24 November 2011, at 11.00 am at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria, and to assist Shareholders to determine how they wish to vote on each resolution.

2. Financial statements and reports

Pursuant to the Corporations Act, the directors of a public company that is required to hold an annual general meeting must table the financial statements and reports of the Company (including the directors' report and auditor's report) for the previous year before the shareholders at the annual general meeting.

Shareholders have been provided with all relevant information concerning the Company's financial statements, directors' report and auditor's report in the Annual Report of the Company for the year ended 30 June 2011 ( Annual Report ). A copy of the Annual Report has been forwarded to each Shareholder other than those Shareholders who have previously notified the Company that they elect not to receive the Annual Report, whether in paper form or electronically. Any Shareholder who had made this election and now wishes to receive a paper or electronic copy of the Annual Report should contact the Company's office by phone on +61 3 9826 0399 to arrange receipt. The Annual Report can also be viewed, printed and downloaded from the Company's website www.circadian.com.au. A copy of the financial statements, the directors' report and the auditor's report will also be tabled at the meeting.

Shareholders should note that the sole purpose of tabling the financial statements and the reports of the Company at the AGM is to provide the Shareholders with the opportunity to be able to ask questions or discuss matters arising from the financial statements or the reports at the meeting. It is not the purpose of the meeting that the financial statements or reports be accepted, rejected or modified in any way. Further, as it is not required by the Corporations Act, no resolution to adopt, receive or consider the Company's financial statements or reports (other than the Remuneration Report for the year ended 30 June 2011 ( Remuneration Report )) will be put to the Shareholders at the meeting.

Shareholders will be given a reasonable opportunity at the meeting to ask questions and make comments on the financial statements and the reports. The Company's auditor will be available to receive questions and comments from Shareholders about the preparation and content of the auditor's report and conduct of the audit.

3. Remuneration Report (Resolution 1)

The directors' report for the year ended 30 June 2011 contains the Remuneration Report, which sets out the policy for remuneration of the Directors, company secretary and senior managers.

The Corporations Act requires that a resolution be put to the vote that the Remuneration Report be adopted.

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The purpose of Resolution 1 is to lay before the Shareholders, the Remuneration Report so that Shareholders may ask questions about or make comments on the management of the Company in accordance with the requirements of the Corporations Act and vote on a non-binding resolution to adopt the Remuneration Report.

The Board will consider the outcome of the vote made by Shareholders on the Remuneration Report at the meeting when reviewing the Company’s remuneration policies.

The full Remuneration Report is included in the Annual Report which is available on the Company's website www.circadian.com.au.

The vote on the resolution for adoption of the Remuneration Report is advisory only and does not bind the Directors or the Company. However, under recent changes to the Corporations Act, if at least 25% of the votes cast on the resolution at the AGM are against adoption of the Remuneration Report, then:

if comments are made on the Remuneration Report at the AGM, the Company's remuneration report for the financial year ending 30 June 2012 will be required to include an explanation of the Board's proposed action in response or, if no action is proposed, the Board's reasons for this; and
if, at the Company's 2012 annual general meeting, at least 25% of the votes cast on the resolution for adoption of the remuneration report for the relevant financial year are against its adoption, the Company will be required to put to Shareholders a resolution proposing that a general meeting ( Spill Meeting ) be called to consider the election of Directors ( Spill Resolution ). The Spill Meeting must be held within 90 days of the date of the 2012 annual general meeting. For any Spill Resolution to be passed, more than 50% of the votes cast on the resolution must be in favour of it. If a Spill Resolution is passed, all of the Directors (other than any managing director) will cease to hold office immediately before the end of the Spill Meeting unless re-elected at that meeting.

The Company encourages all shareholders to cast their votes on Resolution 1.

The chairman of the meeting will vote all undirected proxies in favour of this resolution. If you wish to vote “against” or “abstain” you should mark the relevant box in the attached proxy form.

Directors' Recommendation

The Remuneration Report forms part of the Annual Report which has unanimously been adopted by resolution of the Board. The Directors have resolved in favour of the resolution and recommend it to Shareholders for adoption.

4. Appointment of Auditor (Resolution 2)

Ernst & Young has been the Company's auditor since June 2002. Since that time, Ernst & Young has conducted the audit in a professional and competent manner.

The Board, having regard to appropriate corporate governance practices, determined to put the audit of the Company to tender and invited a number of firms, including Ernst & Young, to tender for the audit of the Company.

Following completion of the tender process, the Board has proposed that Deloitte Touche Tohmatsu ( Deloitte ) be appointed as auditor of the Company.

The Board understands that Ernst & Young has given notice to the Australian Securities and Investments Commission ( ASIC ) of its intention to resign as auditor of the Company and upon receipt of the consent of ASIC, will resign as auditor of the Company in accordance with section 329(5) of the Corporations Act. The Company anticipates that ASIC's consent will be received prior to the date of the meeting.

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The Board takes this opportunity to thank Ernst & Young for all of its efforts as auditor of the Company over many years.

In accordance with section 328B(1) of the Corporations Act, the Company has received written notice of the nomination of Deloitte for appointment as auditor.

In accordance with section 328A(1) of the Corporations Act, Deloitte has provided the Company with written notification of its consent to act as auditor for the Company.

The Board has therefore determined to seek shareholder approval to appoint Deloitte as auditors of the Company.

Directors' Recommendation

The Directors unanimously recommend that Shareholders vote in favour of Resolution 2.

The chairman of the meeting intends to vote undirected proxies in favour of the appointment of Deloitte as auditor.

5. Re-election of Ms Tina McMeckan as director (Resolution 3)

Introduction

Clause 58 of the Company's constitution requires that at each AGM one-third of the Directors must retire from office, or if their number is not a multiple of three, then the number nearest to, but not exceeding one-third of the Directors must retire from office. Therefore, two of the six Directors must retire by rotation. Ms Tina McMeckan and Dr Jonathan Skipper are the Directors who have been longest in office. Therefore, Ms Tina McMeckan and Dr Jonathan Skipper must retire by rotation at the AGM and are eligible for re-election. Ms Tina McMeckan seeks re-appointment as a Director. Dr Jonathan Skipper has decided not to stand for re-election.

Biography of Ms Tina McMeckan

Tina McMeckan was appointed a non-executive director of the Company in January 2008 and is Chairman of the Audit and Risk Committee. Her specific skills are in the commercialisation of science and technology and the energy sector. Ms McMeckan is presently Chairman of the Centre for Eye Research Australia and a Director of CRC for Spatial Information, SP AusNet Limited, Global Carbon Capture and Storage Institute and Metlink Pty Ltd. She is a past member of the Funds Management Committee of the AusIndustry Research and Development Board and has held senior investment management positions with the Australian Industry Development Corporation and Amrad Corporation Ltd (acquired by CSL Limited) focusing on capital raisings for innovation-based ventures. She also has extensive board expertise in public and private utility infrastructure, including power production, networks and retailing business in the gas and electricity industries. She was formerly the Chairman of NanoVentures Australia Ltd and a member of the National Board of Norton Rose law firm. Her other appointments as a director have included United Energy, Snowy Hydro Trading, the Westar and Kinetik Energy Group, Victorian Power Exchange, Vision Cooperative Research Centre, Solaris Power and the formerly listed company Alinta Limited (October 2003 to August 2007).

Directors' Recommendation

The Directors (other than Ms McMeckan who abstains given her personal interest in this resolution) unanimously recommend that Shareholders vote in favour of Resolution 3.

The chairman of the meeting intends to vote undirected proxies in favour of the election of Ms McMeckan.

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6. How to Vote

To vote on the Resolutions to be put to the AGM follow these steps:

EITHER 1. Complete and return the proxy form so that it is received by Computershare Investor Services Pty Limited, at Yarra Falls, 452 Johnston Street, Abbotsford, Victoria, 3067 (hand delivery) or at GPO Box 242, Melbourne, Victoria, 3001 (postal delivery) or on facsimile number 1800 783 447 (within Australia) or +61 3 9473 2555 (outside Australia), as soon as possible and in any event, not later than 48 hours prior to the time appointed for the AGM.

OR 2. Attend the AGM.

The sending of a proxy form will not prevent you from attending and voting at the AGM.

7. Glossary

AGM or Meeting means the annual general meeting of the Shareholders convened by the Notice of AGM to be held at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria on Thursday, 24 November 2010 at 11.00 am.

Annual Report means the annual report of the Company for the year ended 30 June 2011.

ASIC means Australian Securities and Investments Commission.

Board means the Board of Directors.

Closely Related Party means, in relation to a member of a KMP, any of the following:

a spouse, child or dependent of the member;
a child or dependant of the member's spouse;
anyone else who is one of the member's family and may be expected to influence, or be influenced by, the member in the member's dealings with the Company;
a company the member controls; or
a person prescribed by regulations (as at the date of this Notice of AGM, no additional persons have been prescribed by regulation).

Company means Circadian Technologies Limited ACN 006 340 567.

Corporations Act means Corporations Act 2001 (Cth).

Directors means the directors of the Company and Director means any of them.

Glossary means this glossary.

KMP means those persons having authority and responsibility for planning, directing and controlling the activities of the Company, whether directly or indirectly. Members of key management personnel include its directors and certain senior executives.

Notice of AGM means this Notice of Annual General Meeting.

Resolution means a resolution set out in the Notice of AGM.

Share means a fully paid ordinary share of the Company.

Shareholder means a holder of at least one Share.

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This Explanatory Memorandum is dated 24 October 2011.

If you have any questions about the AGM, the Resolutions to be put to the AGM or the proposals being considered, please contact the Company Secretary on 03 9826 0399.

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ABN 32 006 340 567

Circadian Technologies Ltd

Lodge your vote:



By Mail:

Computershare Investor Services Pty Limited GPO Box 242 Melbourne Victoria 3001 Australia

Alternatively you can fax your form to (within Australia) 1800 783 447 (outside Australia) +61 3 9473 2555

For Intermediary Online subscribers only (custodians) www.intermediaryonline.com

For all enquiries call:

(within Australia) 1300 850 505 (outside Australia) +61 3 9415 4000

Proxy Form

 For your vote to be effective it must be received by 11.00 am (AEDT) Tuesday, 22 November 2011

How to Vote on Items of Business

All your securities will be voted in accordance with your directions.

Appointment of Proxy

Voting 100% of your holding: Direct your proxy how to vote by marking one of the boxes opposite each item of business. If you do not mark a box your proxy may vote as they choose. If you mark more than one box on an item your vote will be invalid on that item.

Voting a portion of your holding: Indicate a portion of your voting rights by inserting the percentage or number of securities you wish to vote in the For, Against or Abstain box or boxes. The sum of the votes cast must not exceed your voting entitlement or 100%.

Appointing a second proxy: You are entitled to appoint up to two proxies to attend the meeting and vote on a poll. If you appoint two proxies you must specify the percentage of votes or number of securities for each proxy, otherwise each proxy may exercise half of the votes. When appointing a second proxy write both names and the percentage of votes or number of securities for each in Step 1 overleaf.

A proxy need not be a securityholder of the Company.

Signing Instructions

Individual: Where the holding is in one name, the securityholder must sign.

Joint Holding: Where the holding is in more than one name, all of the securityholders should sign.

Power of Attorney: If you have not already lodged the Power of Attorney with the registry, please attach a certified photocopy of the Power of Attorney to this form when you return it.

Companies: Where the company has a Sole Director who is also the Sole Company Secretary, this form must be signed by that person. If the company (pursuant to section 204A of the Corporations Act 2001) does not have a Company Secretary, a Sole Director can also sign alone. Otherwise this form must be signed by a Director jointly with either another Director or a Company Secretary. Please sign in the appropriate place to indicate the office held. Delete titles as applicable.

Attending the Meeting

Bring this form to assist registration. If a representative of a corporate securityholder or proxy is to attend the meeting you will need to provide the appropriate “Certificate of Appointment of Corporate Representative” prior to admission. A form of the certificate may be obtained from Computershare or online at www.investorcentre.com under the information tab, "Downloadable Forms".

Comments & Questions: If you have any comments or questions for the company, please write them on a separate sheet of paper and return with this form.

 Turn over to complete the form

 www.investorcentre.com

View your securityholder information, 24 hours a day, 7 days a week:

Review your securityholding

Update your securityholding

Your secure access information is:

SRN/HIN:

 PLEASE NOTE: For security reasons it is important that you keep your SRN/HIN confidential.

916CR_0_Sample_Proxy/000001/000001/i

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Change of address. If incorrect, mark this box and make the correction in the space to the left. Securityholders sponsored by a broker (reference number commences with ’ X ’) should advise your broker of any changes.

Proxy Form

Please mark to indicate your directions

Appoint a Proxy to Vote on Your Behalf

I/We being a member/s of Circadian Technologies Limited hereby appoint

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the Chairman of the Meeting

OR

 PLEASE NOTE: Leave this box blank if you have selected the Chairman of the Meeting. Do not insert your own name(s).

or failing the individual or body corporate named, or if no individual or body corporate is named, the Chairman of the Meeting, as my/our proxy to act generally at the meeting on my/our behalf and to vote in accordance with the following directions (or if no directions have been given, as the proxy sees fit) at the Annual General Meeting of Circadian Technologies Limited to be held at Computershare Conference Centre, Yarra Falls, 452 Johnston Street, Abbotsford, Melbourne, Victoria on Thursday, 24 November 2011 at 11.00 am (AEDT) and at any adjournment of that meeting.

Important for Resolution 1

If the Chairman of the Meeting is your proxy or is appointed as your proxy by default and you do not mark any of the 'For', 'Against' or 'Abstain' boxes in Step 2 below on Resolution 1, you are directing the Chairman of the Meeting to vote in favour of Resolution 1 even though Resolution 1 is connected directly or indirectly with the remuneration of a member of the key management personnel.

Note: If you do not wish to give the Chairman of the Meeting such a directed proxy, you should ensure that a box other than the 'For' box is clearly marked in Step 2 below .

 PLEASE NOTE: If you mark the Abstain box for an item, you are directing your proxy not to vote on your Items of Business behalf on a show of hands or a poll and your votes will not be counted in computing the required majority.

ORDINARY BUSINESS

Resolution 1 Remuneration Report Resolution 2 Appointment of Auditor Resolution 3 Re-election of Ms Tina McMeckan as a director

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The Chairman of the Meeting intends to vote all undirected proxies in favour of each item of business.

SIGN

Signature of Securityholder(s) This section must be completed.

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Individual or Securityholder 1 Securityholder 2 Securityholder 3
Sole Director and Sole Company Secretary Director Director/Company Secretary
Contact
Contact Daytime / /
Name Telephone Date
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C I R

1 3 4 1 9 5 A

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2011 annual report

2011 circadian annual report A

Milestones

We have achieved all of our milestones set in the past 18 months, including:

› demonstration of efficacy of VGX-100 in inhibiting tumour growth and spread in a range of animal tumour-growth models
› demonstration of the clinical relevance of VeGF-c in avastin[®] resistance
› demonstration of efficacy of VGX-100 in animal models of front-of-the-eye disease
› completed cGMp manufacturing and scale-up of VGX-100 to enable clinical-trial supplies of the drug
› completed ind-enabling preclinical studies with VGX-100, and remain on track for ind filing and clinical trial commencement before the end of 2011
- › launched our first product in the united States, being the VeGF-d diagnostic test for laM

We have

B 2011 circadian annual report

Planning

We are focused on a 3–5 year strategy:

› to have commenced clinical trials in oncology by the end of 2011

› to have demonstrated the safety of combinations of VGX-100 with other cancer drugs in 2012

› to have commenced phase ii clinical trials in oncology by early 2013

› to have commenced clinical trials in eye disease by early 2013

leadershiP

our leadership team has:

› held a pre-ind meeting with the Fda with respect to VGX-100

› successfully resolved the ark therapeutics arbitration proceedings

› identified and developed a business plan for the ongoing development of VGX-100 in additional indications in front-of-the-eye disease

› to have VeGF-c and VeGF-d blood-based diagnostics commercially available in 2012

› to have the cup molecular diagnostic test available in major markets from 2012

› to have clinical proof of principle of the efficacy of VGX-100 in the treatment of glioblastoma by 2014

technology

We have an extremely well protected technology platform:

› we secured additional ip to VeGF-d via an exclusive licence with chugai pharmaceutical co.

› we were granted major patents in the united States and europe covering the use of biological inhibitors to VeGF-c, VeGF-d and/or VeGFr-3 in the treatment of cancer and eye disease, which apply until 2023

› we secured additional ip from the university of cincinnati relating to VeGF-d’s role in the diagnosis of laM

› we secured additional ip from Schepens eye research institute at Harvard university relating to the use of VeGFr-3-pathway inhibition in the treatment of front-of-the-eye disease

InsIde thIs report

We know 2 We strive 4 operations report 8 Management team 16 Board of directors 18 directors’ report 20 Corporate Governance statement 31 Financial report 38

Auditor’s Independence declaration 39 Consolidated statement of Financial position 40 Consolidated statement of Comprehensive Income 41 Consolidated statement of Changes in equity 42 Consolidated statement of Cash Flows 44 notes to the Consolidated Financial statements 45

directors’ declaration 83

Independent Auditor’s report 84 AsX Additional Information 86 2011 circadian annual reportCorporate Information 881

We know

2 2011 circadian annual report

“ there is widespread understanding that we are going to need to learn how to combine two or more targeted therapies to block the main road and the side road and the dirt road.”

ASCO Chief Executive, Dr Allen Lichter – ASCO Annual Meeting, June 2011

the introduction of targeted therapies has had a major impact on the treatment of solid tumours over the past 10 years. However, despite these advances, resistance to therapies invariably emerges when the tumour is able to find a new road to growth by turning on other growth pathways.

as such, there is a critical need to develop strategies that target alternate pathways and increase the efficacy of existing therapies, thereby prolonging patient response.

therapy with combinations of targeted agents, with or without concurrent chemotherapy, may overcome the resistance that develops following single-agent therapy. combined therapy could be initiated prior to, or following the emergence of resistant disease.

2011 circadian annual report 3

We strive

We are focused on developing therapeutic and diagnostic products which could improve the treatment of three major cancers.

4 2011 circadian annual report

GlioblaStoMa

Glioblastoma multiforme (GbM) is the most common and most aggressive malignant primary brain tumour in humans.

each year, more than 14,000 new cases are diagnosed in the united States. the median age of patients at the time of diagnosis is 64 years in the case of glioblastomas.[1,2]

only modest advancements in the treatment of glioblastoma have occurred in the past 25 years.

Without therapy, patients with glioblastoma multiformes uniformly die within three months. patients treated with optimal therapy, including surgical resection, radiation therapy and chemotherapy, have a median survival of approximately 12 months, with fewer than 25% of patients surviving up to two years and fewer than 10% of patients surviving up to five years.[3]

the annual incidence of malignant gliomas is approximately cases per 100,000 people. 5

Glioblastomas account for approximately

– 60 70%

of malignant gliomas.

1 ohgaki H. epidemiology of brain tumours Methods Mol Biol . 2009;472:323–42.
2 Wen pY, Kesari S. Malignant gliomas in adults. N Engl J Med. 2008 Jul 31;359(5):492–507.
3 http://emedicine.medscape.com/article/283252-overview#a0101. Glioblastoma Multiforme. author: Jeffrey n bruce, Md; chief editor: Jules e Harris, Md.

2011 circadian annual report

In 2007, there were 4047 ,

In Australia,[3] colorectal cancer is the 2nd

most common cancer in both men and women.

deaths from colorectal cancer.

MetaStatic colorectal cancer

colorectal cancer is the fourth most common cancer in men and the third most common cancer in women worldwide.[1] in all countries other than the united States, the incidence of colorectal cancer is increasing, which may be due to obesity, physical inactivity, smoking, heavy alcohol consumption, a diet high in red or processed meats, and inadequate consumption of fruits and vegetables. these factors are also associated with economic development or westernisation.

data published by the national cancer institute[2] estimates that in 2011 in the united States, there will 140,210 new cases of colorectal cancer and 49,380 deaths.

there are more than 14,000 new cases each year. the risk of being diagnosed by age 85 is 1 in 10 for men and 1 in 14 for women.

1 center MM et al. international trends in colorectal cancer incidence rates. Cancer Epidemiol Biomarkers Prev. 2009;18(6):1688–94. 2. umar a, Greenwald p. alarming colorectal cancer incidence trends: a case for early detection and prevention. Cancer Epidemiol Biomarkers Prev. 2009;18(6):1672–73.

2 national cancer institute website: www.cancer.gov

3 cancer council australia website: www.cancer.org.au

6 2011 circadian annual report

cancerS oF unKnoWn priMarY oriGin

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in spite of the increasing sophistication in the diagnostic workup for malignancies, detailed investigations fail to reveal a primary site of origin for a subset of patients with metastatic cancer. this is often referred to as carcinoma of unknown primary (cup) origin or occult primary malignancy. usually, when cancer spreads the secondary cancer cells look like abnormal versions of the primary cancer cells (in the tissue where the cancer began). For example, if breast cancer spreads to the lungs, the metastatic tumour in the lung is made up of cancerous

breast cells (not lung cells) and is then described as metastatic breast cancer (not lung cancer). if it is not possible to identify the type of cancer cells, the diagnosis is cup.

the inability to identify a primary site of cancer poses many challenges. the primary site of cancer usually dictates the treatment, expected outcome and overall prognosis. the diagnosis of carcinoma of unknown primary thus generates anxiety among patients and caregivers, who may feel that the evaluation has been incomplete.

CUp is the 9th

most common cancer in men and the seventh most common in women.

there are around 2 897 , new cases of CUp each year in Australia.

2011 circadian annual report 7

review by robert Klupacs Managing director and chief executive officer

operations report

8 2011 circadian annual report

developing novel antibody therapeutics for cancer and eye disease

total operatinG coStS

RESEARCH & DEVELOPMENT 68% PATENTS 5% ADMINISTRATIVE 22% OTHER 05%

caSH and eXpenditure As of 30 June

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$ Million
2009 2010 2011
9.4
8.4
7.7
6.6
6.0 6.2
3.4
3.1
2.7
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CASH USED IN OPERATING ACTIVITIES
R&D EXPENDITURE
ADMINISTRATIVE EXPENDITURE
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dear Shareholders

We are delighted to report to you on your company’s progress in executing the strategy to commercially develop the extensive intellectual property (ip) platform we own in respect of VeGF-c, VeGF-d and VeGFr-3 as therapeutic and diagnostic products in cancer and eye disease. in the year under review, we achieved the following significant milestones:

› completion of ind enabling studies for VGX-100 in the oncology setting. We plan to commence phase i studies before the end of 2011;
› our first therapeutic product candidate (iMc-3c5, a human antibody to VeGFr-3) being developed by our licensee imclone Systems inc entered into phase i clinical trials;
› our first clinical diagnostic product, a VeGF-d diagnostic test to diagnose patients with the debilitating lung disease lymphangioleiomyomatosis (laM), was launched in the united States through our partner cincinnati children’s Hospital Medical centre;
› we successfully resolved the arbitration proceedings with ark therapeutics limited relating to that company’s ongoing development of VeGF-d gene therapy products’ which will result in improved licensing terms to us in the future;
› we achieved the grant of very important patents in the united States and europe covering the use of any of our lead therapeutic product candidates or similar products of third parties to treat cancer or eye disease, which extended patent coverage to September 2023, as well as additional patents in the united States covering VeGF-d diagnostics;
› we considerably strengthened our dominant ip position in respect of VeGF-d and VeGF-d antibodies through the receipt of a worldwide exclusive licence to VeGF-d ip owned by the largest biotechnology company in Japan – chugai pharmaceutical co;
› in collaboration with the Schepens eye research institute at Harvard university, we identified that the VeGF-c/VeGFr-3 pathway is a major mediator of inflammatory disease in the cornea and that VGX-100 could become a major new therapeutic in the treatment of front-ofthe-eye diseases;
› we outlined in detail our clinical development strategy and projected timelines to develop VGX-100 in combination with existing standard of care chemotherapy regimens in patients with glioblastoma (brain cancers) and colorectal cancers; and
› announced our strategy to develop VGX-100 as an agent to treat various corneal (front-of-the-eye) diseases.

the key components of the company’s strategy are as follows:

› advancing our drug-development pipeline to show significant clinical efficacy in appropriately designed human clinical trials;
› continuing the extension and enforcement of our core intellectual property position covering VeGF technology to both protect our ongoing development activity as well as generate increasing revenues through licensing partnerships; and
› continuing to build partnerships for the commercialisation and ongoing development of our therapeutic and diagnostic products.

We have had significant advancement in each of these areas.

We are pleased to summarise our activities here and to share with you our future objectives.

2011 circadian annual report 9

our Product PiPeline

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diScoVerY reSearcH pre-clinical clinical late StaGe on MarKet indication
pHaSe deVelopMent pHaSe 1 clinical
Validation
tHerapeuticS
VEGFR-3 Abs (imclone – licensee) solId tUMoUrs
solId tUMoUrs
VGX-100 (VeGF-c mab) & eye dIseAses
solId tUMoUrs &
VGX-200 sERiEs (VeGf-d mAbs) respIrAtory dIseAses
VGX-300 (VeGfr-3 receptor) solId tUMoUrs
diaGnoSticS
VEGF-D DiAGnostics respIrAtory dIseAses
cAncERs oF Unknown PRimARiEs DiAGnostic tEst (Healthscope – licensee) CUp dIAGnostIC
VEGF-c DiAGnostics onColoGy
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note: programs being conducted by partners are fully funded by them.

AdVAncinG our Product PiPeline

Advancement of the VGX-100 (VeGF-C antibody) program in oncology and front-of-the-eye disease.

oncology

our short-term goal is to file an ind with the Fda and subsequently commence phase i clinical trials in cancer patients in the fourth quarter of 2011.

We have made extensive progress in this regard and remain on target to achieve this goal.

in June 2011, we announced the completion of a significant array of pre-clinical studies with VGX-100. in particular that we had:

› successfully completed the cGMp manufacture of VGX-100 for use in phase i and phase ii clinical trials;
› successfully completed Glp toxicology studies in two animal species in accordance with Fda guidelines (showing VGX-100 to be well tolerated at doses in excess of expected human clinical doses); and

› a positive pre-ind meeting with the Fda in respect of our proposed early clinical development plans in cancer patients.

We also announced, in June 2011, that we intended to commence clinical trials with VGX-100 in cancer patients at sites in the united States before the end of 2011 under an ind filed with the Fda and that our goal was to initiate phase ii studies in colorectal cancer and glioblastoma patients by the first half of 2013.

While proof of principal in phase ii studies is recognised as a major value adding event for any drug-development company, given the wide acceptance of VeGF-c as a major drug target, clinical data showing that a combination of VGX-100 with other anti-angiogenic or chemotherapy agents is safe and well tolerated will be a major milestone for ongoing development. We expect this data to be available in the second half of 2012.

We also continued to generate promising scientific data with VGX-100 in cancer models.

in april 2011, we presented new and additional data at the american association for cancer research annual meeting in respect of VGX-100’s effects in mouse models of cancer, demonstrating that VGX-100 significantly inhibited tumour growth in a variety of different animal models (tumour xenografts) of human cancer.

Highlights of the data included the following findings:

› addition of VGX-100 to bevacizumab (avastin[®] ) + docetaxel (a chemotherapy agent) therapy reduced tumour burden in prostate, ovarian and lung cancer models;
› in an orthotopic mouse model of human prostate cancer (a model in which tumours are inoculated directly into the prostate), single-agent VGX-100 significantly inhibited primary tumour growth by 59% compared to a control antibody; and
› in the same othotopic model of human prostate cancer, single agent VGX-100 significantly reduced the incidence of metastasis (tumour spread) to local lymph nodes by 55%.

10 2011 circadian annual report

“VGX-100 has significant effects in ameliorating rejection of corneal grafts as well as inhibiting the growth of blood and lymphatic vessels into the cornea following injury in animal model.”

We are continuing to undertake additional studies to evaluate VGX-100 in a range of different tumour types in rodent cancer models.

in June 2011, at the annual meeting of the american Society of clinical oncology, we announced the publication of data arising from a collaboration with clinical scientists at the Md anderson cancer center in texas, united States, which showed that VeGF-c and VeGF-d could be predictive biomarkers for identifying avastin[®] resistance in cancer patients.

resistance to avastin[®] is a frequent occurrence in the treatment of certain cancers, with resulting loss of response and disease progression. the study showed that increases in VeGF family markers in patients with metastatic colorectal cancer are associated with avastin[®] resistance. in particular, VeGF-c increases were seen in patients prior to and at the time as disease progression while receiving avastin[®] and chemotherapy.

the findings support our strategy for combining our VeGF-c antibody (VGX-100) with avastin[®] to seek better outcomes for patients. the data also provide further rationale for the development of VeGF-c and/or VeGF-d based biomarker tests to monitor cancer therapy. the diagnostic applications of VeGF-c and/or VeGF-d in oncology constitute a significant new product opportunity for us.

Front-of-the-eye disease

We have previously announced that we have an ongoing collaboration with scientists at the prestigious Schepens eye research institute at Harvard university evaluating VGX-100 in a range of corneal (front-of-theeye) disease models. the Schepens scientists have previously identified the key role of the VeGF-c/d/VeGFr-3 axis in mediating corneal inflammation and avascularity.

our collaborators have subsequently shown that VGX-100 has significant effects in ameliorating rejection of corneal grafts as well as inhibiting the growth of blood and lymphatic vessels into the cornea following injury in animal models.

“Resistance to Avastin[®] is a frequent occurrence in the treatment of certain cancers, with resulting loss of response and disease progression … increases in VEGF family markers in patients with metastatic colorectal cancer are associated with Avastin[®] resistance. In particular, VEGF-C increases were seen in patients prior to and at the time as disease progression while receiving Avastin[®] and chemotherapy.”

based on the fact that we can extensively leverage the data and expertise generated from our ongoing drug-development activities with VGX-100 in the cancer setting to also enable development of VGX-100 in eye disease, and the very exciting data being generated through the Schepens collaboration, we announced, in June 2011, that we would also be developing VGX-100 as a therapeutic agent to treat front-of-theeye (corneal) diseases. We aim to commence clinical development in the second half of 2012. peer-reviewed scientific papers describing the results of this ongoing collaboration are expected to be published towards the end of 2011.

extendinG, strenGtHeninG And enforcinG our intellectuAl ProPerty Position

successful prosecution of key strategic patents

Diagnostic products

in September 2010, Vegenics pty ltd (Vegenics) was granted united States patent no. 7,785,803 claiming diagnostic kits for the detection of VeGF-d in human samples such as blood. the use of targeted therapies in human healthcare is becoming more prevalent. in line with this trend, regulatory bodies and clinicians are increasingly in need of validated diagnostic tests to identify selected biomarkers and therefore assess a patient’s likelihood to respond to these therapies. VeGF-d’s role as a biomarker in cancer and other diseases is becoming more widely recognised. as such, the development and availability of a VeGF-d diagnostic test could have many important applications in improving the effectiveness of a wide array of potential targeted approaches, including circadian’s own treatments in development.

as mentioned below, this patent is important in protecting the VeGF-d test launched in partnership with cincinnati children’s Medical Hospital to diagnose the debilitating lung disease lymphangioleiomyomatosis (laM).

Therapeutic products

in november 2010, we announced the grant of united States patent no. 7,829,091 as well as allowance of corresponding european and canadian patents to Vegenics.

this patent covers the use of inhibitors that block the binding of VeGF-c or VeGF-d to VeGFr-3 for the treatment of cancer as well as eye disease. inhibitors covered include any soluble forms of the VeGFr-3 receptor and any antibodies directed against VeGF-c, VeGF-d or VeGFr-3 that inhibit the binding of VeGF-c or VeGF-d to VeGFr-3. it provides patent protection for all of our lead molecules until September 2023.

2011 circadian annual report 11

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VGx-100 PreclinicAl And bioMArker dAtA Posters

(Middle) aacr 2011

posters describing VGX-100 preclinical and biomarker data presented at the internationally recognised 2010 and 2011 american association for cancer research (aacr) conference, and the 2011 american Society of clinical oncology (aSco) meeting.

VGX-100 increases the activity of avastin[®] and/or chemotherapy in mouse models of human lung and ovarian cancer; and reduces the tumour growth and incidence of tumour spread in a prostate cancer model.

(top) aacr 2010

(bottom) aSco 2011

VGX-100 significantly inhibits growth of mouse models of human glioblastoma, pancreatic and prostate cancer. addition of VGX 100 therapy to chemotherapy and/or avastin[®] treatment slowed tumour growth and inhibited the development of resistance to these therapies, resulting in a more prolonged tumour response.

circulating levels of VeGF c were significantly elevated in colorectal cancer patients receiving avastin[®] plus chemotherapy treatment, suggesting that VeGF-c-mediated pathways may be up-regulated in response to avastin[®] therapy.

in January 2011, we announced that Vegenics had been granted an exclusive, global licence by chugai pharmaceutical co, ltd – a major player in Japan and part of the roche group – to chugai ip relating to VeGF-d. Vegenics and chugai both hold extensive VeGF-d ip portfolios, which had overlapped throughout the world. the licence secures circadian’s position as the dominant player in respect of VeGF-d worldwide.

PArtnersHiP deVeloPMents

Cancer of Unknown primary (CUp) origin diagnostic – healthscope limited

in February 2009, we announced that we had entered into a strategic partnership with Healthscope limited, one of australia’s largest healthcare providers, to commercialise a diagnostic technology for cup. under the terms of the agreement, Healthscope will develop, clinically validate and market the cup test throughout australia, new Zealand, Singapore and Malaysia (this is being funded by Healthscope). circadian received an upfront fee, and will earn development milestones and royalties on sales of the test. circadian retains all rights to the test throughout the remainder of the world. the technology was jointly developed through a research partnership between circadian, the peter Maccallum cancer centre and nicta (national ict australia).

cancer of unknown primary origin is generally less well known and publicised than other cancer types. However, it is actually more common than leukaemia and is the fourth most common cause of cancer deaths in australia. cup refers to a complex form of cancer in which the site of origin of a tumour cannot be identified using standard techniques. the inability to identify a primary site of cancer poses many challenges, given that the primary site of cancer usually dictates the treatment, expected outcome, and overall survival.

12 2011 circadian annual report

“cancer of unknown primary origin is generally less well known and publicised than other cancer types. However, it is actually more common than leukaemia and is the fourth most common cause of cancer deaths in australia.”

Healthscope, in collaboration with circadian, peter Maccallum cancer centre and nicta, has continued to invest considerable time and effort into the development of this product. although the status of development continues to remain commercial in confidence, launch of the product is expected in the second half or 2011.

VeGFr-3 therapeutic antibody (IMC-3C5) – ImClone, an eli lilly company

in april 2011, circadian announced that our licensee, imclone Systems, had commenced phase i clinical trials in cancer patients in the united States. iMc-3c5 is an antibody that neutralises VeGFr-3. the phase i trial is designed to identify an appropriate, safe and tolerable dose level for future phase ii studies. the phase i trial is expected to be completed in the second half of 2012.

“… a disease-causing link between LAM and a genetic abnormality, Tuberous Sclerosis Complex (TSC), has led scientists to estimate that more than 250,000 women worldwide are unaware that they have LAM.”

imclone has exclusive rights from Vegenics to develop the VeGFr-3 antibody in return for annual licence fees and royalties on potential future product sales.

partnership with Cincinnati Children’s hospital Medical Center to provide VeGF-d based lAM diagnostic

in February 2011, we announced a partnership with cincinnati children’s Hospital Medical center to offer a VeGF-d based laM diagnostic to patients in the united States as a laboratory test compliant with cap (college of american pathologists)/clia regulations.

this is the first blood-based diagnostic available to test for the disease lymphangioleiomyomatosis (laM). the blood-sample-based diagnostic was developed by cincinnati children’s Hospital Medical center, using circadian’s VeGF-d technology, following the discovery that high levels of VeGF-d hold the key to detecting the disease. laM is a serious lung disease that causes shortness of breath and lung collapse. it affects mostly women, often striking in their 30s or child-bearing years.

although only a small number of patients have been diagnosed with laM to date, the recent discovery of a disease-causing link between laM and a genetic abnormality, tuberous Sclerosis complex (tSc), has led scientists to estimate that more than 250,000 women worldwide are unaware that they have laM. the availability of the test, and subsequent increasing knowledge of the disease amongst the general medical community, is predicted to increase screening for laM in patients, with the number of tests estimated to exceed 25,000 per annum within the next few years.

doctors in the united States are now ordering this test through the translational trials development and Support laboratory of cincinnati children’s Hospital Medical center.

partnership with Ark therapeutics Group – VeGF-d gene therapy products

in november 2010, we announced that we had amicably settled the previously announced arbitration proceedings instituted against lymphatix ltd, a 100% owned subsidiary of ark therapeutics Group plc (aKt:lSe). under the settlement, both parties agreed to terminate the arbitration process and to bear their own costs incurred. additionally, Vegenics received increased annual licence payments and royalties in respect of VeGF-d gene therapy products being developed by ark. ark is currently undertaking phase i trials using VeGF-d to improve heart muscle function post infarction.

tHe next 12 MontHs

We are targeting the following key events for the next 12 months:

› ind filing in respect of the VGX-100 with the united States Fda and subsequent commencement of clinical trials;
› generation of additional data in animal models on corneal diseases to support development of VGX-100 in corneal disease settings;
› launch of cup diagnostic test by Healthscope;
› development of additional clinical diagnostic tests for the measurement of VeGF-c, VeGF-d- and/or VeGFr-3 in patient tissue as diagnostic assays in oncology; and
› continued expansion of the marketing of our VeGF-d based diagnostic test for laM, outside of the united States.

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robert Klupacs Managing director and chief executive officer

23 august 2011

2011 circadian annual report 13

circAdiAn’s Product PiPeline coMPrises:

› four drug-development programs
including three monoclonal antibody products;
targeting different mediators of the process of angiogenesis; and
focusing on treatments for cancer;
› a diagnostic test for cancers of unknown primaries; and
› blood-based diagnostic tests for VeGF-c and VeGF-d as predictive and prognostic tests in cancer patients.

our strAteGy

our business is to develop new biological therapeutic products that can inhibit angiogenesis, primarily antibody-based therapies for cancer. this is based on our extensive intellectual property (ip) and know-how relating to Vascular endothelial Growth Factors (VeGF) c, d and r3.

A focus on developing antibody and protein therapeutics

in contrast to traditional small molecule pharmaceuticals, therapeutic antibodies have been shown to have at least two major advantages. they are much more specific than traditional small molecules, enabling them to target specific pathways involved in disease, and secondly, they have been shown to have much less toxicity as a class than traditional small molecules. over the past 10 years, therapeutic antibodies, such as avastin[®] , Herceptin[®] , erbitux[®] and Mabthera[®] , have had a major impact in the treatment of cancers. the impact of highly targeted therapies in treatment and on the pharmaceutical industry generally was highlighted in a recent report from evaluate pharma, a leading industry market research organisation, which predicted that by 2014, four of the best-selling drugs in the world will be antibodies and three of these will be antibody-based anti-cancer agents.

our objectives are to:

› continue to drive the development of our current VGX-100, VGX-200 and VGX-300 cancer therapeutic programs;
› secure development partnerships with larger pharmaceutical and/or biotechnology companies for one or more of these therapeutic programs;
› retain development of one selected therapeutic to proof of efficacy in humans and partner thereafter; and
› selectively exploit/commercialise other aspects of the portfolio, namely:
therapeutics outside the oncology area; and
clinical diagnostics and reagents for potential early revenues.

particularly in the field of angiogenesis and therapeutic antibodies there is potential for partnerships at the pre-clinical stage of drug development. this assessment is based on the demonstrated willingness of large pharmaceutical and biotech companies in the last 18 or so months to sign up early-stage deals in this field. these factors contribute to aspects of our commercialisation strategy.

Further, our ip has applications in a number of other areas. accordingly, there are a number of large market opportunities outside of oncology available to us to develop therapeutics either ourselves or in partnership with others.

our tecHnoloGy

Inhibiting angiogenesis and lymphangiogenesis – a powerful new treatment approach for cancer

VeGF proteins

circadian’s technology is centred on two members of the Vascular endothelial Growth Factor (VeGF) family of proteins, VeGF-c and VeGF-d, and their activation of the VeGF receptors. these proteins promote the key biological processes of blood vessel development (VeGFr-2) and lymphatic vessel development (VeGFr-3), known as angiogenesis and lymphangiogenesis, respectively.

Angiogenesis and lymphangiogenesis

the growth of tumours is known to depend on the formation of new blood vessels to carry nutrients and oxygen to the new tissue. targeting the process of angiogenesis has been a major breakthrough in anti-cancer therapeutics – an approach that led to the commercialisation of multi-billion-dollar drug avastin[®] , a monoclonal antibody against VeGF-a. While avastin[®] has been demonstrated to be effective in fighting cancer, clinical results indicate that its effect in inhibiting angiogenesis is only partial. Hence, there is a need for auxiliary or improved anti-angiogenesis agents. in addition to regulating fluid levels in the body, the lymphatic system plays an important role in cancer progression. lymph is filtered in the lymph nodes, trapping cancer cells that leave the site of a primary cancer. recent evidence suggests that new lymphatic vessels formed by certain tumours (for example, breast cancer) are a major means of spreading cancer to other sites in the body. tumour spread is often the primary cause of cancer mortality, and inhibiting lymphangiogenesis may therefore represent a powerful approach to preventing cancer spread.

About VeGF-C, VeGF-d and VeGFr-3

closely related to VeGF-a (the target of avastin[®] ), proteins VeGF-c and VeGF-d bind to VeGF receptors, promoting both angiogenesis and lymphangiogenesis. VeGFr-3 is a receptor protein embedded in the plasma membrane of the cells that form lymphatic capillaries. recently, work from the laboratory of the highly respected researcher professor Kari alitalo (university of Helsinki) has shown that VeGFr-3 plays an important role in cancer angiogenesis by guiding new blood vessels towards tumours. Studies by circadian’s scientists and its collaborators have shown that VeGFr-3 also plays an essential role in lymphatic vessel development. these studies have led to a surge of interest in VeGF-c, VeGF-d and VeGFr-3 as potential new targets for anti-cancer therapy.

14 2011 circadian annual report

“circadian owns the world’s most extensive ip portfolio related to VeGF-c, VeGF-d and VeGFr-3.”

VeGF-C/d/r-3 axis as an anti-cancer target

Several recent findings have further enhanced interest in the VeGFr-3 pathway as an important new drug target for cancer. these include:

› over-expression of VeGFr-3 or its activators VeGF-c and VeGF-d correlates with poor prognosis in a variety of cancer types (as documented extensively in scientific publications);
› circadian and its collaborators have shown that blocking VeGFr-3 or VeGF-c and VeGF-d inhibits tumour growth in various animal models. in addition, the VeGFr-3 pathway has certain properties that make it especially attractive as a drug target;
› VeGFr-3 is expressed at the cell surface, so it is accessible to biotherapeutics such as antibodies or soluble receptor drugs; and
› the signalling pathway of VeGFr-3 is well understood, which facilitates the evaluation or ruling out of potential side-effects or toxicities.

Anti-cancer compounds

inhibitors of VeGF-c, VeGF-d and VeGFr-3 block the activity of these proteins in a similar, but alternative, way to the multi-billion-dollar drug avastin[®] . as such, inhibitors of VeGF-c and VeGF-d have the potential to block blood vessel growth in tumours that are resistant, or have developed resistance, to anti-VeGF-a therapy. When used in combination with drugs like avastin[®] , inhibitors of VeGF-c and VeGF-d may more effectively shut down angiogenesis. inhibitors of VeGF-c, VeGF-d and VeGFr-3 also have the potential to limit the spread of tumours – which is often the fatal event in cancer progression – through their effect on lymphangiogenesis. anti-VeGF-a therapeutics have not shown efficacy in blocking the spread of tumours through the lymphatic system.

Intellectual property

circadian owns the world’s most extensive ip portfolio related to VeGF-c, VeGF-d and VeGFr-3. these rights were originally licensed or assigned from a variety of parties, including the ludwig institute for cancer research ltd, the university of Helsinki and Human Genome Sciences. circadian’s rights to develop antibody-based drugs to these proteins are protected worldwide and some as far into the future as 2025.

other disease applications

While circadian is focusing primarily upon cancer, VeGF technology also has applications in other diseases. Shutting down angiogenesis and/or lymphatic vessel growth is important in eye diseases including age-related macular degeneration and diabetic retinopathy. circadian has licensed some of its ip to other companies for exploration of these therapeutic opportunities.

”Inhibitors of VEGF-C and

VEGF-D have the potential to block blood vessel growth in tumours that are resistant, or have developed resistance, to anti-VEGF-A therapy. When used in combination with drugs like Avastin[®] , inhibitors of VEGF-C and VEGF-D may more effectively shut down angiogenesis.”

inHerent risks of inVestMent in biotecHnoloGy coMPAnies

Some of the risks inherent in the development of a product to a marketable stage include the uncertainty of patent protection and proprietary rights, whether patent applications and issued patents will

offer adequate protection to enable product development, the obtaining of the necessary drug regulatory authority approvals and difficulties caused by the rapid advancements in technology. also, a particular compound may fail the clinical development process through lack of efficacy or safety. companies such as circadian are dependent on the success of their research and development projects and technology investments. investment in research and development projects and technology-related companies cannot be assessed on the same fundamentals as trading and manufacturing enterprises. thus investment in these areas must be regarded as speculative.

this annual report may contain forwardlooking statements regarding the potential of the Group’s projects and interests and the development and therapeutic potential of the Group’s research and development projects. any statement describing a goal, expectation, intention or belief of the Group is a forward-looking statement and should be considered an at-risk statement. Such statements are subject to certain risks and uncertainties, particularly those inherent in the process of discovering, developing and commercialising drugs that are safe and effective for use as human therapeutics and the financing of such activities. there is no guarantee that the Group’s research and development projects and interests (where applicable) will be successful or receive regulatory approvals or prove to be commercially successful in the future.

actual results of further research could differ from those projected or detailed in this report. as a result, you are cautioned not to rely on forward-looking statements. consideration should be given to these and other risks concerning the Group’s research and development program referred to in this annual report for the period ended 30 June 2011.

2011 circadian annual report 15

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robert KlupacS, bSc(Hons), Grad dip ip law, Maipa ManaGinG director and cHieF eXecutiVe oFFicer

robert Klupacs joined circadian in august 2005 and was appointed Managing director in March 2008. He is an intellectual property expert and entrepreneur with an extensive history of launching and managing successful ventures in the biotechnology industry. robert was the driving force behind the founding of Vegenics pty ltd, circadian’s major subsidiary. prior to joining circadian, he was founder and chief executive officer of eS cell international pte ltd (eSi), based in Singapore, a world leader in the development of human embryonic stem cell technology. From 1999 to 2001, he was chief operating officer of the Monash institute of reproduction and development, where he founded six start-up companies. prior to that he was employed by amrad corporation limited (since acquired by cSl) from 1988 until 1999, where he was director of intellectual property and a member of the executive team. He holds a bSc(Hons) from Monash university in pharmacology and is a registered australian patent attorney. He is chairman of Syngene limited (42% owned by circadian) and is a member of the pharmaceuticals industry council.

MiKe GeroMetta, phd Head oF cMc deVelopMent

Mike Gerometta has been with circadian since december 2008 and is principally responsible for the outsourcing of Vegenics’ research and cGMp manufacturing activities. Mike has over 20 years’ experience in the australian biotechnology industry, most recently as chief operating officer of Q-Gen, QiMr’s translational research, manufacturing arm. He has also spent 19 years at agen biomedical, occupying a variety of positions and roles, most recently as research and product development director. in this role he was responsible for the chemistry, manufacturing and controls (cMc), pre-clinical program and patent management for agen’s thromboView[®] project, a blood clot imaging agent. previously, he has worked at biotech australia, Sydney, and together with earlier positions at agen, developed numerous successful immunodiagnostic assays for the medical, veterinary and food industries across various diagnostic platforms for the laboratory and point-of-care. He was awarded his phd in biotechnology from the Queensland university of technology and has a degree in chemistry from the university of technology in Sydney.

MarK SulliVan, bSc Head oF deVelopMent

Mark Sullivan has 20 years’ experience in the development of small molecules, therapeutic and prophylactic vaccines and microbicides. He is the founder and director of Medicines development and was formerly with Glaxo/GlaxoWellcome (now GSK) in london for 10 years, Gilead Sciences in San Francisco for two years and university of new South Wales for three years.

Mark has a clinical research background that encompasses first-in-man, proof-of-concept, pivotal phase ii and iii studies, regulatory submission (two new drug applications with the Fda/Marketing authorisation applications through the eMea), phase iiib and phase iV. Mark has worked on three development programs that have progressed through successful registration, namely 3tc for HiV (phases i to iii) and 3tc (phases ii to iV), and adefovir dipivoxil for chronic hepatitis b (phases iii to iV), including global registration. He has led the development of prophylactic and therapeutic vaccines for HiV and both small molecule and biologics for a number of indications.

Management team

16 2011 circadian annual report

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SuSan Foran, Mpharm Head oF toXicoloGY and proJect ManaGeMent

Susan Foran is a qualified pharmacist with broad expertise in product development, project management and medical affairs. Her previous experience includes roles with leading multinational firms GlaxoSmithKline and Kendle pty ltd, and with small biotechnology companies. in these roles, she contributed to the development of numerous products, including pre-clinical, clinical and post-marketing programs. Susan has also managed her own consultancy business, providing product development advice and project management services to a number of australian biotechnology companies.

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anGuS teSter, phd Senior reSearcH ScientiSt

angus tester has held the position of Senior Scientist at circadian since February 2009. He is responsible for conducting and managing the pre-clinical research undertaken at the circadian research laboratory, located within the ludwig institute of cancer research. angus completed his phd in biochemistry at Monash university and subsequently has spent over 10 years working in the field of cancer research. He has gained extensive skills and experience using models of human cancer within laboratories based in both australia and north america.

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MeGan baldWin, phd Head oF pre-clinical r&d

Megan baldwin joined circadian in January 2008 and is responsible for research and development of circadian’s product pipeline. prior to joining circadian, she was employed at Genentech, the world leader in the field of angiogenesisbased therapies for cancer and other diseases. Her experience included several years as a researcher in the group of leading angiogenesis expert napoleone Ferrara, before moving to Genentech’s commercial division and having responsibility for corporate competitive intelligence activities. in this role, she developed extensive knowledge of the angiogenesis and cancer fields. Megan has a scientific background of more than 10 years, focused on angiogenesis and therapeutic strategies for oncology indications. She holds a phd in Medicine from the university of Melbourne, having conducted her doctoral studies at the ludwig institute for cancer research.

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SuSan Madden, bbus, cpa

coMpanY SecretarY and Finance ManaGer

Susan Madden, who is also the company’s Finance Manager, was appointed company Secretary of circadian on 14 May 2010 and has been the Finance Manager since September 2009. prior to holding this position, she was the Finance Manager for over three years at the cancer council of Victoria and held several senior finance positions during her 14 years with the Shell company of australia limited. Ms Madden is also the company Secretary for Vegenics pty ltd and other circadian subsidiary companies, and holds a seat on the Finance and audit committee for breastScreen Victoria.

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Melinda loWe, phd proJect ManaGer

Melinda lowe commenced as project Manager with circadian in 2010. She has responsibility for coordinating the inter-disciplinary development activities associated with the development of our lead compounds VGX-100, VGX-200 and VGX-300. Melinda holds a phd in Medicine from Monash university and has over 20 years’ experience in australian biomedical research, principally in the fields of immunologically mediated disease and virology. She moved into project management in 2005 whilst at Starpharma Holdings limited, a company developing nanotechnology products for pharmaceutical, life-science and other applications. Since then, as a Senior development Manager with Medicines development limited, Melinda has worked on the development of a novel lipopeptide vaccine technology, and a practical and affordable conjoint treatment option for chronic viral infections.

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ricHard cHadWicK, phd Head oF intellectual propertY

richard chadwick, who joined circadian in February 2008, is qualified as both a european and australian patent attorney. richard joined circadian from Fb rice & co, where he had been working for five years in the biotechnology Group. prior to that, richard had 10 years’ experience in intellectual property in the uK. this included working as an in-house attorney at dow corning limited and five years working as an in-house attorney at unilever.

2011 circadian annual report 17

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doMiniQue FiSHer, ba(Hons), Maicd non-eXecutiVe cHairMan

dominique Fisher was appointed a non-executive director of circadian in September 2005. She became chairman of the board in the subsequent month and is a member of the company’s audit and risk committee. She has extensive business experience in the corporate area, including the commercialisation of new technologies. Ms Fisher is principal and executive director of ec Strategies pty ltd, which advises local and offshore companies on technology strategies and major commercial transactions. She is chairman of Sky technologies pty ltd, Managing director of Helix digital pty ltd and is executive chairman of careerlounge pty ltd. Her past appointments have included a non-executive director of pacific brands limited and membership of its audit and risk committee, councillor of the australia council of the arts, and chairman of its dance board, insurance australia Group limited (iaG), member of the prostate cancer Foundation Victoria, nrMa, the Malthouse theatre, Sydney opera House and member of the ict advisory board, advising the Federal Government on key issues affecting the development of the information technology and communications sector.

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robert KlupacS, bSc(Hons), Grad dip ip law, Maipa ManaGinG director and cHieF eXecutiVe oFFicer

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don clarKe, llb (Hons) non-eXecutiVe director

don clarke was appointed a non-executive director of circadian in September 2005. He is chairman of the remuneration committee and a member of the audit and risk committee. He has been a partner of the law firm Minter ellison since 1988, having joined that firm in 1980. Mr clarke has a broad commercial practice (involving predominantly aSX listed companies in the SMe sector and larger private companies) and experience across a broad sector of industries. He is also a non-executive director of aSX listed companies Webjet limited (appointed as a director in January 2008 and deputy chairman in april 2011) and phosphagenics limited, and a former director of calzada limited (formerly Metabolic pharmaceuticals limited).

Board of directors

18 2011 circadian annual report

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JonatHan SKipper, phd non-eXecutiVe director

dr Jonathan Skipper was appointed a non-executive director of circadian on 14 august 2008. He was formerly nonexecutive director of Vegenics pty ltd (a circadian subsidiary). dr Skipper is executive director for technology development at the ludwig institute for cancer research ltd and has 14 years‘ experience with the ludwig institute for cancer research (licr) in intellectual property management and technology licensing. He is also a member of the boards of the cancer Vaccine acceleration company llc, Seramtrix inc and recepta biopharma Sa.

He has scientific expertise in cancer biology and has completed a number of licensing contracts with large pharmaceutical companies. dr Skipper is also the director of licr’s office for intellectual property. Whilst at licr, he has held various positions, including associate director for intellectual property and licensing, director of the office for program development and Manager, office for intellectual property.

prior to joining licr, dr Skipper obtained his phd in immunology from university college london, and conducted further research at the university of Virginia and the university of oxford.

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tina McMecKan, blibarts&Sc, Mba, Faicd non-eXecutiVe director

tina McMeckan was appointed a non-executive director of circadian in January 2008 and is chairman of the audit and risk committee. Her specific skills are in the commercialisation of science and technology and the energy sector. Ms McMeckan is presently chairman of the centre for eye research australia and a director of crc for Spatial information, Sp ausnet limited, Global carbon capture and Storage institute and Metlink pty ltd. She is a past member of the Funds Management committee of the ausindustry research and development board and has held senior investment management positions with the australian industry development corporation and amrad corporation ltd (acquired by cSl limited) focusing on capital raisings for innovationbased ventures. She also has extensive board expertise in public and private utility infrastructure, including power production, networks and retailing business in the gas and electricity industries. She was formerly the chairman of nanoVentures australia ltd and a member of the national board of norton rose law firm. Her other appointments as a director have included united energy, Snowy Hydro trading, the Westar and Kinetik energy Group, Victorian power exchange, Vision cooperative research centre, Solaris power and the formerly listed company alinta limited (october 2003 to august 2007).

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errol Malta, bSc(Hons) pHd (pharmacology) non-eXecutiVe director

dr errol Malta was appointed a non-executive director of circadian on 20 august 2009. He is also chairman of the company’s product development review committee and a member of the remuneration committee. dr Malta has more than 20 years‘ experience in drug-development within the pharmaceutical industry, including more than 10 years with amgen inc, the world’s largest independent biotechnology company. in his role as product development team leader, dr Malta was responsible for five successful new-molecule ind submissions to Fda and other regulatory agencies, subsequent phase i/ii programs, and numerous phase iii and iV trials. He has been a consultant to over 20 biotechnology companies in early phase product development in australia and the united States. dr Malta has held previous director positions in the australian biotechnology sector with alchemia ltd, avexa ltd, neuprotect pty ltd, nexpep pty ltd, promics ltd and cortical pty ltd. He is a phd graduate of the university of Melbourne and a Fellow of the australian institute of company directors.

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carlo MontaGner, bSc, MSc, Grad dip child psychology non-eXecutiVe director

carlo Montagner was appointed a non-executive director of circadian on 1 July 2008 and is a member of circadian’s product development review committee and remuneration committee. He has a wealth of experience in heading global oncology businesses for chemotherapeutic products and has more than 16 years’ experience in the pharmaceutical industry in the uS, europe, Japan and australia. during his career, Mr Montagner has built specialty oncology practices, managing the strategic integration of both clinical and commercial aspects of drug portfolios. He was executive Vice president & Global Head of Schering aG/berlex labs united States oncology business unit. He has also held various positions at aventis pharma, including Head of oncology &

cardiovascular business unit at Sanofi-aventis Japan and Global Senior director of Marketing and Medical affairs, managing the taxanes chemotherapy portfolio. Mr Montagner is ceo of privately held Specialised therapeutics australia pty ltd and is a member of the australian institute of company directors. He also holds a non-executive director position with aSX listed company alchemia limited, whose board he joined in March 2008, and is a former director of abraxis bioscience australia pty ltd.

2011 circadian annual report 19

directors’ report

For tHe Year ended 30 June 2011

The Board of Directors of Circadian Technologies Limited (Circadian or Company) submits its report for the year ended 30 June 2011 for Circadian and its subsidiaries (the Group).

directors

the names of the company’s directors in office during the financial year and until the date of this report are as follows:

dominique Fisher non-executive chairman

robert Klupacs Managing director and chief executive officer don clarke non-executive director tina McMeckan non-executive director errol Malta non-executive director carlo Montagner non-executive director Jonathan Skipper non-executive director directors were in office for this entire period unless otherwise stated.

directors’ interests

at the date of this report, the interests of each director of the company in contributed equity and share options of the company are as follows:

follows:
			number of options/
	number of shares held directly	number of shares held indirectly	rights over ordinaryshares
dominique Fisher	-	117,500	-
robert Klupacs	197,519	-	1,520,000
don clarke	-	80,000	-
tina McMeckan	-	38,773	-
errol Malta	-	50,000
carlo Montagner	22,058	-	-
Jonathan Skipper	-	-	-

20 2011 circadian annual report

sHAre oPtions And PerforMAnce riGHts

Unissued shares

as at balance date and the date of this report, details of circadian’s unissued ordinary shares, performance rights or interests under option are as follows:

ordinary shares:

as part of the consideration for the acquisition of the non-controlled interests in Vegenics pty ltd (Vegenics) on 14 august 2008, 1,155,000 circadian shares were issued on the next business day following the second anniversary of the date of circadian’s acquisition of the non-controlled interests in Vegenics (i.e. 16 august 2010).

unissued ordinary shares:

unissued ordinary shares:
number of deferred shares	nil
options:
number of shares under option	1,367,694	99,305	500,000	780,982	100,000	77,144
exercise prices	$1.50	$1.50	$1.30	$1.00	$1.00	$1.00
Vesting date^	8/2/2011	9/3/2011	8/2/2011	15/9/2011	15/12/2011	26/6/2012
expiry date	8/2/2012	9/3/2012	8/2/2012	15/9/2012	15/12/2012	26/6/2013

^ these dates are the first exercise date if the options vest. the vesting dates are the dates when share price hurdles are met for each of the three tranches of options granted, which are $1.875, $2.25 and $2.625 for the options with a $1.50 exercise price, $1.625, $1.95 and $2.275 for the options with a $1.30 exercise price and $1.25, $1.50 and $1.75 for the options with a $1.00 exercise price (see the remuneration report for further details). the offer price for the company’s shares at 30 June 2011 was $0.58.

no options were exercised during the financial year.

conditional rights:

conditional rights:
number of conditional rights	1,560,000
exercise price	nil
Vesting date^
expiry date	31/3/2015

^ under the terms of the conditional rights Scheme, the rights will vest if certain milestones are met. one of the key overriding conditions of the Scheme is that if the 10-day volume weighted average price (VWap) is not less than $1.75 at any time, then 100% of the conditional rights will vest.

refer to the section in this report headed remuneration report for details on the terms and conditions of the rights offered under the company’s conditional rights Scheme and options granted under the company’s option plan.

diVidends

no cash dividends have been paid, declared or recommended during or since the end of the financial year by the company.

PrinciPAl ActiVities of tHe consolidAted entity

circadian’s principal activity is to develop and commercialise therapies primarily for cancer as well as for other serious diseases, in particular eye disease. these development activities are based on the extensive intellectual property portfolio covering key targets (Vascular endothelial Growth Factors c and d and r3) for the treatment of diseases associated with angiogenesis, which has been accumulated in circadian’s 100% owned unlisted subsidiary Vegenics. the therapeutic applications for the VeGF technology, which functions in regulating blood supply (angiogenesis), are substantial and broad. as outlined in the operations report, considerable progress has been made with bringing circadian’s therapeutic development products to clinical testing stage.

oPerAtinG And finAnciAl reVieW

results

Financial performance

the results for the period predominantly reflect the Group’s investment in advancing its cancer treatment programs VGX-100, VGX-200 and VGX-300.

a summary of the results is as follows:

› the consolidated net loss of the Group for the year was $10,265,346 after an income tax benefit of $777,936 (2010: loss of $6,948,240 after an income tax expense of $109,502).
› consolidated cash balance as at 30 June 2011 amounted to $22,104,414 (2010: $31,855,169).
› the net tangible asset backing per share as at 30 June 2011 was $0.47 (2010: $0.70), whereas circadian’s share price was $0.58 (2010: $0.52).

2011 circadian annual report 21

directorS’ report continued

› direct r&d expenditure (excluding personnel costs) amounted to $6,570,095 (2010: $4,295,334). including personnel costs and other r&d support costs, which are recognised through the administrative cost centre, total expenditure in r&d amounted to $8,096,235 (2010: $6,151,076).
› royalty income of $446,154 (2010: $621,712).
› patent costs of $562,843 (2010: $1,044,370).
› the Group retains interests in two listed investments. these are in antisense therapeutics limited and a small investment in optiscan imaging limited. the combined market value of these investments as at 30 June 2011 was $1,328,931 (2010: $1,755,612).

commensurate with the Group’s strategy, the major expenditure of the company has been in relation to r&d, in particular costs associated with the cGMp production of VGX-100 for clinical trials, Glp toxicology studies with VGX-100 as required by Fda and other regulatory bodies as well as ongoing evaluation of VGX-100 in animal models of cancer and eye disease.

review of operations

the operations report, which forms part of this directors’ report, provides information regarding the consolidated entity’s key corporate activities and the progress achieved during the 30 June 2011 financial year.

siGnificAnt cHAnGes in tHe stAte of AffAirs

total equity reduced from $31,820,094 to $21,824,173, primarily as a result of ongoing operational expenditure as the Group progressed its research and development program. there have been no other significant changes in the state of affairs of the Group.

siGnificAnt eVents After bAlAnce dAte

no matters or circumstances have arisen since the end of the reporting period, not otherwise disclosed in the financial report, that significantly affected, or may significantly affect, the operations of the Group, the results of those operations, or the state of affairs of the Group in future financial years.

corPorAte obJectiVes And likely deVeloPMents

the Group’s objective is to develop therapeutic products primarily to treat cancer and other serious diseases based on its intellectual property relating to Vascular endothelial Growth Factors (VeGF) c, d and r3.

the Group has four drug-development programs underway, including three antibody products, for the treatment of cancer at differing stages of development. one of these candidates, iMc-035, an antibody to VeGFr-3, is being developed and funded by licensee imclone Systems inc (100% owned subsidiary of eli lilly & co).

the commercialisation objective is to:

› secure development partnerships for one or more of the Group’s therapeutic programs;
› retain development of one selected therapeutic to proof of efficacy in humans and partner thereafter; and
› selectively exploit/commercialise other aspects of the portfolio, namely:
therapeutics outside the oncology area; and
clinical diagnostics and reagents for early revenues.

the ip accumulated by the Group has applications not just in cancer, the primary therapeutic development focus, but also in a number of other areas, such as eye disease.

the Group will continue to expand its ip rights and product portfolio around the core area of cancer as well as in other disease areas.

the likely developments in the Group’s operations, to the extent that such matters can be commented upon, are covered in the operations report.

enVironMentAl reGulAtions

the Group is not subject to significant environmental regulations.

indeMnificAtion And insurAnce

during the financial year ended 30 June 2011, the company indemnified its directors, the company Secretary and executive officers in respect of any acts or omissions giving rise to a liability to another person (other than the company or a related party) unless the liability arose out of conduct involving a lack of good faith. in addition, the company indemnified the directors, the company Secretary and executive officers against any liability incurred by them in their capacity as directors, company Secretary or executive officers in successfully defending civil or criminal proceedings in relation to the company. no monetary restriction was placed on this indemnity.

the company has insured its directors, the company Secretary and executive officers for the financial year ended 30 June 2011. under the company’s directors’ and officers’ liabilities insurance policy, the company shall not release to any third party or otherwise publish details of the nature of the liabilities insured by the policy or the amount of the premium. accordingly, the company relies on section 300(9) of the Corporations Act 2001 to exempt it from the requirement to disclose the nature of the liability insured against and the premium amount of the relevant policy.

directors’ MeetinGs

the number of meetings of directors and meetings of committees of the board held during the year are set out below. attendance by the directors at these meetings as relevant to each of them is as shown. Where a director did not attend all meetings of the board or relevant committee, the number of meetings for which the director was eligible to attend is shown in brackets. it is the company’s practice to invite all directors to committee meetings irrespective of whether they are members.

22 2011 circadian annual report

	directors’		Meetings
	meetings		of committees
		Audit and risk	remuneration1	Pdrc
Number of
meetings held:	9	4	1	2
Number of meetings attended:
dominique Fisher robert Klupacs	9 9	4
don clarke	9	4	1
tina McMeckan errol Malta carlo Montagner	8 (9) 8 (9) 8 (9)	4	1 1	2 2
Jonathan Skipper	7 (9)

1 all directors in office contributed to the remuneration committee meeting in May 2011.

ernst & Young received or are due to receive the following amounts for the provision of non-audit services:

tax-compliance services $15,880 other tax services $24,440

reMunerAtion rePort (Audited)

this remuneration report forms part of the directors’ report and has been prepared in accordance with section 300a of the Corporations Act 2001 for the company and the Group for the year ended 30 June 2011.

this report provides a summary of the remuneration policies and practices adopted by circadian during the 2011 financial year for directors and key management personnel as defined by the Accounting Standards AASB124: Related Party Disclosures . Key management personnel includes persons having authority and responsibility for planning, directing and controlling the major activities of the company and the Group, directly or indirectly, including any director (whether executive or otherwise) of the company, and includes all the executives in the company and the Group.

coMMittee MeMbersHiP

during the year, the company had an audit and risk committee, remuneration committee and product development review committee (pdrc) of the board of directors. the pdrc comprises members with collectively extensive experience in drug development and in the international pharmaceutical industry.

Members acting on the committees of the board during the year were:

Audit & risk	remuneration	Pdrc*
t. McMeckan	d. clarke	e. Malta
(chairman)	(chairman)	(chairman)
d. Fisher	c. Montagner	c. Montagner
d. clarke	e. Malta	r. Howard
		G. Morstyn
		r. Smalling
		r. Morgan

errol Malta and carlo Montagner are members of this committee and the other members are independent consultants retained by the company. Further details of these members are included within the corporate Governance Statement.

Auditor indePendence

the directors have obtained a declaration of independence from ernst & Young, the Group’s auditors, which is contained in the financial report.

non-Audit serVices

the following non-audit services were provided by the entity’s auditor, ernst & Young. the directors are satisfied that the provision of non-audit services is compatible with the general standard of independence for auditors imposed by the Corporations Act 2001 . the nature and scope of each type of non-audit service provided means that auditor independence was not compromised.

details of key management personnel

the details of key management personnel, including the five highest remunerated executives of the company and the Group, are provided below:

(i) Directors

dominique Fisher chairman (non-executive) robert Klupacs Managing director and chief executive officer don clarke director (non-executive) tina McMeckan director (non-executive) errol Malta director (non-executive) carlo Montagner director (non-executive) Jonathan Skipper director (non-executive)

(ii) Executives

Mark Sullivan Head of development richard chadwick Head of intellectual property Megan baldwin Head of pre-clinical research and development Mike Gerometta Head of cMc development

except as noted, the above-named persons held their current position for the whole of the financial year and since the end of the financial year.

diversity

in april 2011, the company established a diversity policy in accordance with recommendation 3.2 of the aSX corporate Governance principles and recommendations. as part of that policy, the remuneration committee has the responsibility to, at least annually, report on the relative proportion of women and men in the workforce at all levels of the company.

as at 30 June 2011, women comprise 47% of our workforce, 43% of our senior management positions and 33% of the non-executive positions on our board.

2011 circadian annual report 23

directorS’ report continued

the board considers that these figures represent a sound level of diversity within the organisation and aims to at least maintain these levels. appointments will continue to be based on merit, as the circadian board aims to attract and maintain a team that has an appropriate and diverse mix of skills, experience and expertise.

remuneration Committee

the remuneration committee assesses the appropriateness of the nature and amount of compensation of key management personnel on a periodic basis by reference to relevant employment market conditions with the overall objective of ensuring maximum shareholder benefit from the retention of a high-quality board and executive team.

remuneration policy

the remuneration of key management personnel is designed to enable the Group to attract, motivate and retain non-executive officers and executive officers who will create value for shareholders and to fairly and responsibly remunerate them, having regard to their performance, the performance of the Group and the general pay environment.

to this end, the Group has adopted the following principles in its remuneration framework: provide competitive rewards to attract high-calibre executives; link executive rewards to shareholder value; and establish appropriate, demanding performance hurdles for variable executive remuneration.

remuneration structure

in accordance with best-practice corporate governance, the structure of non-executive director and executive compensation is separate and distinct.

non-executive director remuneration

objective

the board seeks to set aggregate remuneration at a level that provides the company with the ability to attract and retain directors of the highest calibre, while incurring a cost that is acceptable to shareholders.

structure and performance

the company’s constitution and the aSX listing rules specify that the aggregate compensation of non-executive directors will be determined from time to time by a general meeting. an amount (not exceeding the amount approved at the General Meeting) is determined by the board and then divided between the nonexecutive directors as agreed. the latest determination was at the annual General Meeting on 6 october 2005, when shareholders approved the aggregate maximum sum to be paid or provided as compensation to the non-executive directors as a whole (therefore excluding the Managing director and any executive director) for their services as $500,000 per annum. currently, non-executive directors are compensated to an aggregate of $352,086 per annum, which is inclusive of superannuation.

the manner in which the aggregate compensation is apportioned amongst non-executive directors is reviewed periodically.

each director receives a fee for being a director of the company (currently ranging between $46,000 to $75,000 per annum) and an additional annual fee of $5,000 per committee is also paid for each board committee on which a director sits. the payment of additional fees for serving on a committee recognises the additional time commitment required by directors who serve on one or more sub committees. Jonathan Skipper is an executive director with the ludwig institute for cancer research ltd (licr), a not-for-profit organisation. in accordance with licr policy, he waived his rights to directors’ fees for the year ended 30 June 2011. as a gesture of good faith, the Group paid $46,000 directly to licr as a charitable donation.

non-executive directors were not compensated by way of issue of securities in the company during the year ended 30 June 2011. it is at a director’s discretion as to whether they will purchase shares in the company, on market, during the appropriate trading windows available throughout the year. the holdings of the directors are disclosed under the directors’ interests section of the directors’ report.

the board is responsible for reviewing its own performance. board performance is monitored on an informal basis throughout the year with the objective of annual formal performance evaluation (although this may occur every 12 to 20 months). an evaluation was conducted in april 2011 of the board’s performance against specific qualitative performance criteria, some of which are measurable. the next evaluation is planned to be performed before the end of the 2012 financial year. the performance evaluation of the non-executive directors is aligned with their responsibilities under the board charter and includes areas such as: board structure, board role and responsibilities, strategy and planning, monitoring of company performance and board culture and relationships (amongst each director and with management).

the compensation of non-executive directors for the years ended 30 June 2011 and 30 June 2010 are detailed in table 1 of this report.

executive remuneration

objective

the company aims to fairly and responsibly remunerate executives with a level and mix of remuneration commensurate with their position and responsibilities within the company and so as to:

› reward executives for company performance;
› link reward with the strategic goals of the company;
› align the interest of executives with those of shareholders; and
› ensure total compensation is competitive by market standards.

structure and performance

in determining the level and make-up of executive remuneration, the remuneration committee engages external consultants as needed to provide independent advice and/or may also perform its own market research by accessing relevant remuneration reports prepared by third parties.

24 2011 circadian annual report

compensation consists of the following key elements, the relative proportions of which are market based (note that short-term incentives were introduced for the first time during the 30 June 2007 financial year):

› fixed remuneration (base salary and superannuation); and
› variable remuneration:
short-term incentive (Sti); and
long-term incentive (lti)

the non-executive directors are responsible for evaluating the performance of the Managing director and of the other management. the Managing director also evaluates the performance of the other management. the performance evaluation of the management involves an assessment of the company’s business performance, whether short-term operational targets and individual performance objectives are being achieved and whether long-term strategic objectives are being achieved. Specific and measurable qualitative and quantitative performance criteria are used. due to the nature of the company’s activities and the stage that it is at with respect to these activities, profitability is not a performance measure for Stis, although effective management of the company’s resources in achieving value for shareholders is expected. ltis are linked to share price appreciation and Kpis for Stis are linked to activities/milestones that are expected to create value for shareholders.

the performance of the Managing director and the other management is monitored on an informal basis throughout the year, with the objective of performing a formal evaluation once a year. the last remuneration committee at which a review of remuneration structure for the management took place in May 2011.

the key performance indicators for the financial year ending 30 June 2012 are expected to be approved by early September.

table 1 of this report sets out the remuneration of directors and executives of the company for the years ended 30 June 2011 and 30 June 2010, showing the proportion of fixed remuneration and variable remuneration.

Fixed remuneration

objective

the level of fixed compensation is set so as to provide a base level of compensation that is both appropriate to the position and is competitive in the market. as noted above, the remuneration committee has access to external advice independent of management.

structure

executives’ fixed compensation comprises salary and superannuation and is reviewed every 12 months by the remuneration committee.

Variable remuneration – short-term incentive (stI)

objective

the objective of the Sti program is to link the achievement of the Group’s operational targets with the remuneration received by the executives charged with meeting those targets. the total potential

Sti available is set at a level so as to provide sufficient incentive to the executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances.

structure

actual Sti payments in the form of cash bonuses to each senior executive depends on the extent to which specific targets set at the beginning of the financial year (or shortly thereafter) are met. the targets consist of a number of key performance indicators (Kpis) covering corporate objectives and individual measures of performance. individual Kpis are linked to the company’s strategy and drug-development annual business plan.

on an annual basis, after consideration of performance against Kpis, the remuneration committee, in line with its responsibilities, determines the amount, if any, of the Sti to be paid to each senior executive. this process occurs within one month after the relevant financial year end.

the maximum annual Sti cash bonus available for each senior executive is subject to the approval of the remuneration committee. payments of the Sti bonus are made in the following reporting period.

the maximum annual Sti cash bonus available for each other member of management is determined by the Managing director.

sti bonus for the 2011 financial year

the remuneration committee considered the Sti payment for the 2011 financial year within the first two months after the end of that year. the Sti cash bonus that is to be paid for the 2011 financial year for key management personnel is $141,264 plus relevant on-costs. this has been determined on the basis of Kpis achieved by management.

there have been no alterations to the Sti bonus plan since its inception.

Variable remuneration – long-term incentive (ltI)

objective

the objective of the lti plan is to reward key management personnel in a manner that aligns this element of compensation with the creation of shareholder wealth.

as such, lti grants are made to key management personnel who are able to influence the generation of shareholder wealth and thus have a direct impact on the company’s performance against the relevant long-term performance hurdle.

structure

lti grants to key management personnel are delivered in the form of options and conditional rights.

in valuing transactions settled by way of issue of options or conditional rights, no account is taken of any performance conditions, other than market conditions linked to the price of the shares of circadian. all options and conditional rights issued have market performance conditions so as to align shareholder return and reward for the company’s key management personnel.

2011 circadian annual report 25

directorS’ report continued

Hedging of unvested options

the company prohibits executives from entering into arrangements to protect the value of unvested options. the prohibition includes entering into contracts to hedge their exposure to options awarded as part of their remuneration package.

the company has ensured adherence to this policy by requesting each KMp to sign a declaration of compliance with the hedging policy.

options issued in financial years 2007 to 2009

in January 2007, a circadian Senior Management option plan (option plan) was implemented to offer options that are subject to performance hurdles. the options issued to employees (including senior executives) in 2007, 2008 and 2009 pursuant to this option plan were divided equally into three tranches.

the number of options in each tranche will vest on the satisfaction of the following performance conditions during the relevant option period (2007 options within five years of the grant date; 2008 and 2009 options within approximately four years of grant date) (performance Hurdles). the 2007 options issued have an exercise price of $1.50; the 2008 options issued have an exercise price of $1.30 and the 2009 options issued have an exercise price of $1.00 (exercise price).

› tranche 1 – a market price for a circadian share (Share price) achieves not less than 125% of the exercise price;
› tranche 2 – the Share price achieves not less than 150% of the exercise price; and
› tranche 3 – the Share price achieves not less than 175% of the exercise price.

the Share price is to be calculated as the volume weighted average share price of circadian shares traded on the aSX over a consecutive 15-day trading period.

the options issued in the 2008 financial year were to robert Klupacs, pursuant to an executive contract dated 20 december 2007.

Vested options may only be exercised at any time in the last 12 months of the relevant option period.

the exercise price is subject to any adjustment that is required under the aSX listing rules as a consequence of a capital reorganisation or a pro-rata rights issue of shares that occurs after the grant of the options but prior to the exercise of the options.

the board has residual discretion to accelerate vesting (i.e. reduce or waive the performance Hurdles) and exercise of options in the event of a takeover or merger or any other circumstance in accordance with the terms of the option plan.

options in relation to which performance conditions have not been satisfied (i.e. that do not vest) will lapse and will not be able to be exercised, except in circumstances as described below.

options that have not vested will lapse where an option holder ceases employment with circadian other than on retirement, redundancy, death or total and permanent disablement, or unless as otherwise determined by the board in its absolute discretion.

Where an option holder has ceased employment with circadian as a result of resignation, retirement, redundancy, death or total and permanent disablement prior to the end of a performance period but not before the first anniversary of grant date, options (whether vested or not) may be retained by the option holder on a pro-rata basis (the pro-rata being calculated over the period from grant date).

conditional rights issued in financial year 2011

in november 2010, at the annual General Meeting, the shareholders of circadian approved the implementation of the employee conditional rights Scheme. the purposes of the Scheme and the issue of rights are to provide a long-term incentive to circadian staff as part of a focus on transforming remuneration to link to the achievement of performance benchmarks, encourage direct involvement and interest in the performance of the company, and enable the acquisition of a long-term equity interest by its staff.

in March 2011, circadian issued 1,560,000 conditional rights to shares that were taken up by employees. For each conditional right, an employee is entitled to require that circadian issues one free share to them, subject to the achievement of certain milestones, as described in the notice of meeting issued to shareholders on 11 october 2010. the exercise of the rights is conditional on the Group achieving the following milestones:

› Milestone 1 – 33% of the rights will vest if either of the following occurs within 18 months:
if the board determines that a material commercial licensing, joint venture, partnering or similar agreement is entered into and completed; or
annualised royalty income exceeds $2 million.
› Milestone 2 – 67% of the rights will vest if any three of the following occurs within 36 months:
if the board determines that a material commercial licensing, joint venture, partnering or similar agreement is entered into and completed;
the share price based on a 10-day Volume Weighted average price (VWap) at any time exceeds $1.50 within 90 days of the date of the offer, which is 4 March 2011;
completion of necessary studies to have enabled the VGX-200 or VGX-300 series of molecules to be designated “formal drug development candidates”;
identification of a putative biomarker/clinical profile to enable patient selection into phase ii clinical trials; or
annualised sales royalty income exceeds $5 million.
› Milestone 3 – 100% of the rights will vest if any three of the following occur within 48 months:
if the board determines that a material commercial licensing, joint venture, partnering or similar agreement is entered into and completed;
the share price based on a 10-day Volume Weighted average price (VWap) at any time exceeds $1.75 within 90 days of the date of the offer, which is 4 March 2011;
completion of necessary studies to have enabled the VGX-200 or VGX-300 series of molecules to be designated “formal drug development candidates”;
identification of a putative biomarker/clinical profile to enable patient selection into phase ii clinical trials; or
annualised sales royalty income exceeds $7.5 million.

26 2011 circadian annual report

notwithstanding the vesting timetable above, 100% of the conditional rights will crystallise and be able to be exercised if:

› the 10-day Volume Weighted average price (VWap) of the shares is not less than $1.75 at any time;
› in the event of a sale, merger or takeover or other similar event as determined by the board, provided that the sale, merger or takeover effective offer price per share as determined by the board exceeds:
$1.30 per share, if within 12 months of 4 March 2011;
$1.50 per share if within 24 months of 4 March 2011;
$1.75 per share if within 36 months of 4 March 2011; or
$2.00 per share if within 48 months of 4 March 2011.

the conditional rights that have been issued have an expiry date of 31 March 2015. conditional rights in relation to which performance conditions have not been satisfied (i.e. that do not vest) will lapse and will not be able to be exercised.

Further information regarding the conditional rights Scheme can be obtained from note 26(b) of the financial statements.

shareholder returns/value

the following is a summary of shareholder returns/value for the current year and in the previous four financial years:

	2011	2010	2009	2008	2007
	$	$	$	$	$
basic (loss)/earnings per share	(0.22)	(0.15)	(0.22)	(0.03)	0.28
capital return per share	-	-	-	-	-
dividends per share	-	-	-	-	-
nta backing per share @ 30 June	0.47	0.70	0.86	1.28	1.52
circadian share price @ 30 June	0.58	0.52	0.73	0.88	1.28

due to the nature of the Group’s activities (being in the biotechnology industry) as described under principal activities, results year to year do fluctuate. despite increasing strongly and reaching a high of 78 cents during the year, the share price at 30 June 2011 increased slightly above the price at last year end. the factors contributing to this year’s and last year’s financial results are described under operating and Financial review of this report.

employment contracts

Mr robert Klupacs, who was appointed Managing director effective 1 March 2008, is employed under a rolling contract. the current employment contract commenced on 1 december 2007. under the terms of the present contract (including any subsequent board approvals relating to fixed remuneration):

› Mr Klupacs receives fixed remuneration of $387,876 per annum.
› Mr Klupacs may resign from his position and thus terminate this contract by giving three months’ notice.
› on resignation, any unvested lti options will be forfeited.
› the company may terminate this employment agreement by providing:
six months’ notice; or
payment in lieu of the notice period (as detailed above) based on the fixed component of Mr Klupacs’ remuneration and a pro-rata of that part of the annual Sti (if any) that is payable in cash at the time of termination. as stated earlier in this report, Stis are payable on the achievement of Kpis.

on termination notice by the company, any lti options that have vested or that will vest during the notice period will be released. lti options that have not yet vested will be forfeited.

› the company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, Mr Klupacs is only entitled to that portion of remuneration that is fixed, and only up to the date of termination. on termination with cause, any unvested options will immediately be forfeited.

Mr Klupacs was also granted 500,000 options under the terms of the initial contract and, as part of his ongoing remuneration, 500,000 lti options were granted in February 2008. refer to “options issued in financial years 2007 to 2009” above, for terms and conditions of the options granted. at the annual General Meeting held on 11 november 2010, the shareholders gave approval for the grant of 520,000 conditional rights to Mr Klupacs under the company’s employee conditional rights Scheme, resolved to be granted by the board in october 2010 and, upon exercise of those conditional rights, the acquisition of 520,000 ordinary shares underlying those rights, in accordance with the terms of the scheme. refer to “conditional rights issued in financial year 2011” for terms and conditions of the rights granted.

all executives have rolling contracts. the company may terminate the executive’s employment agreement by providing written notice or providing payment in lieu of the notice period (based on the fixed component of the executive’s remuneration). the notice period is determined by the employment agreement for each executive.

2011 circadian annual report 27

directorS’ report continued

on termination notice by the company, any lti options that have vested or that will vest during the notice period will be released. lti options that have not yet vested will be forfeited. the company may terminate the contract at any time without notice if serious misconduct has occurred. Where termination with cause occurs, the executive is only entitled to that portion of remuneration that is fixed and only up to the date of termination. on termination with cause, any unvested options will immediately be forfeited.

remuneration of key management personnel

table 1: remuneration for the year ended 30 June 2011 (Consolidated)

									total
				Post	long-	termination	share-based		performance
			short-term	employment	term	benefts	payment	total	related
		salary	cash	super-	long-service	termination	options/
		& fees	bonus	annuation	leave	pay	rights*
		$	$	$	$	$	$	$	%
Non-executive	directors:
D. Fisher	2011	80,004	-	7,200	-	-	-	87,204	-
	2010	80,004	-	7,200	-	-	-	87,204	-
D. Clarke	2011	56,004	-	5,040	-	-	-	61,044	-
	2010	56,004	-	5,040	-	-	-	61,044	-
T. McMeckan	2011	51,000	-	4,590	-	-	-	55,590	-
	2010	51,000	-	4,590	-	-	-	55,590	-
E. Malta1	2011	80,004	-	7,200	-	-	-	87,204	-
	2010	69,034	-	6,213	-	-	-	75,247	-
C. Montagner	2011	56,004	-	5,040	-	-	-	61,044	-
	2010	56,004	-	5,040	-	-	-	61,044	-
J. Skipper2	2011	-	-	-	-	-	-	-	-
	2010	-	-	-	-	-	-	-	-
Sub-total non-executive directors:
	2011	323,016	-	29,070	-	-	-	352,086	-
	2010	312,046	-	28,083	-	-	-	340,129	-
Executive directors:
R. Klupacs	2011	387,876	60,896	40,389	-	-	105,185	594,346	27.94
	2010	371,172	102,073	42,592	-	-	128,974	644,811	35.83
Other key management personnel:
M. Baldwin3	2011	178,926	29,152	18,727	-	-	31,651	258,456	23.53
	2010	112,461	20,762	11,990	-	-	19,151	164,364	24.28
M. Gerometta4	2011	170,952	27,566	17,867	-	-	13,907	230,292	18.01
	2010	123,000	17,220	12,620	-	-	3,907	156,747	13.48
M. Sullivan5	2011	265,200	-	-	-	-	-	265,200	-
	2010	193,800	-	-	-	-	-	193,800	-
A. Szabo6	2011	-	-	-	-	-	-	-	-
	2010	252,980	26,522	32,445	-	98,230	23,939	434,116	11.62
R. Chadwick7	2011	191,325	23,650	19,348	-	-	26,571	260,894	19.25
	2010	171,020	12,977	16,560	-	-	15,321	215,878	13.11
Sub-total executive KMP
	2011	1,194,279	141,264	96,331	-	-	177,314	1,609,188
	2010	1,224,433	179,554	116,207	-	98,230	191,292	1,809,716
Totals	2011	1,517,295	141,264	125,401	-	-	177,314	1,961,274
	2010	1,536,479	179,554	144,290	-	98,230	191,292	2,149,845

28 2011 circadian annual report

1 dr e. Malta was appointed to the board on 20 august 2009 and remains chairman of the pdrc.

2 dr J. Skipper is an executive director of the ludwig institute of cancer research ltd (licr) and, in accordance with licr policy, he waived his rights to a director’s fee. as a gesture of good faith, the Group paid $46,000 directly to licr as a charitable donation.
3 dr M. baldwin had a period of three months’ unpaid leave during the previous financial year.
4 dr M. Gerometta increased from three days per week in the previous financial year to four days per week in the current financial year.
5 M. Sullivan was appointed on 17 august 2009 and increased from two days per week in the previous financial year to two-and-a-half days per week in the current financial year. He is remunerated through Medicines development limited.
6 a. Szabo ceased to be a key management person upon leaving the company on 1 July 2010.
7 dr r. chadwick increased from four days per week in the previous financial year to four-and-a-half days per week in the current financial year.
*no options have been exercised by the executive directors and other executives in the last seven years.

as at 30 June 2011, no options had vested and all options were “out-of-the-money” (exercise prices range between $1.00 and $1.50, whereas the company’s share price at 30 June 2011 was 52.5 cents).

the value of the options and rights attributed to compensation of certain key management personnel for the current financial year represents the expensing of options that were granted in the 2007, 2008, 2009 and 2011 financial years, and has been determined by allocating the fair value of the options and rights equally over their respective vesting periods.

refer to note 26 of the financial report for details on the valuation of options and rights.

table 2: Compensation options: Granted and vested during the year (Consolidated)

			Granted						Vested
			during year		terms and conditions for each		grant		during year
				fair value per	exercise price		first	last
			Grant	option at grant	per option	expiry	exercise	exercise
		no.	date	date (note 26)	(note 26)	date	date	date	no.
Directors
R. Klupacs	2011	520,000	11/11/2010	$0.20	$0.00 31/3/2015				1,000,000
	2010	-							-
Executives
M. Baldwin	2011	200,000	22/3/2011	$0.25	$0.00 31/3/2015				-
	2010	-							-
M. Gerometta	2011	160,000	22/3/2011	$0.25	$0.00 31/3/2015				-
	2010	-							-
M. Sullivan	2011	-							-
	2010	-							-
R. Chadwick	2011	180,000	22/3/2011	$0.25	$0.00 31/3/2015				-
	2010	-							-
Total options	2011	1,060,000	22/3/2011	$0.25	$0.00 31/3/2015				-
	2010	-							-

refer to note 26 of the financial statements for further details of the share-based payment plans. there were no options granted or shares issued to key management personnel since the end of the financial year.

2011 circadian annual report 29

directorS’ report continued

table 3: options granted as part of remuneration (Consolidated)[1]

	total value of	Value of options	Value of options	Value of options	remuneration
	options granted	expensed during	exercised during	lapsed/forfeited	consisting of options
	during the year	the year2	the year	during the year	for the year3
	$	$	$	$	%
r. Klupacs	105,763	26,441	-	-	27.94
M. baldwin	50,000	12,500	-	-	12.25
M. Gerometta	40,000	10,000	-	-	6.04
M. Sullivan	-	-	-	-	-
r. chadwick	45,000	11,250	-	-	10.18

1 For details on the valuations of the options, including models and assumptions used, refer to note 26 of the financial statements.

2 the values in this column reflect the amount recognised as an expense during the year only on the rights granted during the year.

3 this column reflects the percentage of remuneration consisting of options expensed during the year relating to current year and prior year grants.

no options were exercised during the current year nor did any options lapse during the year.

there were no alterations to the terms and conditions of options granted as remuneration since their grant date.

shares issued on exercise of compensation options (Consolidated)

there were no options exercised by key management personnel during the 2011 and 2010 financial years.

this report has been signed in accordance with a resolution of the directors made on 23 august 2011.

For and on behalf of the board:

==> picture [103 x 36] intentionally omitted <==

==> picture [128 x 50] intentionally omitted <==

robert Klupacs director Melbourne 23 august 2011

dominique Fisher director

30 2011 circadian annual report

Corporate Governance statement

introduction

the corporate Governance framework for circadian technologies limited (circadian) and its subsidiaries (the Group) is set by the circadian board, having regard to compliance with legal requirements, the particular circumstances of the Group and the best interests of the shareholders.

on 2 august 2007, the australian Securities exchange (aSX) corporate Governance council released the Corporate Governance Principles and Recommendations (2nd edition) with the change in the reporting requirements applying to the Group’s first financial year commencing on or after 1 July 2008. the corporate Governance Statement details circadian’s corporate governance practices, including its compliance with the aforementioned requirements. this statement is current as at 23 august 2011 and should be read in conjunction with the directors’ report within this annual report.

circadian’s corporate Governance Statement is structured with reference to the corporate Governance council’s principles and recommendations, which are as follows:

principle 1 lay solid foundations for management and oversight

principle 2 Structure the board to add value

principle 3 promote ethical and responsible decision-making principle 4 Safeguard integrity in financial reporting

principle 5 Make timely and balanced disclosure

principle 6 respect the rights of shareholders principle 7 recognise and manage risk

principle 8 remunerate fairly and responsibly

circadian’s corporate governance practices were in place throughout the year ended 30 June 2011 and were fully compliant with the council’s best-practice recommendations, except for the recommendation regarding the establishment of a nomination committee. the reason for not establishing this committee is explained in the section of this report headed “Structure of the board”.

PrinciPle 1 – lAy solid foundAtions for MAnAGeMent And oVersiGHt

the board of directors is in place to represent and protect the interests of the company’s shareholders. it is responsible for the corporate governance of the Group and guides and monitors the business and affairs of circadian on behalf of its shareholders.

Board functions and charter

the board charter sets out the function and responsibilities of the board in order to facilitate board and management accountability for circadian’s performance and strategic direction. the matters reserved for the board and what has been delegated to senior executives is described in the board charter, which is available on circadian’s website: www.circadian.com.au.

to ensure that the board is well equipped to discharge its responsibilities, it has established guidelines for the nomination and selection of directors and for the operation of the board. upon appointment of a new director, a formal letter of appointment is provided, as well as an induction pack, which includes details pertaining to the company and the obligations of the individual acting in their capacity as a director.

the responsibility for the operation and administration of the company is delegated by the board to the ceo, who in turn may further delegate to senior executive management. the board ensures that the Senior executive Management team (which includes the ceo) is appropriately qualified and experienced to discharge their responsibilities and has in place procedures to assess the performance of the ceo and the senior executive management.

Whilst at all times the board retains full responsibility for guiding and monitoring the company, in discharging its stewardship it makes use of committees. Specialist committees are able to focus on a particular responsibility and provide informed feedback to the board.

to this end, the board has established the following committees:

› audit and risk (see principle 4);
› remuneration (see principle 8); and

For further information on corporate governance policies adopted by circadian, refer to its website: www.circadian.com.au.

› product development review (see other committees).

2011 circadian annual report 31

corporate GoVernance StateMent continued

the roles and responsibilities of these committees are discussed throughout this corporate Governance Statement.

the board seeks to identify the expectations of the shareholders, as well as other regulatory and ethical expectations and obligations. in addition, the board is responsible for identifying areas of significant business risk and ensuring arrangements are in place to adequately manage those risks.

the board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identified by the board. the board has a number of mechanisms in place to ensure that this is achieved including:

› board approval of a strategic plan designed to meet stakeholders’ needs and manage business risk;
› ongoing development of the strategic plan and approving initiatives and strategies designed to ensure the continued growth and success of the entity; and
› implementation of budgets by management and monitoring progress against budget – via the establishment and reporting of both financial and non-financial key performance indicators.

other functions reserved to the board include:

› approval of the annual and half-yearly financial reports;
› approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;
› ensuring that any significant risks that arise are identified, assessed, appropriately managed and monitored; and
› reporting to shareholders.

the separation of responsibilities between the board and management is clearly understood and respected.

executive performance evaluation

the remuneration committee of the board of directors of the company is responsible for determining and reviewing compensation arrangements for the executive and non-executive directors and other senior executive personnel. the remuneration committee assesses the appropriateness of the nature and amount of compensation of senior executives on a periodic basis by reference to relevant employment market conditions, with the overall objective of ensuring maximum shareholder benefit from the retention of a high-quality board and executive team.

the non-executive directors are responsible for evaluating the performance of the Managing director and of the other senior executives. the Managing director also evaluates the performance of the other senior executives and other management (management). the performance evaluation of management involves an assessment of the company’s business performance, whether short-term operational targets and individual performance objectives are being achieved and whether long-term strategic objectives are being achieved. Specific and measurable qualitative and quantitative performance criteria are used.

due to the nature of the company’s activities and the stage that it is at with respect to these activities, profitability is not a performance measure for short-term incentives (Stis), although effective management of the company’s resources in achieving value for shareholders is expected. long-term incentives (ltis) are linked to share price appreciation and key performance indicators (Kpis) for Stis are linked to activities/milestones that are expected to create value for shareholders.

the performance of the Managing director and management is monitored on an informal basis throughout the year with the objective of performing a formal evaluation once a year. a review of the remuneration structure for management was performed in May 2011 by the remuneration committee. this review was in accordance with the aforementioned process. a review of performance against Kpis occurred in July 2011 in accordance with the described policy. Further information on the remuneration committee can be found in the “remuneration report” section of the directors’ report.

the board charter and the performance evaluation process policy are available from circadian’s website: www.circadian.com.au.

PrinciPle 2 – structure tHe boArd to Add VAlue

structure of the Board

the board as of 23 august 2011 consists of seven directors, one of whom is an executive (robert Klupacs, ceo) and six of whom are non-executives. the skills, experience and expertise relevant to the position of director held by each director in office at the date of this report are included in the directors’ report under the section headed “directors”. directors of circadian are considered to be independent when they are independent of management and free from any business or other relationship that could materially interfere with the exercise of their independent judgement.

in the context of director independence, to be considered independent, a non-executive director may not have a direct or indirect material relationship with the company. the board has determined that a material relationship is one that impairs or inhibits, or has the potential to impair or inhibit, a director’s exercise of judgement on behalf of the company and its shareholders.

From a quantitative perspective, an item is considered to be quantitatively immaterial if it is equal to or less than 5% of the relevant base amount. it is considered to be material (unless there is qualitative evidence to the contrary) if it is equal to or greater than 10% of the relevant base amount.

32 2011 circadian annual report

in accordance with the definition of independence above, and the materiality thresholds described, the following directors of circadian are considered to be independent (being the majority of the directors) at the date of this report:

name	Position
d. Fisher	chairman, non-executive director
d. clarke	non-executive director
t. McMeckan	non-executive director
e. Malta	non-executive director
c. Montagner	non-executive director
J. Skipper	non-executive director

the term in office held by each director in office at the date of this report is as follows:

name	term in offce
d. Fisher	6 years
r. Klupacs	3 years, 6 months
d. clarke	6 years
t. McMeckan	3 years, 7 months
e. Malta	2 years
c. Montagner	3 years, 2 months
J. Skipper	3 years

to ensure that the board is well equipped to discharge its responsibilities, it has guidelines for the nomination and selection of directors and for the operation of the board. the existing size of the board and the frequency of board meetings are such that the board’s role in assisting in the appointment process can be undertaken in an efficient manner by the board itself, without the need for a separate nomination committee. the charter of the nomination committee has been incorporated into the board charter and, as such, the board of directors considers all matters that would be relevant for a nomination committee. For additional details, please refer to the company’s board charter on its website.

director’s access to independent professional advice

the board has procedures to allow directors, in the furtherance of their duties, to seek independent professional advice at the company’s expense.

Board and committee performance

board and committee performance is monitored on an informal basis throughout the year with the objective of annual formal performance evaluation (although this may occur every 12 to 20 months). directors participated in an evaluation that was conducted in april 2011 of the board’s and committees’ performance against specific qualitative performance criteria, some of which are measurable. the evaluation was performed with the use of questionnaires, self-evaluations and one-on-one interviews with directors and was designed to cover both the board and also its committees. this was performed in accordance with the company’s performance evaluation process policy (as contained on the

company’s website). the next evaluation is planned to be performed before the end of the 2012 financial year. the performance evaluation of the non-executive directors is aligned with their responsibilities under the board charter and includes areas such as: board structure, board role and responsibilities, strategy and planning, monitoring of company performance and board culture and relationships (amongst each director and with management).

Appointment of directors

to be considered for membership on the board, a candidate should meet the following criteria:

› be of proven integrity with a history of relevant achievements that reflect high standards;
› demonstrate intelligence, wisdom and thoughtfulness in decisionmaking that usually will be based on broad experience;
› be able and willing to commit the time and energy necessary to attend to the company’s affairs, including attending board and board committee meetings;
› be committed to building sound, long-term growth in the value of the company; and
› be able to objectively review and evaluate management’s performance and implementation of strategy.

it is the board’s policy to determine the terms and conditions relating to the appointment and retirement of non-executive directors on a case-by-case basis and in conformity with requirements of the aSX listing rules and the Corporations Act 2001 . as circadian is not a large company, a separate nomination committee has not been created. appointment and retirement of directors will be in accordance with the following:

› the board will consider from time to time changes that the board believes to be desirable to the size of the board or any committee thereof;
› where a board vacancy exists (including a vacancy created by an increase in size of the board), the board will identify individuals believed to be qualified to become board members to stand for election as directors at the annual General Meeting of shareholders. in nominating candidates, the board shall take into consideration the qualifications of the candidate and the characteristics of the candidate to ensure that directors are of the highest standard. these factors may include judgement, skill, diversity, experience with businesses and other organisations of comparable size, the interplay of the candidate’s experience with the experience of other board members, and the extent to which the candidate would be a desirable addition to the board and any committees of the board. the board may consider candidates proposed by management, but is not required to do so; and
› where a vacancy exists on any board committee, the board will appoint a director to that committee, taking into consideration the factors set forth in the charter of the committee, if any, as well as any other factors it deems appropriate, including, without limitation, applicable legislative requirements, the consistency of the candidate’s experience with the goals of the committee and the interplay of the candidate’s experience with the experience of other committee members.

2011 circadian annual report 33

corporate GoVernance StateMent continued

the board is responsible for ensuring that an effective induction process is in place for new directors appointed to the board as discussed above.

the board charter was reviewed and updated with minor modifications in april 2011 and can be found on circadian’s website: www.circadian.com.au.

PrinciPle 3 – ProMote etHicAl And resPonsible decision-MAkinG

Code of Conduct

the circadian code of conduct as approved by the board sets out circadian’s commitment and practices to successfully conduct our business in accordance with all applicable laws, while demonstrating and promoting the highest ethical standards. it sets out the standards of conduct in employees’ and directors’ relationships with each other, with the employer and with all those with whom the directors and employees deal in their work. the code provides a framework for decision-making and business behaviour that builds and maintains circadian’s corporate integrity and reputation, and identifies responsibilities for reporting and investigating breaches. the code applies to all employees and directors. the code of conduct was reviewed and updated in april 2011 and can be found on circadian’s website: www.circadian.com.au.

securities trading policy

the company has in place a Securities trading policy that details the trading policy with respect to the buying and selling of shares by directors and relevant employees.

under the company’s Securities trading policy for the buying and selling of company securities, an executive, director or other employee must not trade in any securities of the company at any time when they are in possession of unpublished, price sensitive information in relation to those securities.

a designated officer should not deal in securities of circadian without receiving clearance from an approving officer(s) who has ensured that there is no unpublished price sensitive information.

a designated officer means a director or person engaged in the management of the Group, whether as an employee or consultant.

an approving officer means:

(a) for a designated officer who is not a director, the chief executive officer (ceo);
(b) for a director (except the chairman of the board), the chairman of the board and the ceo; and
(c) for the chairman of the board, the chairman of the audit committee and the ceo.

Generally, a designated officer must not be given clearance to deal in any securities of circadian during:

(b) any period when there exists any matter that constitutes unpublished price sensitive information in relation to circadian’s securities; or
(c) any period when the person responsible for the clearance otherwise has reason to believe that the proposed dealing is in breach of this policy.

as required by the aSX listing rules, the company notifies the aSX of any transaction conducted by directors in the securities of the company. the Securities trading policy was reviewed in april 2011, a copy of which is available on circadian’s website: www.circadian.com.au.

diversity policy

in april 2011, the company established a separate diversity policy in accordance with recommendation 3.2 of the aSX corporate Governance principles and recommendations. a copy of the policy is available on the company’s website.

circadian’s policy is to leverage diversity through the attraction, retention and development of a diverse team of talented people in the company at all levels, including the board. this means using diversity to contribute to the achievement of the company’s strategic objectives and corporate goals.

the remuneration committee has the responsibility to, at least annually, report on the relative proportion of women and men in the workforce at all levels of the company. details of the company’s diversity statistics can be found in the “remuneration report” section of the directors’ report.

PrinciPle 4 – sAfeGuArd inteGrity in finAnciAl rePortinG

Audit and risk Committee

the audit and risk committee operates under a charter approved by the board. it is the board’s responsibility to ensure that an effective control framework exists within the entity. this includes ensuring that there are internal controls to deal with both the effectiveness and efficiency of significant business processes. this includes the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information as well as non-financial considerations. the board has delegated the responsibility for the establishment and maintenance of a framework of internal control and ethical standards for the management of the consolidated entity to the audit and risk committee.

the audit and risk committee also provides the board with additional assurance regarding the reliability of financial information for inclusion in the financial statements. all members of the audit and risk committee are independent non-executive directors. the members who served on the audit and risk committee during the 2011 financial year were Ms tina McMeckan, Ms dominique Fisher and Mr don clarke.

(a) any closed period (that is for the period of one month before the publication of annual and half-yearly financial results);

34 2011 circadian annual report

the audit and risk committee is also responsible for nomination of the external auditor and reviewing the adequacy of the scope and quality of the annual statutory audit and half-year statutory review. the audit and risk committee charter was reviewed and updated in June 2011. it can be found on the company’s website (www.circadian.com.au) and contains the procedures for the selection, appointment and rotation of external audit engagement partners.

Qualifications of Audit and risk Committee members

Ms tina McMeckan has chaired the audit and risk committee since 21 august 2008. Her specific skills are in the commercialisation of science and technology and the energy sector. Ms McMeckan, who has an Mba, is presently chairman of the centre for eye research australia, a director of Sp ausnet limited, Metlink pty ltd, crc for Spatial information and the Global carbon capture and Storage institute. She has been/is a member of audit/finance committees for MediHerb Holdings limited, nanotechnology Victoria limited (chair), Vision cooperative research centre and the centre for eye research australia limited (chair). She was chairman of nanoVentures australia ltd and was also a member of the national board of norton rose (formerly deacons) law firm. Ms McMeckan is a past member of the Funds Management committee of the ausindustry research and development board and has held senior investment management positions with the australian industry development corporation and amrad corporation ltd (acquired by cSl limited), focusing on capital raisings for innovation-based ventures.

Ms dominique Fisher has extensive business experience in the corporate area, including the commercialisation of new technologies. She is principal and executive director of ec Strategies pty ltd, which advises local and overseas companies on technology strategies and major commercial transactions, and chairman of Sky technologies pty ltd, Managing director of Helix digital pty ltd and is a member of the prostate cancer Foundation Victoria. From 2007 to 2010 she was a non-executive director of pacific brands limited and was a member of its audit and risk committee. She is a former director of insurance australia Group (iaG) and was a member of its risk Management and compliance committee from 2000 to 2004.

Mr don clarke has been a partner with the law firm Minter ellison since 1988, having joined that firm in 1980. He has broad commercial practice (involving predominantly aSX listed companies in the SMe sector and larger private companies) and experience across a broad sector of industries. He is also a non-executive director of listed companies Webjet limited (appointed January 2008) and phosphagenics limited (appointed august 2010), and a former director of calzada limited (formerly Metabolic pharmaceuticals limited).

For details on the number of meetings of the audit and risk committee held during the year and the attendees at those meetings, refer to the directors’ report under the section headed “directors’ Meetings”.

PrinciPle 5 – MAke tiMely And bAlAnced disclosure

the circadian continuous disclosure policy as approved by the board sets out the key obligations of the board and management to ensure compliance under the disclosure obligations under the aSX listing rules and the Corporations Act 2001 , and ensures that the obligation of employees and directors with respect to the continuous disclosure policy are clear.

the board has overall responsibility for supervision of the company and must ensure that the company meets its disclosure obligations. the board has appointed the company Secretary as disclosure officer to ensure that continuous disclosure requirements of the aSX listing rules and the Corporations Act 2001 are adhered to.

the general rule, contained in the listing rules, requires the company to immediately notify the aSX of any information concerning the company that a reasonable person would expect to have a material effect on the price or value of securities of the company. in certain circumstances, however, the applicable listing rules permit the company not to disclose material information.

the continuous disclosure policy was reviewed in april 2011 and is available on circadian’s website: www.circadian.com.au.

PrinciPle 6 – resPect tHe riGHts of sHAreHolders

the circadian communications policy, as approved by the board, is designed to describe the processes circadian has in place to promote communication with its investors and encourage shareholder participation at aGMs. the policy advocates communication with shareholders and other stakeholders in an open, regular and timely manner to ensure that all stakeholders have sufficient information to make informed decisions on the operations and results of the company. the policy provides for the use of systems involving technologies that ensure a regular and timely release of information about the company. Mechanisms employed include:

› all information released to the aSX (including annual reports, half-yearly reports, and notices of general meetings and their associated explanatory material) is posted on circadian’s website as soon as practicable following confirmation of receipt by the aSX;
› annual reports (if requested) and notices of general meetings with explanatory material are emailed or mailed to investors; and
› briefings provided to investors and analysts, with whom circadian acknowledges the importance of its relationship. a copy of any presentation material provided at briefings will be posted on circadian’s website.

the communications policy, which was reviewed in april 2011, is available on circadian’s website: www.circadian.com.au.

2011 circadian annual report 35

corporate GoVernance StateMent continued

PrinciPle 7 – recoGnise And MAnAGe risk

risk

the board determines the company’s risk profile and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control. this process is designed to manage the company’s material business risks and report on whether those risks are being managed effectively.

Material business risks are those risks that are the most significant areas of uncertainty or exposure that could adversely impact on the achievement of company objectives.

Management, as part of their responsibility for the operations of the company, is also responsible for ensuring that risks are identified in a prospective manner, controls implemented to mitigate those risks and appropriate review procedures established to ensure that the controls in place are operating effectively. if new material risks are identified or if controls over existing risks are not operating effectively, these should be reported to the board for consideration along with recommendations by management, covering new or existing controls and review processes that would mitigate the risks.

the board oversees an annual assessment of the effectiveness of risk management and internal compliance and control. the responsibility for undertaking and assessing risk management and internal control effectiveness is delegated to management. at the company’s audit and risk committee meeting held in december 2010, management presented their annual risk review. as is required by the board, management is required to assess risk management and associated internal compliance and control procedures and report back on the efficiency and effectiveness of these controls and processes. the report was considered by the audit and risk committee and noted by the board at the board meeting held in december 2010. Management, with the assistance of its insurance broker, undertook an annual review, in September 2010, of the company’s insurance requirements to ensure appropriate coverage.

the board and senior management continue to identify the general areas of risk, including:

› economic outlook and share market activity;
› changing government policy (australian and overseas);
› competitors’ products/research and development programs;

to this end, comprehensive practices are in place that are directed towards achieving the following objectives:

› effectiveness and efficiency in the use of the company’s resources;
› compliance with applicable laws and regulations; and
› preparation of reliable published financial information.

Ceo and CFo certification

in accordance with section 295a of the Corporations Act 2001 , the ceo and chief Financial officer (cFo) have provided a written statement to the board that:

› their view provided on the company’s financial report is founded on a sound system of risk management and internal compliance and control that, in all material respects, implements the financial policies adopted by the board; and
› the company’s risk management and internal compliance and control systems are operating effectively in all material respects.

the risk Management policy, which was reviewed and updated in June 2011, is available on circadian’s website: www.circadian.com.au.

PrinciPle 8 – reMunerAte fAirly And resPonsibly

performance

policies and procedures in place with respect to monitoring the performance of the board are set out in the directors’ report under the section headed “remuneration report” as well as under “principle 2 – Structure the board to add value” in this report. also see details under “remuneration committee” below.

remuneration Committee

it is the company’s objective to provide maximum stakeholder benefit from the retention of a high-quality board and executive team by remunerating directors and key executives fairly and appropriately with reference to relevant market conditions. to assist in achieving this objective, the remuneration committee remunerates directors and executives having regard to their performance and the performance of the company. the expected outcomes of the remuneration policies and practices are to enable the company to motivate, retain and attract directors and executives who will create value for shareholders.

› market demand and market prices for therapeutics/diagnostics;
› legal proceedings commenced against the company (if any);
› environmental regulations;
› ethical issues relating to pharmaceutical research and development;
› other government regulations, including those specifically relating to the biotechnology and health industries; and

details relating to policy for performance evaluation, policy for remuneration and the amount of remuneration (monetary and non-monetary) paid to each director and to the non-director executives are set out in the directors’ report under the section headed “remuneration report”.

there is no scheme to provide retirement benefits, other than statutory superannuation, to non-executive directors.

› occupational health and safety and equal opportunity law.

36 2011 circadian annual report

at no time have any directors or management of the company limited the risk of participating in unvested entitlements under an equity-based remuneration scheme. a policy to this effect was incorporated into the Securities trading policy and adopted by the board on 14 September 2009. this policy can be found on the company’s website.

the members of the remuneration committee during the year were Mr don clarke (chairman), Mr carlo Montagner and dr errol Malta.

details relating to performance evaluation are set out in the section of the directors’ report headed “remuneration report”. For details on the number of meetings of the remuneration committee held during the year and the attendees at those meetings, refer to the directors’ report under the section headed “directors’ Meetings”.

Mr carlo Montagner, a non-executive director of circadian, is president oncology pan asia for nasdaq listed abraxis bioscience inc. carlo has a wealth of experience in heading global oncology businesses for blockbuster chemotherapeutic products. He is former executive Vice president & Global Head of Schering aG/berlex labs united States oncology business unit.

Mr ralph Smalling has held senior positions with amgen inc for over 23 years, including Head of regulatory affairs. He has overseen the development of more than 40 antibody and recombinant protein therapies projects through various stages (pre-clinical to marketing).

dr richard Morgan has more than 25 years‘ experience in pharmaceutical research and development, including Head of toxicology at GlaxoWellcome (now GlaxoSmithKline).

the remuneration committee charter, which was reviewed and updated in april 2011, can be found on circadian’s website: www.circadian.com.au.

otHer coMMittee

product development review Committee

the product development review committee’s role is to provide advice on and scrutinise the company’s research, drug-development and commercialisation strategies.

the members of this committee hold or held senior positions with large pharmaceutical or biotechnology companies and they bring to the company extensive experience in international drug development, toxicology, clinical development, oncology, therapeutic antibodies and commercialisation of products.

the members of the committee and their relevant experience are as follows:

dr errol Malta, a non-executive director of circadian, whose credentials include working with the largest biotech company in the uS, amgen inc, for more than 10 years, is chairman of the committee. He served as product development team leader for eight of those years, and was responsible for global drug development and commercialisation in the uS, eu and Japan.

dr George Morstyn, former Senior Vice-president and Head of development at amgen inc, was a member of the executive committee and responsible for global pre-clinical and clinical development as well as regulatory affairs. dr Morstyn trained in medical oncology at the national cancer institute in the uS.

dr russell Howard is ceo of uS nasdaq listed Maxygen inc, a company focused on human therapeutics with several programs in protein pharmaceuticals. dr Howard also served as the president and Scientific director of affymax research institute, an institute employing combinatorial chemistry and high throughput target screening to discover drug leads.

2011 circadian annual report 37

noteS to tHe conSolidated Financial StateMentS InsIde thIs report For tHe Year ended 30 June 2011 Consolidated statement of Financial position 40

Consolidated statement of Financial position 40 Consolidated statement of Comprehensive Income 41 Consolidated statement of Changes in equity 42 Consolidated statement of Cash Flows 44 notes to the Consolidated Financial statements 45

directors’ declaration 83 Independent Auditor’s report 84

Financial report

38 2011 circadian annual report

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2011 circadian annual report 39

conSolidated StateMent oF Financial poSition aS at 30 June 2011

	note	2011	2010
		$	$
aSSetS
Current Assets
cash and cash equivalents	11	22,104,414	31,855,169
receivables	12	208,546	262,314
Prepayments		80,129	71,615
Total Current Assets		22,393,089	32,189,098
Non-Current Assets
Available-for-sale fnancial assets	13	1,328,931	1,755,612
investments in associates	14	493,431	528,728
deferred tax assets	9	189,441	45,536
Plant and equipment	16	97,505	53,851
Total Non-Current Assets		2,109,308	2,383,727
TOTAL ASSETS		24,502,397	34,572,825
liabilitieS
Current Liabilities
Payables	17	2,239,182	2,390,023
Provisions	18	196,651	173,020
Total Current Liabilities		2,435,833	2,563,043
Non-Current Liabilities
deferred tax liability	9	189,441	155,136
Provisions	19	52,950	34,552
Total Non-Current Liabilities		242,391	189,688
TOTAL LIABILITIES		2,678,224	2,752,731
NET ASSETS		21,824,173	31,820,094
eQuitY
contributed equity	20	38,374,094	38,374,094
retained earnings	21	(13,246,618)	(2,981,272)
reserves	21	(3,303,303)	(3,572,728)
TOTAL EQUITY		21,824,173	31,820,094

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

40 2011 circadian annual report

conSolidated StateMent oF coMpreHenSiVe incoMe For tHe Year ended 30 June 2011

	note	2011	2010
		$	$
finance revenue		1,388,313	1,629,750
other revenue		446,154	621,712
Revenue	6	1,834,467	2,251,462
other income	7(a)	15,274	85,247
Gain on cessation of equity accounting	7(b)	-	2,839,768
research and development expenses	23	(6,570,095)	(4,295,334)
Patent expenses		(562,843)	(1,044,370)
intellectual property costs		(147,006)	(116,727)
Administrative expenses	8(c)	(4,505,946)	(5,232,311)
occupancy expenses	8(b)	(147,510)	(142,465)
impairment losses	8(a)	(611,439)	(1,163,567)
share of net proft/(loss) of associates	14(e)	31,195	(20,441)
net foreign exchange losses		(379,379)	-
Loss before income tax		(11,043,282)	(6,838,738)
income tax (expense)/beneft	9	777,936	(109,502)
Loss forperiod		(10,265,346)	(6,948,240)
Other comprehensive income
net unrealised gains/(losses) on non-current listed investments for the period		184,759	(368,040)
share in associate’s movement in equity reserve	21	-	12,778
Gain on new share issue by associate	21	-	114,975
income tax on items of other comprehensive income	21	(80,114)	-
other comprehensive income for the period, net of tax		104,645	(240,287)
Total comprehensive loss for theperiod		(10,160,701)	(7,188,527)
loss for the period is attributable to:
non-controlling interest		-	256
owners of theparent	21	(10,265,346)	(6,948,496)
		(10,265,346)	(6,948,240)
total comprehensive loss for the period is attributable to:
non-controlling interest		-	256
owners of theparent		(10,160,701)	(7,188,783)
		(10,160,701)	(7,188,527)
earnings per share for loss attributable to the ordinary equity holders of the parent:
– basic and diluted loss per share (cents)	10	(22.20)	(15.36)

the above consolidated statement of comprehensive income should be read in conjunction with the accompanying notes.

2011 circadian annual report 41

conSolidated StateMent oF cHanGeS in eQuitY For tHe Year ended 30 June 2011

			Asset
		contributed	revaluation	option
	note	equity	reserve	reserve
		$	$	$
As at 1 July 2009		38,374,094	734,407	19
net unrealised gains on non-current
listed investments for the period*	21(b)	-	-	-
share of associates’ movement in equity reserve*	14(b)	-	-	-
Gain on new share issue by associate		-	-	-
loss for theyear*		-	-	-
total comprehensive income and expense for the year		-	-	-
cost of share-based payment	21(b)	-	-	-
disposal of subsidiary which had non-controlling interests		-	-	-
Balance at 30 June 2010		38,374,094	734,407	19
As at 1 July 2010		38,374,094	734,407	19
net unrealised losses on non-current listed investments for the period*	21(b)	-	-	-
share of associates’ movement in equity reserve*	14(b)	-	-	-
loss for the year*		-	-	-
total comprehensive income and expense for the period		-	-	-
cost of share-basedpayment	21(b)	-	-	-
Balance at 30 June 2011		38,374,094	734,407	19

*amounts are after tax.

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

42 2011 circadian annual report

contributed	employee		net
capital of associate	equity benefts	equity reserve-	unrealised gains	retained		non- controlling	total
reserve	reserve	parent	reserve	earnings	total	interests	equity
$	$	$	$	$	$	$	$
1,053,119	1,264,570	(7,172,143)	527,707	3,967,224	38,748,997	24,222	38,773,219
-	-	-	(368,040)	-	(368,040)	-	(368,040)
12,778	-	-	-	-	12,778	-	12,778
114,975	-	-	-	-	114,975	-	114,975
-	-	-	-	(6,948,496)	(6,948,496)	256	(6,948,240)
127,753	-	-	(368,040)	(6,948,496)	(7,188,783)	256	(7,188,527)
-	259,880	-	-	-	259,880	-	259,880
-	-	-	-	-	-	(24,478)	(24,478)
1,180,872	1,524,450	(7,172,143)	159,667	(2,981,272)	31,820,094	-	31,820,094
1,180,872	1,524,450	(7,172,143)	159,667	(2,981,272)	31,820,094	-	31,820,094
-	-	-	104,645	-	104,645	-	104,645
-	-	-	(66,492)	-	(66,492)	-	(66,492)
-	-	-	-	(10,265,346)	(10,265,346)	-	(10,265,346)
-	-	-	38,153	(10,265,346)	(10,227,193)	-	(10,227,193)
-	231,272	-	-	-	231,272	-	231,272
1,180,872	1,755,722	(7,172,143)	197,820	(13,246,618)	21,824,173	-	21,824,173

2011 circadian annual report 43

conSolidated StateMent oF caSH FloWS For tHe Year ended 30 June 2011

	note	2011	2010
		$	$
Cash fows from operating activities:
interest received		1,396,391	1,626,296
royalty and licence income received		451,506	519,452
Grant income		-	2,500
Payments to suppliers, employees and for research &
development and intellectual property costs (inclusive of Gst)		(11,851,687)	(9,878,241)
income tax refund	9(a)	588,225	-
Net cash fows used in operating activities	22(a)	(9,415,565)	(7,729,993)
Cash fows from investing activities:
Proceeds on disposal of subsidiary		-	50,615
Acquisition of fnancial investments		-	(15,000)
Proceeds from sale of investments		15,260	151,470
Purchase of plant and equipment		(76,878)	(23,151)
repayment of loan by associate		-	629,987
Net cash fows (used in)/from investing activities		(61,618)	793,921

Net cash fows used in fnancing activities:		-	-
net decrease in cash and cash equivalents		(9,477,183)	(6,936,072)
net foreign exchange differences		(273,572)	16,513
cash and cash equivalents at beginning of year		31,855,169	38,836,560
less cash held by subsidiary disposed of during theperiod		-	(61,832)
Cash and cash equivalents at end of year	11	22,104,414	31,855,169

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

44 2011 circadian annual report

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

1. corporate inForMation

the consolidated financial report of circadian technologies limited (circadian or the company) for the year ended 30 June 2011 was authorised for issue in accordance with a resolution of the directors on 23 august 2011.

circadian (the parent) is a company limited by shares incorporated in australia whose shares are publicly traded on the australian Securities exchange. circadian also operates an american depositary receipt (adr) program where one adr is the equivalent of 5 shares. adrs are publicly traded on the QtcQX in the united States of america.

the nature of the operations and principal activities of the Group are described in the directors’ report.

2. SuMMarY oF SiGniFicant accountinG policieS

basis of preparation

(a) compliance with iFrS

(b) new accounting standards and interpretations (c) basis of consolidation (d) Foreign currency translation (e) cash and cash equivalents

Basis of preparation

the financial report is a general-purpose financial report, which has been prepared in accordance with the requirements of the Corporations Act 2001 , australian accounting Standards and other authoritative pronouncements of the australian accounting Standards board. the financial report has also been prepared on a historical cost basis, except for investments classified as availablefor-sale, which have been carried at fair value and investment in associate, which has been equity accounted for. these accounting policies have been consistently applied throughout the Group.

the financial report is presented in australian dollars.

(a) Compliance with IFrs

the financial report also complies with international Financial reporting Standards (iFrS) as issued by the international accounting Standards board.

(b) new accounting standards and interpretations

australian accounting Standards and interpretations that have recently been issued or amended but are not yet effective and have not been adopted by the Group for the annual reporting period ended 30 June 2011, are outlined in the table below.

(f) current receivables
(g) investments and other financial assets
(h) impairment of financial assets (i) acquisition of non-controlling interests – premium on acquisition
(j) investments in subsidiaries
(k) investments in associates (l) interest in a jointly controlled operation (m) plant and equipment

(n) leases (o) impairment of non-financial assets other than goodwill (p) intangible assets (q) intellectual property costs (r) research and development costs (s) payables (t) loans and borrowings (u) provisions and employee benefits (v) Share-based payment transactions (w) contributed equity (x) revenue recognition

(t) (u) (v) (w) (x)	loans and borrowin provisions and emp Share-based payme contributed equity revenue recognitio
(y)	income tax
(z)	other taxes
(aa)	Government grants
(ab)	earnings per share
(ac)	comparatives

2011 circadian annual report 45

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

2. SuMMarY oF SiGniFicant accountinG policieS (continued)

(b) new accounting standards and interpretations (continued)

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----- Start of picture text -----

Application Impact Application
date of on Group date for
reference title summary standard financial report Group
----- End of picture text -----

aaSb 9	Financial	aaSb 9 includes requirements for the classifcation	1 January 2013	the Group has	1 July 2013
	instruments	and measurement of fnancial assets resulting from		not assessed the
		the frst part of phase 1 of the iaSb’s project to		impact of the new
		replace iaS 39 Financial instruments: recognition		standard on its
		and Measurement (AASB 139 Financial Instruments:		fnancial report.
		Recognition and Measurement).
		the main changes from aaSb 139 are:
		(a) Financial assets are classifed based on (1)
		the objective of the entity’s business model
		for managing the fnancial assets; (2) the
		characteristics of the contractual cash fows.
		this replaces the numerous categories of
		fnancial assets in aaSb 139, each of which
		had its own classifcation criteria.
		(b) aaSb 9 allows an irrevocable election on initial
		recognition to present gains and losses on
		investments in equity instruments that are not
		held for trading in other comprehensive income.
		dividends in respect of these investments that
		are a return on investment can be recognised
		in proft or loss and there is no impairment
		or recycling on disposal of the instrument.
		(c) Financial assets can be designated and measured
		at fair value through proft or loss at initial
		recognition if doing so eliminates or signifcantly
		reduces a measurement or recognition
		inconsistency that would arise from measuring
		assets or liabilities, or recognising the gains
		and losses on them, on different bases.
aaSb	amendments	(a) these amendments arise from the issuance	1 January 2013	the Group has	1 July 2013
2009-11	to australian	of_AASB 9 Financial Instruments_that sets		not assessed the
	accounting	out requirements for the classifcation		impact of the new
	Standards arising	and measurement of fnancial assets. the		standard on its
	from aaSb 9	requirements in aaSb 9 form part of the frst		fnancial report.
	[aaSb 1, 3, 4, 5, 7, 101, 102, 108, 112,	phase of the international accounting Standards board’s project to replace_IAS 39 Financial_
	118, 121, 127, 128,	Instruments: Recognition and Measurement.
	131, 132, 136, 139,	(b) this Standard shall be applied when aaSb 9
	1023 & 1038 and	is applied.
	interpretations
	10 & 12]
aaSb 124	related party	the revised aaSb 124 simplifes the defnition of	1 January 2011	this could have	1 July 2011
(revised)	disclosures	a related party, clarifying its intended meaning		an impact on the
	(december 2009)	and eliminating inconsistencies from the defnition,		Group’s future
		including:		reporting periods.
		(a) the defnition now identifes a subsidiary and an
		associate with the same investor as related parties
		of each other.
		(b) entities signifcantly infuenced by one person
		and entities signifcantly infuenced by a close
		member of the family of that person are no
		longer related parties of each other.
		(c) the defnition now identifes that, whenever
		a person or entity has both joint control over
		a second entity and joint control or signifcant
		infuence over a third party, the second and
		third entities are related to each other.

46 2011 circadian annual report

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----- Start of picture text -----

Application Impact Application
date of on Group date for
reference title summary standard financial report Group
----- End of picture text -----

aaSb 1054	australian	this standard is as a consequence of phase 1 of the	1 July 2011	this could have	1 July 2011
	additional	joint trans-tasman convergence project of the aaSb		an impact on the
	disclosures	and FrSb. this standard relocates all australian		Group’s future
		specifc disclosures from other standards to one		reporting periods.
		place and revises disclosures in the following areas:
		(a) compliance with australian accounting Standards
		(b) the statutory basis or reporting framework for
		fnancial statements
		(c) whether the fnancial statements are general
		purpose or special purpose
		(d) audit fees
		(e) imputation credits.
aaSb	Further	emphasises the interaction between quantitative and	1 January 2011	the Group has	1 July 2011
2010-4	amendments	qualitative aaSb 7 disclosures and the nature and		considered the
	to australian	extent of risks associated with fnancial instruments.		impact of this
	accounting Standards arising from the annual improvements project [aaSb 1, aaSb 7, aaSb 101, aaSb 134 and interpretation	clarifes that an entity will present an analysis of other comprehensive income for each component of equity, either in the statement of changes in equity or in the notes to the fnancial statements. provides guidance to illustrate how to apply disclosure principles in aaSb 134 for signifcant events and transactions.		amendment on its fnancial report.
	13]
aaSb	amendments	the amendments increase the disclosure	1 July 2011	this amendment	1 July 2011
2010-6	to australian	requirements for transactions involving transfers of		will not have an
	accounting	fnancial assets. disclosures require enhancements		impact on the
	Standards –	to the existing disclosures in iFrS 7 where an asset		Group’s fnancial
	disclosures on	is transferred but is not derecognised and introduce		report.
	transfers of	new disclosures for assets that are derecognised but
	Financial assets	the entity continues to have a continuing exposure
	[aaSb 1 & aaSb 7]	to the asset after the sale.
aaSb	amendments	the requirements for classifying and measuring	1 January 2013	the Group has	1 July 2013
2010-7	to australian	fnancial liabilities were added to aaSb 9. the		not assessed the
	accounting	existing requirements for the classifcation of fnancial		impact of the new
	Standards arising	liabilities and the ability to use the fair value option		standard on its
	from aaSb 9	have been retained. However, where the fair value		fnancial report.
	(december 2010)	option is used for fnancial liabilities the change
	[aaSb 1, 3, 4, 5, 7,	in fair value is accounted for as follows:
	101, 102, 108, 112, 118, 120, 121, 127, 128, 131, 132, 136,	(a) the change attributable to changes in credit risk are presented in other comprehensive income (oci)
	137, 139, 1023, & 1038 and interpretations 2,	(b) the remaining change is presented in proft or loss.
	5, 10, 12, 19 & 127]

2011 circadian annual report 47

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

2. SuMMarY oF SiGniFicant accountinG policieS (continued)

(b) new accounting standards and interpretations (continued)

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----- Start of picture text -----

Application Impact Application
date of on Group date for
reference title summary standard financial report Group
----- End of picture text -----

iFrS	10	consolidated	iFrS 10 establishes a new control model that	1 January 2013	the Group has	1 July 2013
		Financial	applies to all entities. it replaces parts of iaS 27		not assessed the
		Statements	consolidated and Separate Financial Statements		impact of the new
			dealing with the accounting for consolidated		standard on its
			fnancial statements and Sic-12 consolidation –		fnancial report.
			Special purpose entities.
			the new control model broadens the situations
			when an entity is considered to be controlled by
			another entity and includes new guidance for
			applying the model to specifc situations, including
			when acting as a manager may give control, the
			impact of potential voting rights and when holding
			less than a majority voting rights may give control.
			this is likely to lead to more entities being
			consolidated into the group.
iFrS	11	Joint	iFrS 11 replaces iaS 31 interests in Joint Ventures	1 January 2013	the Group has	1 July 2013
		arrangements	and Sic-13 Jointly-controlled entities – non-		not assessed the
			monetary contributions by Ventures. iFrS 11 uses		impact of the new
			the principle of control in iFrS 10 to defne joint		standard on its
			control, and therefore the determination of whether		fnancial report.
			joint control exists may change. in addition, iFrS 11
			removes the option to account for jointly-controlled
			entities (Jces) using proportionate consolidation.
iFrS	12	disclosure of	iFrS 12 includes all disclosures relating to an entity’s	1 January 2013	the Group has	1 July 2013
		interests in other	interests in subsidiaries, joint arrangements,		not assessed the
		entities	associates and structures entities. new disclosures		impact of the new
			have been introduced about the judgements made		standard on its
			by management to determine whether control exists,		fnancial report.
			and to require summarised information about joint
			arrangements, associates and structured entities
			and subsidiaries with non-controlling interests.
iFrS	13	Fair Value	iFrS 13 establishes a single source of guidance	1 January 2013	the Group has	1 July 2013
		Measurement	under iFrS for determining the fair value of assets		not assessed the
			and liabilities. iFrS 13 does not change when		impact of the new
			an entity is required to use fair value, but rather,		standard on its
			provides guidance on how to determine fair value		fnancial report.
			under iFrS when fair value is required or permitted
			by iFrS.

48 2011 circadian annual report

(c) Basis of consolidation

the consolidated financial statements comprise the financial statements of circadian and its controlled entities (as outlined in note 24) as at and for the period ended 30 June each year (the Group). interests in associates are equity accounted and are not part of the consolidated Group (see note (k) below).

controlled entities are those entities over which the Group has the power to govern the financial and operating policies so as to obtain benefits over their activities. the existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity.

entities over which the Group has no ownership interest but in effect the substance of the relationship is such that the Group controls the entity so as to obtain the majority of benefits from its operation, are also consolidated.

the financial statements of the controlled entities are prepared for the same reporting period as the parent company, using consistent accounting policies.

in preparing the consolidated financial statements, all intercompany balances and transactions, income and expenses and profit and losses resulting from intra-group transactions have been eliminated in full.

controlled entities are fully consolidated from the date on which control is obtained by the Group and cease to be consolidated from the date on which control is transferred out of the Group.

non-controlling interests represent the portion of net profit/loss after tax and net assets in cancerprobe pty ltd attributable to the Group and are presented separately as an item in the statement of comprehensive income and within equity in the consolidated statement of financial position. refer note (i) below for acquisition of non-controlling interests.

(d) Foreign currency translation

(i) functional and presentation currency

both the functional and presentation currency of circadian and its australian subsidiaries is australian dollars ($). the Finland subsidiary, which was incorporated during the current financial year but has not made any transactions, will have a functional currency of euro, which is translated into the presentation currency.

(ii) transactions and balances

transactions in foreign currencies are initially recorded in the functional currency by applying the exchange rates ruling at the date of the transaction.

Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the reporting date.

non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rate as at the date of the initial transaction. non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(e) Cash and cash equivalents – refer note 11

cash and cash equivalents in the statement of financial position comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above.

(f) Current receivables – refer note 12

receivables generally comprise bank interest receivable, other receivables from external parties and GSt credits receivable, and are recognised and carried at original invoice amount less an allowance for any uncollectable amounts. the amounts are usually received within 30–60 days of recognition.

collectability of receivables is reviewed on an ongoing basis. debts that are known to be uncollectable are written off when identified. an impairment provision is recognised when there is objective evidence that the Group will not be able to collect the receivable.

(g) Investments and other financial assets – refer note 13

investments and financial assets are classified as available-for-sale investments, or loans and receivables as appropriate, in accordance with AASB 139 Financial Instruments: Recognition and Measurement. the classification depends on the purpose for which the investments were acquired or originated. designation is re-evaluated at each reporting date, but there are restrictions on reclassifying to other categories.

When financial assets are recognised initially, they are measured at fair value, plus, in the case of assets not at fair value through profit or loss, directly attributable transaction costs.

recognition and derecognition

purchases and sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place are recognised on the trade date, i.e. the date that the Group commits to purchase the asset. Financial assets are derecognised when the right to receive cash flows from the financial assets has expired or when the entity transfers substantially all the risks and rewards of the financial assets.

if the entity neither retains nor transfers substantially all of the risks and rewards, it derecognises the asset if it has transferred control of the assets.

2011 circadian annual report 49

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

2. SuMMarY oF SiGniFicant accountinG policieS (continued)

(g) Investments and other financial assets – refer note 13 (continued)

subsequent measurement

(i) Available-for-sale investments – refer note 13

available-for-sale investments comprise the Group’s non-current investments in listed companies. after initial recognition, availablefor-sale investments are measured at fair value with gains or losses being recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is recognised in profit or loss.

the fair values of available-for-sale investments that are actively traded in organised financial markets are determined by reference to quoted market bid prices at the close of business on the reporting date.

(ii) Loans and receivables

loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the effective interest method and have been calculated by discounting the principal amounts over the relevant term using the relevant libor rate which matches that term as closely as possible. Gains and losses are recognised in the statement of comprehensive income when the loans and receivables are derecognised or impaired. these are included in current assets, except for those with maturities greater than 12 months after balance date, which are classified as non-current.

non-current receivables comprise loans receivable from subsidiaries which are not interest bearing. the parent has agreed that the loans with its subsidiaries will not be recalled for a period of 12 months from the date the directors adopt the relevant annual financial statements of the Group, parent and subsidiaries.

(h) Impairment of financial assets

the Group assesses at each reporting date whether a financial asset or group of financial assets is impaired.

(i) Available-for-sale investments – refer note 13

if there is objective evidence (i.e. significant or prolonged decline in quoted market bid prices) that an available-for-sale investment is impaired, an amount comprising the difference between its cost and its current fair value, less any impairment loss previously recognised in profit or loss is transferred from equity to profit or loss. reversals of impairment losses for equity instruments classified as available-forsale are not recognised.

(ii) Financial assets carried at amortised cost

loans receivable from subsidiaries in the parent’s accounts are financial assets carried at amortised cost. if there is objective evidence that an impairment loss on intercompany loans receivable carried at amortised cost has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate (i.e. the effective

interest rate computed at initial recognition). the carrying amount of the asset is reduced either directly or through use of an allowance account. the amount of the loss is recognised in the statement of comprehensive income.

the Group firstly assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and secondly individually or collectively for financial assets that are not individually significant. if it is determined that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, the asset is included in a group of financial assets with similar credit risk characteristics and that group of financial assets is collectively assessed for impairment. assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognised are not included in a collective assessment of impairment.

if, in a subsequent period, the amount of the cumulative impairment loss decreases and the decreases can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss is reversed. any subsequent reversal of an impairment loss is recognised in profit or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

(i) Acquisition of non-controlling interests – premium on acquisition – refer note 21(b)(vi)

the premium paid on the acquisition of the non-controlling interests is measured at the excess of the consideration paid over the Group’s interest in the net assets acquired from the acquiree on the date of the acquisition. the premium is treated as an equity transaction and recognised in the “equity reserve attributable to parent” account.

(j) Investments in subsidiaries – refer note 13

investments in subsidiaries are carried at cost. if there is objective evidence that an impairment loss has been incurred on investments in subsidiaries, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the current market rate of return for a similar financial asset. any subsequent reversal of an impairment loss is recognised in profit or loss.

(k) Investments in associates – refer note 14

the Group’s investment in its associates is accounted for using the equity method of accounting in the consolidated financial statements. the associates are entities in which the Group has significant influence and which is neither a subsidiary nor a joint venture.

under the equity method, investments in the associates are carried in the consolidated statement of financial position at cost plus post-acquisition changes in the Group’s share of net assets of the associates. after application of the equity method, the Group determines whether it is necessary to recognise any additional impairment loss with respect to the Group’s net investment in the associates. impairment loss arises where the carrying value of the investment exceeds its recoverable amount. Where the investment in associate is a listed investment, the recoverable amount is the quoted market bid price for that asset at balance date. the amount of impairment loss is the difference between the recoverable amount and carrying value.

50 2011 circadian annual report

Where the investment is an unquoted investment, the amount of the loss is recognised in profit or loss and its share of postacquisition movements in equity and reserves is recognised in reserves. the cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

dividends receivable from associates are recognised in the relevant parent entity’s profit or loss, while in the consolidated financial statements they reduce the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any unsecured long-term receivables and loans, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate.

the reporting dates of the associates and the Group are identical and the associates’ accounting policies conform to those used by the Group for like transactions and events in similar circumstances.

cessation of equity accounting

upon cessation of equity accounting, the Group recognises in profit or loss, any difference between the fair value of the retained investment and proceeds from disposing of the part interest and the carrying value of the investment at the date in which significant influence is lost.

(l) Interest in a jointly controlled operation – refer note 23

the Group enters into agreements with universities and research institutes for pharmaceutical research and development projects which are considered “joint venture” arrangements. a joint venture is a contractual arrangement whereby two or more parties undertake an economic activity (normally a pharmaceutical research and development project) which is considered a “joint venture” arrangement that is subject to joint control. a jointly controlled operation involves use of assets and other resources of the venturers rather than establishment of a separate entity. the Group recognises its interests in jointly controlled operations by recognising the assets that it controls and the liabilities that it incurs. the Group also recognises the expenses that it incurs and its share of the income that it earns from the sale of goods or services by the jointly controlled operation.

(m) plant and equipment – refer note 16

plant and equipment is stated at historical cost less accumulated depreciation and any accumulated impairment losses. depreciation is calculated on a straight-line basis over their useful economic lives as follows:

› equipment and furniture – 3 to 10 years
› leasehold improvements – 8 years.

the assets’ residual values, useful lives and amortisation methods are reviewed, and adjusted if appropriate, at each financial year end.

(n) leases – refer note 8

the determination of whether an arrangement is or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfilment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset, even if that right is not explicitly specified in an arrangement.

operating lease payments are recognised as an expense in profit or loss on a straight-line basis over the lease term. operating lease incentives are recognised in the statement of comprehensive income as an integral part of the total lease expense.

the Group held no finance leases during the 2011 and 2010 financial years.

(o) Impairment of non-financial assets other than goodwill – refer note 14

non-financial assets are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

For the policy relating to impairment regarding investments in associates, see note 2(k).

circadian conducts an annual internal review of asset values, which is used as a source of information to assess for any indicators of impairment. external factors, such as changes in technology and economic conditions, are also monitored to assess for indicators of impairment. if any indication of impairment exists, an estimate of the asset’s recoverable amount is calculated.

an impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows that are largely independent of the cash inflow from other assets or groups of assets (cash-generating units). non-financial assets other than goodwill that suffered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

(p) Intangible assets

internally generated intangible assets, excluding capitalised development costs, are not capitalised and expenditure is charged against profits in the year in which the expenditure is incurred.

(q) Intellectual property costs

amounts incurred for rights to or acquisition of intellectual property are expensed in the year in which they are incurred to the extent that such intellectual property is used for research and development activities.

derecognition

an item of plant and equipment is derecognised upon disposal or when no further economic benefits are expected from its use or disposal.

2011 circadian annual report 51

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

2. SuMMarY oF SiGniFicant accountinG policieS (continued)

(r) research and development costs – refer note 23

research costs are expensed as incurred. an intangible asset arising from the development expenditure on an internal project will only be recognised when the Group can demonstrate the technical feasibility of completing the intangible asset so that it will be available for use or sale, its intention to complete and its ability to use or sell the asset, how the asset will generate future economic benefits, the availability of resources to complete the development and the ability to measure reliably the expenditure attributable to the intangible asset during its development. Following the initial recognition of the development expenditure, the cost model is applied, requiring the asset to be carried at cost less any accumulated amortisation and accumulated impairment losses. any expenditure so capitalised is amortised over the period of expected benefits from the related project.

the carrying value of an intangible asset arising from development expenditure is tested for impairment annually when the asset is not yet available for use, or more frequently when an indication of impairment arises during the reporting period.

(s) payables – refer note 17

payables are carried at amortised cost and, due to their short-term nature, they are not discounted. they represent liabilities for goods and services provided to the Group prior to the end of the financial year that are unpaid and arise when the Group becomes obliged to make future payments in respect of the purchase of these goods and services. the amounts are unsecured and are usually paid within 30 days of recognition.

(t) loans and borrowings

all loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing.

after initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the effective interest method.

amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

the parent’s non-current payables include loans from subsidiaries which are not interest bearing. the relevant subsidiaries have agreed that the loans to the parent will not be recalled for a period of 12 months from the date the directors adopt the annual financial statements of the parent. loans payable to subsidiaries in the parent’s accounts are financial liabilities carried at amortised cost.

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

borrowing costs

borrowing costs are recognised as an expense when incurred.

(u) provisions and employee benefits – refer notes 8, 18 and 19

(i) Wages, salaries, annual leave and sick leave

liabilities for wages and salaries, including non-monetary benefits and annual leave expected to be settled within 12 months of the reporting date, are recognised in current provisions in respect of employees’ services up to the reporting date. they are measured at the amounts expected to be paid when the liabilities are settled. expenses for non-accumulating sick leave are recognised when the leave is taken and are measured at the rate paid or payable.

(ii) Long-service leave

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

(v) share-based payment transactions – refer note 26

equity-settled transactions:

the Group provides benefits to employees (including key management personnel) of the Group in the form of share based payments, whereby employees render services in exchange for shares or rights over shares (equity-settled transactions).

there are currently two plans that provide these benefits to employees: the employee Share option plan and a conditional rights Scheme. the conditional rights Scheme was introduced on 4 March 2011 and replaces the employee Share option plan. no more share options will be issued under the employee Share option plan after this date.

the cost of these equity-settled transactions with employees is measured by reference to the fair value at the date at which they are granted. the fair value is determined by an external valuer. a binomial model, either the Monte carlo simulation or Hull model, as appropriate, is used to value the options issued.

in valuing transactions settled by way of issue of options, no account is taken of any performance (or vesting) conditions, other than conditions linked to the price of the shares of circadian (market conditions).

the cost of the equity-settled transactions is recognised, together with a corresponding increase in equity, over the period in which the performance conditions are fulfilled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

52 2011 circadian annual report

at each subsequent report date until vesting, the cumulative charge to profit or loss is the product of:

(i) the grant date fair value of the award
(ii) the current best estimate of the number of awards that will vest, taking into account such factors as the likelihood of employee turnover during the vesting period; and
(iii) the expired portion of the vesting period.

the charge to profit or loss for the period is the cumulative amount as calculated above less the amounts already charged in previous periods. there is a corresponding credit to equity.

until an award has vested, any amounts recorded are contingent and will be adjusted if more or fewer awards vest than were originally anticipated to do so. any award subject to a market condition is considered to vest irrespective of whether or not that market condition is fulfilled, provided that all other conditions are met.

Where the terms of the equity-settled award are modified, as a minimum an expense is recognised as if the terms had not been modified. an additional expense is recognised for any modification that increases the total fair value of the share-based payment arrangement, or is otherwise beneficial to the employee, as measured at the date of modification.

the dilutive effect, if any, of outstanding options is reflected as additional share dilution in the computation of earnings per share. there is, however, no dilutive effect when there is a loss per share.

(w) Contributed equity – refer note 20

ordinary shares are classified as equity. incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction, net of tax, from the proceeds.

(x) revenue recognition – refer note 6

revenue is recognised and measured at the fair value of the consideration received or receivable to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. the following specific recognition criteria must also be met before revenue is recognised:

(i) interest revenue

almost all of the Group’s interest revenue is earned on short-term bank deposits and as such interest revenue is recognised when the Group’s right to receive the payment is established.

(ii) royalty fee and licence fee revenue

royalty fee and licence fee revenue is recognised when earned.

(iii) dividends

revenue is recognised when the Group’s right to receive the payment is established.

(y) Income tax – refer note 9

current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities based on the current period’s taxable income. the tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted by the reporting date.

deferred income tax is provided on all temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

deferred income tax liabilities are recognised for all taxable temporary differences except:

› when the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination and that, at the time of the transaction, affects neither the accounting profit nor taxable profit or loss; or
› when the taxable temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary difference can be controlled and it is probable that the temporary difference will not reverse in the foreseeable future.

deferred income tax assets are recognised for all deductible temporary differences, carry forward of unused tax assets (or credits) and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry forward of unused tax credits and unused tax losses can be utilised, except:

› when the deferred income tax asset relating to the deductible temporary differences arises from the initial recognition of an asset or liability in a transaction that is not a business combination and, at the time of the transaction, affects neither the accounting profit or taxable profit or loss; or
› when the deductible temporary difference is associated with investments in subsidiaries, associates or interests in joint ventures, in which case a deferred tax asset is only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilised.

the carrying amount of deferred income tax assets is reviewed at each reporting date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilised.

unrecognised deferred income tax assets are reassessed at each reporting date and are recognised to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered.

deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realised or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at balance date.

income taxes relating to items recognised directly in equity are recognised directly in equity and not in profit or loss.

tax consolidation legislation

circadian and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts.

2011 circadian annual report 53

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

2. SuMMarY oF SiGniFicant accountinG policieS (continued)

(y) Income tax (continued)

the head entity, circadian, and the controlled entities in the tax consolidated group account for their own current and deferred tax amounts. Members of the tax consolidated group have adopted the “separate taxpayer within group” method to allocate the current and deferred tax amounts to each entity within the Group. this method requires adjustments for transactions and events occurring within the tax consolidated group that do not give rise to a tax consequence for the Group or that have a different tax consequence at the level of the Group.

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

the head entity, which is the parent entity, in assuming the net unused tax losses and unused relevant tax credits, has recognised reductions to investments in subsidiaries and where the amount of tax losses assumed is in excess of the carrying value of the investment, the parent has recognised the difference as a distribution from subsidiary in profit or loss.

(z) other taxes

revenues, expenses, assets and liabilities are recognised net of the amount of GSt except:

› when the GSt incurred on a purchase of goods and services is not recoverable from the taxation authority, in which case the GSt is recognised as part of the cost of acquisition of the asset or as part of the expense item as applicable; and
› receivables and payables are stated with the amount of GSt included.

the net amount of GSt recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position.

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

commitments and contingencies are disclosed net of the amount of GSt recoverable from, or payable to, the taxation authority.

(aa) Government grants – refer note 7

Government grants are recognised when there is reasonable assurance that the grant will be received and all attaching conditions will be complied with.

When the grant relates to an expense item, it is recognised as income over the periods necessary to match the grant on a systematic basis to the costs that it is intended to compensate. they are not credited directly to shareholders’ equity.

(ab) earnings per share – refer note 10

diluted earnings per share is calculated as net (loss)/profit divided by the weighted average number of ordinary shares and dilutive potential ordinary shares.

the share options are not dilutive as their respective exercise prices are in excess of the share price at year end. Whilst the deferred shares would generally be included in the calculation as their conditions of issuance are known to be satisfied, due to there being a loss for the current year, these instruments would be anti-dilutive (decrease the loss per share). accordingly, they have been excluded from the calculation, resulting in basic earnings/(loss) per share being the same as the diluted value per share.

(ac) Comparatives

Where necessary, comparatives have been reclassified and repositioned for consistency with current year disclosure.

3. Financial riSK ManaGeMent obJectiVeS and policieS

the Group’s principal financial assets comprise cash, receivables, short-term deposits and financial investments.

the Group (including the parent) manages its exposure to key financial risks, including interest rate and currency risk, in accordance with the Group’s financial risk management practices. the objective is to support the delivery of the Group’s financial targets whilst protecting future financial security.

the Group’s other various financial assets and liabilities, such as receivables and payables, arise directly from its operations. the main risks arising from the Group’s financial assets and liabilities are interest rate risk, foreign currency risk, equity securities price risk and liquidity risk.

the Group uses different methods to measure and manage different types of risks to which it is exposed. these include monitoring levels of exposure to interest rate and foreign exchange risk and assessments of market forecasts for interest rates and foreign exchange rates. liquidity risk is monitored through future rolling cash flow forecasts.

the board reviews and agrees policies for managing each of these risks as summarised below.

risk exposures and responses

the Group has investigated the main financial risk areas which could impact on its financial assets and determined the impact on post tax (losses) or profits for a range of sensitivities. these can be seen in the post tax (loss)/profit impact for each risk area.

For each risk area, the equity impact relates solely to reserve movements and excludes retained earnings movements as the impact of these can be seen within the post tax (loss)/profit impact.

(i) interest rate risk

the Group’s exposure to market interest rates relates primarily to the short-term deposits. the deposits are held with one of australia’s largest banks.

54 2011 circadian annual report

the objective of managing interest rate risk is to minimise the Group’s exposure to fluctuations in interest rates that might impact its interest revenue and cash flow. to manage interest rate risk, the Group invests the majority of its cash in short-term deposits for varying periods of between 30 days and 90 days, depending on the short- and long-term cash requirements of the Group, which is determined based on the Group’s cash flow forecast. this consideration also takes into account the costs associated with recalling a term deposit should early access to cash and cash equivalents be required. cash is not locked into long-term deposits at fixed rates so as to mitigate the risk of earning interest below the current floating rate.

the Group does not have any borrowings.

the following sensitivity analysis (an annual effect) is based on the interest rate risk exposures in existence at balance date.

as at 30 June 2011, given that the interest risk associated with the Group and parent relates solely to interest income (the Group has no third party borrowings), if interest rates moved, with all variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

as illustrated in the table below:
Judgements of reasonably possible movements:	Post tax (loss)/proft impact			equity impact
	2011	2010	2011	2010
	$	$	$	$
Consolidated
+0.50% (50 basis points) (2010: + 0.50%)	100,000	135,000	-	-
-0.50% (50 basis points) (2010: + 0.75%)	(100,000)	202,500	-	-

Given the amount of unrecognised tax losses in existence, the post tax figures include an offset of these tax losses (bringing the tax effect to nil) for the year ended 30 June 2011 (2010: nil).

Significant assumptions used in the interest rate sensitivity analysis include:

› the net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next 12 months from balance date.

(ii) Price risk

the Group’s investment in listed shares is exposed to equity securities price risk and as such their fair values are exposed to fluctuations as a result of changes in market prices.

equity price risk is the risk that the fair value of equities will decrease as a result of share price movements. the Group’s equity investments are publicly traded on the aSX and are designated and accounted for as “available-for-sale” financial assets (except for those which are recognised as associates).

the investments in listed shares are not held for short-term trading. their values are reviewed regularly by management and the board. the strategy for realising any part of these investments is determined based on the liquidity of the respective stocks, potential off-market acquirers and likely developments in their values based on publicly available information.

at 30 June 2011, had the share price moved with all other variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

as illustrated in the table below:
Judgements of reasonably possible movements:	impact on	impact on equity	impact on	impact on equity
	loss after tax	after tax	loss after tax	after tax
	2011	2011	2010	2010
	$	$	$	$
Consolidated
Change in variables
10% increase in listed share price	-	93,025	-	122,893
10% decrease in listed share price	-	(93,025)	-	(122,893)

2011 circadian annual report 55

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

3. Financial riSK ManaGeMent obJectiVeS and policieS (continued)

(iii) foreign currency risk

as a result of services predominantly provided by non-related entities in the united States, united Kingdom and europe, part of the Group’s financial assets and liabilities are affected by movements in the uS$/a$ exchange rate, the euro/a$ exchange rate and Gbp/a$ exchange rate.

the Group does not enter into any hedging transactions.

as at reporting date, the Group has the following exposure to foreign currencies:

2011		consolidated
	usd	euro	GbP
	2011	2011	2011
	$	$	$
Financial assets
cash	1,514,967	-	10,499
receivables	26,808	2,037	-
Financial liabilities
payables	(944,981)	(216,401)	(123,077)
net exposure	596,794	(214,364)	(112,578)
2010		consolidated
	usd	euro	GbP
	2010	2010	2010
	$	$	$
Financial assets
cash	1,363,893	-	2,569,469
receivables	36,704	1,282	907
Financial liabilities
payables	(679,263)	(176,014)	(360,892)
net exposure	721,334	(174,732)	2,209,484

the following sensitivity is based on the foreign currency risk exposures in existence at balance date.

at 30 June 2011, had the australian dollar moved with all other variables held constant, post tax (loss)/profit and equity would have been affected as illustrated in the table below:

affected as illustrated in the table below:
Judgements of reasonably possible movements:	Post tax (loss)/proft impact			equity impact
	2011	2010	2011	2010
	$	$	$	$
Consolidated
Aud/usd +5%	(28,419)	(65,576)	-	-
Aud/usd -10%	66,312	37,965	-	-
Aud/euro +5%	10,208	15,885	-	-
Aud/euro -10%	(23,818)	(9,196)	-	-
Aud/GbP +5%	5,361	(200,862)	-	-
Aud/GbP -10%	(12,508)	116,289	-	-

the reasonably possible movements at 30 June 2011 are higher than at 30 June 2010 due to the higher net exposure to the uS dollar. there was minimum or insignificant exposure to the Gbp during the current financial year compared to the prior year.

56 2011 circadian annual report

Significant assumptions used in the foreign currency exposure sensitivity analysis include:

› the reasonably possible movement of 5% was calculated by taking the uSd, eur and Gbp spot rates as at balance date, moving these by 5% and 10% and then re-converting the uSd, eur and Gbp into aud with the “new-spot-rate”. this methodology reflects the translation methodology undertaken by the Group.
› the net exposure at balance date is representative of what the Group was and is expecting to be exposed to in the next 12 months from balance date.

Management believes the balance date risk exposures are representative of the risk exposure inherent in the financial instruments.

(iv) credit risk

credit risk is associated with those financial assets of the Group which comprise cash and cash equivalents and listed investments. the Group’s exposure to credit risk arises from default of the counter party, with a maximum exposure equal to the carrying amount of these investments. credit risk is considered minimal as the Group transacts with a reputable recognised third party (the commonwealth bank of australia).

4. SiGniFicant accountinG JudGeMentS, eStiMateS and aSSuMptionS

in applying the Group’s accounting policies, management continually evaluates judgements, estimates and assumptions based on experience and other factors, including expectations of future events that may have an impact on the Group. all judgements, estimates and assumptions made are believed to be reasonable based on the most current set of circumstances available to management. actual results may differ from the judgements, estimates and assumptions. Significant judgements, estimates and assumptions made by management in the preparation of these financial statements are outlined below:

(i) significant accounting judgements

capitalised development costs

development costs are only capitalised by the Group when it can be demonstrated that the technical feasibility of completing the intangible asset is valid so that the asset will be available for use or sale.

no development costs were capitalised during the current year.

impairment of available-for-sale assets

(v) liquidity risk

liquidity risk arises from the financial liabilities of the Group and the Group’s subsequent ability to meet its obligations to repay its financial liabilities as and when they fall due. the Group has minimal liquidity risk because of the high balances of cash and cash equivalents.

the Group’s objective is to maintain an appropriate cash asset balance to fund its operations.

(vi) fair value

the Group has investments in listed equities which are calculated using the quoted prices in an active market. these investments are classified as falling into level 1 hierarchy per AASB 7 Financial Instruments: Disclosure. the Group does not have any derivative investments (level 2 hierarchy) where the fair value is estimated using inputs other than quoted prices included in level 1 that are observable for the asset or liability, either directly (as prices) or indirectly (i.e. derived from prices). the Group also does not hold any financial instruments that fall into level 3. level 3 fair value measurement uses observable inputs that require significant adjustments based on observable inputs to estimate its value.

details of the fair value of the investments in listed equities are disclosed in note 13(a) of the financial statements. the methods for estimating fair value are also outlined in the relevant notes to the financial statements.

the Group holds available-for-sale financial assets and follows the requirements of AASB 139 Financial Instruments: Recognition and Measurement in determining when an available-for-sale asset is impaired. For the year ended 30 June 2011, the Group deemed it appropriate to recognise an impairment in profit or loss as it was unknown when recovery in the share price of the available-for-sale asset may occur.

taxation

the Group’s accounting policy for taxation requires management judgements as to the types of arrangements considered to be a tax on income in contrast to an operating cost. Judgement is also required in assessing whether deferred tax assets and certain deferred tax liabilities are recognised in the statement of financial position. deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary differences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of sufficient future taxation profits.

assumptions about the generation of future taxable profits depend on management’s estimates of future cash flows. these depend on estimates of future operating costs, capital expenditure and the possible timing of realising capital gains taxes/losses.

Judgements are also required about the application of income tax legislation. these judgements and assumptions are subject to risk and uncertainty, hence there is a possibility that changes in circumstances will alter expectations, which may impact the amount of deferred tax assets and deferred tax liabilities recognised in the statement of financial position and the amount of other tax losses and temporary differences not yet recognised. in such circumstances, some or all of the carrying amounts of recognised deferred tax assets and liabilities may require adjustment, resulting in a corresponding credit or charge to profit or loss.

2011 circadian annual report 57

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

4. SiGniFicant accountinG JudGeMentS, eStiMateS and aSSuMptionS (continued)

(i) significant accounting judgements (continued)

carrying value of investment in subsidiary

the judgement with respect to the carrying value of the investment in Vegenics pty ltd (Vegenics) has been made through assessing the progress of the research and development activities against the milestones which were established for these activities. in undertaking the impairment test with respect to this investment, the company assessed that the development milestones are being achieved in the timeframes expected, therefore the company does not consider its investment is impaired. a detailed summary of progress of the Group’s research and development activities and discussion of the company’s achievements and plans over the next 12 months is contained within the operations report.

(ii) significant accounting estimates and assumption

Valuation of investments

the Group has classified investments in listed securities (other than investments in associates) as “available-for-sale” investments and movements in fair value are recognised directly in equity, unless considered impaired. the fair value of listed shares has been determined by reference to published price quotations in an active market.

share-based payment transactions

the Group measures the cost of equity-settled transactions with employees by reference to the fair value of the equity instruments at the date at which they are granted. the fair value is determined with the assistance of an external valuer using a binomial model. the related assumptions are detailed in note 26. the accounting estimates and assumptions relating to equity-settled share-based payments would have no impact on the carrying amounts of assets and liabilities within the next annual reporting period but may impact expenses and equity.

5. SeGMent inForMation

the consolidated entity operates predominantly in one industry and one geographical segment, those being the medical technology and healthcare industry and australia, respectively.

the Group is a biologics drug developer building on its significant intellectual property portfolio around Vascular endothelial Growth Factor (VeGF) c and d (angiogenic molecules). the Group is focused primarily on developing biological therapeutics for cancer and other serious diseases.

the objective is to generate value by undertaking pre-clinical and early human clinical development and partnering with pharmaceutical companies to further the development of major therapeutic indications while retaining rights to selected indications.

the chief operating decision maker regularly reviews entity-wide information that is compliant with australian accounting Standards. there is only one segment for segment reporting purposes and the information reviewed by the chief operating decision maker is the same as the information presented in the statement of financial position, statement of comprehensive income and statement of cash flows.

6. reVenue

6. reVenue
	2011	2010
	$	$
(a) Finance revenue
interest from:
bank	1,386,128	1,600,744
related party – associated company	-	29,006
other unrelatedpersons	2,185	-
	1,388,313	1,629,750
(b) other revenue
royalties and licence fees	446,154	621,712
Total revenue	1,834,467	2,251,462

58 2011 circadian annual report

7(a). otHer incoMe

7(a). otHer incoMe
	2011	2010
	$	$
Gain on disposal of subsidiary(i)	-	13,899
Government grant income	-	2,500
net gain on disposal of available-for-sale investments	15,274	-
net foreign exchange gains	-	68,848
	15,274	85,247

(i) the gain on disposal of subsidiary relates to the disposal of the Group’s 60% interest in cancer probe pty ltd in September 2009.

7(b). Gain on ceSSation oF eQuitY accountinG

the gain on the cessation of equity accounting relates to the profit recognised on the discontinuation of equity accounting for antisense therapeutics limited and the proceeds received on the sale of 5,000,000 shares on 24 March 2010. as a result of the sale of these shares, the percentage holdings held by the Group (via its subsidiary polychip pharmaceuticals pty ltd) reduced from 18.7% to 17.3%. the Group also holds shares in antisense therapeutics limited via its associated entity, Syngene limited, which has also sold shares in antisense therapeutics limited in the prior year. Given the reduction in shareholding, the directors assessed whether the Group has significant influence over antisense therapeutics limited, and concluded that this is no longer the case. the directors passed a resolution to cease application of equity accounting of the legal entity from 24 March 2010.

the net gain on the cessation of equity accounting comprised the following:

the net gain on the cessation of equity accounting comprised the following:
	2011	2010
	$	$
fair value of shares held in Antisense therapeutics limited	-	3,118,339
disposal of shares at fair value on 24 March 2010	-	153,000
less equity accounted carrying value (note 14(b))	-	(430,041)
less commissions and brokerage charges	-	(1,530)
Gain on cessation of equity accounting	-	2,839,768

8. eXpenSeS

8. eXpenSeS
	2011	2010
	$	$
(a) Impairment losses
loan to associate(i)	-	(629,987)
listed fnancial investments(ii)	611,439	1,793,554
	611,439	1,163,567

(i) Syngene limited, an associated entity of circadian, fully repaid a loan totalling $629,987 on 21 May 2010. the entire amount of the loan which had been provided to Syngene limited was impaired in the prior periods. upon the full repayment, the impairment losses on the loan were reversed and recognised in profit or loss in the prior year.

(ii) the current year impairment loss of $611,439 is the result of the continuing decline in the value of this investment during the first half of the year, when the share price reduced from 1.3 cents at 30 June 2010 to 0.7 cents at 31 december 2010. the share price has since increased to 0.8 cents at 30 June 2011. the impairment loss of $1,793,554 in the prior year ended 30 June 2010 relates to the impairment of the investment in antisense therapeutics limited upon the discontinuation of equity accounting.

2011 circadian annual report 59

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

8. eXpenSeS (continued)

8. eXpenSeS (continued)
	2011	2010
	$	$
(b) occupancy expenses
operating lease rentals	111,680	101,693
outgoings	35,830	40,772
totAl occuPAncy exPense	147,510	142,465
(c) Administrative expenses
included in administrative expenses are:
depreciation of:
equipment and furniture (note 16)	27,786	28,111
leasehold improvements (note 16)	299	478
total depreciation expense	28,085	28,589
loss on sale of fxed assets	3,730	1,167
employee benefts expense:
salaries and fees	2,232,247	2,400,995
cash bonuses	230,522	247,340
superannuation	224,182	247,508
share-based payments expense (note 26)	231,272	259,880
other employee benefts expense	49,112	7,707
total employee benefts expense	2,967,335	3,163,430
other administrative expenses:
travel expenses	146,277	266,589
insurance	95,464	101,773
consultancy fees	177,531	507,197
legal fees	87,315	175,740
Payroll tax	122,987	122,254
investor relation and share registry related costs	448,576	293,156
Audit and accounting	132,720	125,896
other expenses	295,926	446,520
total other administrative expenses	1,506,796	2,039,125
totAl AdMinistrAtiVe exPenses	4,505,946	5,232,311

60 2011 circadian annual report

9. incoMe taX

9. incoMe taX
	2011	2010
	$	$
(a) Income tax expense
the major components of income tax expense are:
Statement of comprehensive income
current income tax
current income tax charge	-	-
refund of research and development tax credit(i)	(588,225)	-
Adjustments in respect of tax losses of previous years	-	(6,465)
deferred income tax
relating to origination and reversal of temporary differences	(189,711)	115,967
income tax expense reported in the statement of comprehensive income	(777,936)	109,502

(i) Following lodgement of the income tax return for 30 June 2010, the Group recognised an income tax benefit of $588,255, which relates to the research and development tax offset allowable on research and development expenditure undertaken within australia.

(b) Amounts charged or credited directly to equity

(b) Amounts charged or credited directly to equity
deferred income tax related to items charged (credited) directly to equity
net unrealised gain on listed investments(i)	80,114	-
income tax beneft reported in equity	80,114	-

(i) deferred tax liabilities were recognised with respect to unrealised gains on listed investments in antisense therapeutics limited, $30,572 and optiscan imaging limited, $49,542.

(c) numerical reconciliation between aggregate tax expense recognised in the statement of comprehensive income and expense calculated per the statutory income tax rate

a reconciliation between tax expense and the product of accounting loss before income tax multiplied by the Group’s applicable income tax rate is as follows:

rate is as follows:
Accounting loss before tax	(11,043,282)	(6,838,738)
At the parent entity’s statutory income tax rate of 30% (2010: 30%)	(3,312,985)	(2,051,621)
Adjustment in respect of tax losses of previous years	-	(6,465)
unrecognised unrealised and realised tax assets	6,150,363	3,464,673
refund of research and development tax credit	(588,225)	-
increase in deferred tax assets due to temporary differences	(3,092,305)	(838,569)
decrease in deferred tax liabilities due to temporary differences	(92,926)	(4,737)
expenditure not allowable for income tax purposes	86,127	48,627
income (not assessable)/assessable for income tax purposes	19,853	(29,834)
research and development additional deductions allowable	(126,688)	(154,538)
difference between tax gain/loss and accounting gain/loss
on disposal of investments – non-assessable	178,850	(318,034)
income tax expense reported in the statement of comprehensive income	(777,936)	109,502

2011 circadian annual report 61

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

9. incoMe taX (continued)

(d) recognised deferred tax assets and liabilities in statement of financial position

deferred income tax at 30 June relates to the following:

(d) recognised deferred tax assets and liabilities in statement of fnancial position deferred income tax at 30 June relates to the following:
	2011	2010
	$	$
Deferred tax liabilities:
revaluation of listed investments to fair value	(80,114)	-
temporary difference for investment in associate	(78,802)	(89,391)
interest and royalty income receivable (future assessable income)	(30,525)	(65,745)
	(189,441)	(155,136)
Deferred tax assets:
tax losses	-	6,465
income received in advance	55,045	-
employee provisions	74,880	10,366
future allowable deductions/income not assessable	59,516	28,705
	189,441	45,536
(e) recognised deferred tax expense in statement of comprehensive income
deferred income tax at 30 June relates to the following:
tax losses	(6,465)	-
income received in advance	55,045	-
temporary difference for investment in associate	10,589	11,230
interest and royalty income receivable (future assessable income)	35,220	(12,987)
employee provisions	64,514	10,366
future allowable deductions/income not assessable	30,808	(124,576)
deferred tax expenses	189,711	(115,967)

(f) Unrecognised temporary differences

temporary differences with respect to deferred tax assets associated with investments, intellectual property and other miscellaneous items which have a low probability of realisation are unrecognised. these amounted to $2,995,520 at year end (2010: $959,272).

(g) tax consolidation

(i) Members of the tax consolidated group

circadian and its 100% owned subsidiaries formed a tax consolidated group effective 1 July 2003. circadian is the head entity of the tax consolidated group.

(ii) tax effect accounting by members of the tax consolidated group

Members of the tax consolidated group have adopted the “separate taxpayer within group” method to allocate the current and deferred tax amounts to each entity within the group. For details with respect to this method, see accounting policy note 2(y).

(h) Carry forward unrecognised tax losses

the Group had income tax losses of $10,515,100 and capital losses of $877,704 at year end (2010: income tax losses of $7,360,257 and capital losses of $882,287) for which no deferred tax asset is recognised on the statement of financial position as they are currently not considered probable of realisation. these tax losses are available indefinitely for offset against future assessable income subject to continuing to meet relevant statutory tests.

(i) Franking credit balance

the franking account balance at the end of the financial year at 30% is $330,630 (2010: $330,630), which represents the amount of franking credits available for the subsequent financial year.

62 2011 circadian annual report

10. earninGS per SHare

the following reflects the income used in the basic and diluted earnings per share computations:

the following refects the income used in the basic and diluted earnings per share computations:
	2011	2010
	$	$
(a) earnings used in calculating earnings per share
net loss attributable to ordinary equity holders of theparent	(10,265,346)	(6,948,496)
(b) Weighted average number of shares
Weighted average number of ordinary shares on issue for basic earnings per share	46,248,202	45,241,928
effect of dilution:
deferred shares	-	-
share options	-	-
Weighted average number of ordinary shares adjusted for the effect of dilution	46,248,202	45,241,928

there have been no other transactions involving ordinary shares or potential ordinary shares that would significantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of this financial report.

diluted earnings per share is calculated as net profit/(loss) divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. the share options in place are not dilutive as their respective exercise prices are in excess of the share price at year end. although the deferred shares would generally be included in the calculation due to the conditions of the issuance being satisfied, because there is a loss in the current year these instruments would be anti-dilutive (decrease the loss per share) and therefore have been excluded from the calculation. therefore, the basic loss per share is the same as the diluted value per share.

(c) Information on the classification of securities

options granted to employees (including key management personnel) as described in note 26 are considered to be potential ordinary shares and have been included in the determination of diluted earnings per share to the extent they are dilutive.

11. current aSSetS – caSH and caSH eQuiValentS

11. current aSSetS – caSH and caSH eQuiValentS
	2011	2010
	$	$
cash at bank and in hand	2,104,414	4,855,169
short-term deposits	20,000,000	27,000,000
	22,104,414	31,855,169

cash at bank earns interest at floating rates based on daily bank deposit rates. the carrying amounts of cash and cash equivalents represent fair value.

Short-term deposits are with a major bank and are made for varying periods of between 30 days and 90 days, depending on the immediate cash requirements of the Group, and earn interest at a fixed rate for the respective short-term deposit periods. at year end, the average rate was 5.84% (2010: 5.81%).

2011 circadian annual report 63

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

12. current aSSetS – receiVableS

12. current aSSetS – receiVableS
	2011	2010
	$	$
interest receivable	73,537	81,617
royalty income receivable(i)	28,217	32,596
Gst receivable(i)	69,468	107,436
other(i)	37,324	40,665
total current receivables	208,546	262,314

(i) these receivables are non-interest bearing, most of which have repayment terms between 30 and 60 days. there are no receivables past due but not considered impaired.

(a) Fair value and credit risk

due to the short-term nature of these receivables, their carrying value is assumed to approximate their fair value.

the maximum exposure to credit risk is the fair value of receivables.

(b) Foreign exchange and interest rate risk

details regarding foreign exchange and interest rate risk exposure are disclosed in note 3.

13. non-current aSSetS – aVailable-For-Sale Financial aSSetS

					2011	2010
					$	$
listed Australian shares – at fair value				1,328,931		1,755,612
(a) details of listed Australian shares
	ownership interest			fair value(i)	cost of investment
	2011	2010	2011	2010	2011	2010
listed investments	%	%	$	$	$	$
Non-current investments:
optiscan imaging limited	6.4	6.4	513,679	430,828	786,131	786,131
Antisense therapeutics limited(ii)	10.7	17.3	815 ,252	1,324,784	3,118,339	3,118,339
total listed investments			1,328,931	1,755,612	3,904,470	3,904,470

non-current investments in listed shares (which are not associates) are designated and accounted for as “available-for-sale” financial assets pursuant to AASB 139 Financial Instruments: Recognition and Measurement.

these non-current investments in listed shares consist of investments in ordinary shares, and therefore have no fixed maturity date or coupon rate.

(i) the fair value represents the share (bid) price at year end, and does not include any capital gains tax or selling costs that may be applicable on the disposal of these investments. the capital gains tax that may be applicable on the disposal of these investments is included in the deferred tax liability account.

(ii) in the prior year, the Group discontinued the application of equity accounting in recognising the investment in antisense therapeutics limited on 24 March 2010. this was due to the loss of significant influence in antisense therapeutics limited resulting from the sale of shares through its subsidiary, polychip pharmaceuticals pty limited.

the sale of the shares reduced the shareholding to 17.3% and the investment in antisense therapeutics has since been accounted for as an available-for-sale financial asset instead of being recognised as an investment in associate as per AASB 128 Investments in Associates. as a result, an impairment loss of $1,793,554 was recognised in profit or loss in the prior year relating to the impairment of the investment in antisense therapeutics limited. due to the continuing decline in the first half of the current financial year, a further impairment loss of $611,439 was recognised during the year.

64 2011 circadian annual report

(b) details of investments in subsidiaries

details of the investments in subsidiaries are fully disclosed in note 24(a).

(c) Impairment of investments in subsidiaries

there was an impairment of investments in the subsidiaries of the company of $203,621 during the 2011 financial year (2010: $374,101), which arose from the carrying values exceeding the net assets of the relevant subsidiaries. See note 24(a).

14. non-current aSSetS – inVeStMentS in aSSociateS

(a) Investment details

(a) Investment details
		ownership interest		carrying amount
	2011	2010	2011	2010
name andprincipal activities	%	%	$	$
Unlisted:
syngene limited – gene diagnostics	42.4	42.4	493,431	528,728

the Group’s proportion of voting power held in this associate is the same as its ownership interest. the Group’s investment in the associate is accounted for in accordance with the accounting policy described in note 2(k).

Syngene limited is an unlisted public company and is incorporated in australia. the entity reporting period is 30 June. antisense therapeutics limited ceased to be an associated entity of the Group as a result of the sale of its shareholdings in the previous financial year. refer to note 13(ii). the investment in antisense therapeutics limited has been accounted for as an available-for-sale financial asset as per AASB 139 Financial Instruments: Recognition and Measurement.

AASB 139 Financial Instruments: Recognition and Measurement.
	2011	2010
	$	$
(b) Movements in the carrying amounts of the Group’s investments in associates
Antisense Therapeutics Limited:
At 1 July	-	735,623
Acquisition of shares	-	-
net gain on new share issue by associate (note 21(b)(iii))	-	114,975
share of movement in equity reserve (note 21(b)(iii))	-	12,778
share of loss after income tax	-	(433,335)
cessation of equity accounting	-	(430,041)
At 30 June	-	-
Syngene Limited:
At 1 July	528,728	566,161
share of proft after income tax	31,195	412,894
share of net unrealised loss on listed investment for the year(i)	(66,492)	(450,327)
At 30 June	493,431	528,728

(i) the Group’s share of the net unrealised loss on listed investment represents Syngene’s 3.18% (2010: 5.98%) investment in antisense therapeutics limited. the movement in the fair value of this investment during the year is recognised in the net unrealised gains reserve account (see note 21(b)(iv)).

(c) Fair value of investment in listed associate

the Group ceased the application of equity accounting for antisense therapeutics limited in the previous financial year on 24 May 2010 and has accounted for this investment as an available-for-sale financial asset per AASB 139: Financial Instruments: Recognition and Measurement. the fair value of the Group’s investment in antisense therapeutics limited, on the cessation of equity accounting, was $1,324,784.

(d) share of associates’ commitments – equity accounting only

Syngene limited has no commitments for the current reporting period (2010: nil).

2011 circadian annual report 65

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

14. non-current aSSetS – inVeStMentS in aSSociateS (continued)

(e) summarised financial information

the following table illustrates summarised financial information relating to the Group’s associates.

(e) summarised fnancial information the following table illustrates summarised fnancial information relating to the Group’s associates.
	2011	2010
	$	$
Extract from associates’ statement of fnancial position:
current assets	759,810	917,544
non-current assets	529,141	393,372
	1,288,951	1,310,916
current liabilities	113,640	63,328
non-current liabilities	11,010	-
	124,650	63,328
net assets	1,164,301	1,247,588
Share of associates’ net assets	493,431	528,728
Extract from the associates’ statement of comprehensive income:
revenue	265,325	1,545,602
net proft/(loss)	73,607	(1,414,568)
Share of the associates’ proft or loss accounted for using the equity method:
Proft before income tax	76,598	168,681
income tax (expense)	(45,403)	(189,122)
Proft/(loss) after income tax	31,195	(20,441)
(f) Contingent liabilities of associates
the associates have no contingent liabilities at year end.
15. parent entitY inForMation
(a) Information relating to Circadian:
current assets	20,556,751	28,766,870
total assets	62,007,942	64,835,044
current liabilities	821,558	851,375
total liabilities	1,879,954	4,346,544
issued capital	38,374,094	38,374,094
retained earnings	19,148,149	19,855,530
Asset revaluation reserve	734,407	734,407
option reserve	19	19
employee equity benefts reserve	1,755,722	1,524,450
net unrealised gains reserve	115,597	-
total shareholders’ equity	60,127,988	60,488,500
loss of the parent entity	(707,382)	(482,035)
other comprehensive income	33,310	-
total comprehensive loss of theparent entity	(674,072)	(482,035)

(b) parent entity contractual commitments for acquisition of property, plant and equipment

the parent entity does not have any contractual commitments for the acquisition of property, plant and equipment for the year ended 30 June 2011 (2010: nil).

66 2011 circadian annual report

(c) parent entity contingent liabilities

the parent entity does not have any contingent liabilities for the year ended 30 June 2011 (2010: nil).

(d) parent entity guarantees in respect of debts of its subsidiaries

the parent entity has provided a written guarantee to all its controlled entities that it will continue to provide sufficient funds to enable them to meet their commitments and contingencies for the next 12 months. these controlled entities are disclosed in note 24(a).

16. non-current aSSetS - plant and eQuipMent

16. non-current aSSetS - plant and eQuipMent
	2011	2010
	$	$
Equipment and furniture at cost
opening balance	228,986	218,897
Additions	76,878	17,015
disposals	(67,777)	(6,926)
closing balance	238,087	228,986
Accumulated depreciation
opening balance	180,474	158,122
depreciation for the year	27,786	28,111
disposals	(62,638)	(5,759)
closing balance	145,622	180,474
net carrying amount	92,465	48,512
Leasehold improvements at cost
opening balance	79,478	79,478
Additions	-	-
closing balance	79,478	79,478
Accumulated depreciation
opening balance	74,139	73,661
depreciation for the year	299	478
closing balance	74,438	74,139
net carrying amount	5,040	5,339
totalplant and equipment, net	97,505	53,851
17. current liabilitieS – paYableS
creditors (unsecured)(i)	1,996,429	2,117,930
income received in advance	183,482	202,522
PAyG tax liability	49,834	57,898
Withholding taxpayable	9,437	11,673
	2,239,182	2,390,023

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

(a) Fair value

due to the short-term nature of these payables, their carrying value is assumed to approximate their fair value.

(b) Interest rate, foreign exchange and liquidity risk

information regarding interest rate, foreign exchange and liquidity risk exposure is set out in note 3.

2011 circadian annual report 67

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

18. current liabilitieS – proViSionS

18. current liabilitieS – proViSionS
	2011	2010
	$	$
Annual leave	196,651	173,020
long-service leave	-	-
	196,651	173,020
19. non-current liabilitieS – proViSionS
	2011	2010
	$	$
long-service leave	52,950	34,552

refer to note 2(u) for the relevant accounting policy and a discussion of the significant estimations and assumptions applied in the measurement of this provision.

20. contributed eQuitY

20. contributed eQuitY
(a) ordinary shares
issued and fullypaid at 30 June	38,374,094	38,374,094
Movement in ordinary shares:
opening balance	38,374,094	38,374,094
issue of shares(i)	958,650	-
deferred share issue(i)	(958,650)	-
	38,374,094	38,374,094
ordinaryshares on issue:	No.:	no.:
opening balance	45,241,928	45,241,928
issue of shares(i)	1,155,000	-
	46,396,928	45,241,928
(b) deferred shares on issue:
opening balance	1,155,000	1,155,000
shares issued(i)	(1,155,000)	-
	-	1,155,000

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

(i) circadian completed its acquisition of 100% of Vegenics on 14 august 2008 (previously 67% owned by circadian), providing it with complete ownership and control of rights to Vegenics’ extensive product pipeline and intellectual property, which form the basis for circadian’s new core business. it acquired the additional 33% interest from ludwig institute for cancer research (licr) and licentia limited (licentia). under this transaction, licr and licentia have become substantial shareholders of circadian. consideration for the acquisition of licr’s and licentia’s interests in Vegenics was in two tranches:

tranche 1:

› 5,117,430 circadian shares were issued to licr (2,589,635 shares) and licentia (2,527,795) on 14 august 2008, which represented a combined interest of 11.3% after the share issue. the value of the issued shares was $4,247,467.
› 50% of the shares were escrowed for a period of 12 months from the date of issue. on 14 august 2009, the initial 50% of the shares were released from escrow. the remaining 50% were escrowed until 14 august 2010 (24 months from their issue date); and
› a cash payment of euro 400,000 (a$680,272) was made to licentia.

tranche 2:

› a further 1,155,000 circadian shares have been issued to licr (532,455 shares) and licentia (622,545 shares) on the first business day after the second anniversary of the date of circadian’s acquisition of licr’s and licentia’s interests in Vegenics (i.e. 16 august 2010). the value of the shares that were issued was $958,650.

68 2011 circadian annual report

share options:

the company has a share-based payment scheme, the employee Share option plan, under which options to subscribe for the company’s shares have been granted to certain employees, and a conditional rights Scheme, which was established to offer eligible employees conditional rights to a specified number of circadian shares subject to certain milestones (refer to note 26).

(c) Capital management

the Group is not subject to any externally imposed capital requirements.

When managing share capital, management’s objective is to ensure the entity continues as a going concern as well as to provide benefits to shareholders and to other stakeholders. in order to maintain or achieve an appropriate capital structure, the company may issue new shares or reduce its share capital, subject to the provisions of the company’s constitution.

21. retained earninGS and reSerVeS

21. retained earninGS and reSerVeS
	2011	2010
	$	$
(a) Movements in retained earnings were as follows:
balance at 1 July	(2,981,272)	3,967,224
net loss for theperiod	(10,265,346)	(6,948,496)
balance at 30 June	(13,246,618)	(2,981,272)
(b) reserves
Asset revaluation reserve(i)	734,407	734,407
option reserve(ii)	19	19
contributed capital of associate reserve(iii)	1,180,872	1,180,872
net unrealised gains reserve(iv)	197,820	159,667
employee equity benefts reserve(v)	1,755,722	1,524,450
equity reserve attributable toparent(vi)	(7,172,143)	(7,172,143)
total reserves	(3,303,303)	(3,572,728)
(i) Movement in asset revaluation reserve:
opening and closing balance	734,407	734,407
(ii) Movement in option reserve:
opening and closing balance	19	19
(iii) Movement in contributed capital of associate reserve:
opening balance	1,180,872	1,053,119
investment in associate (note 14)
Gain on new share issue by associate	-	114,975
share of movement in equity reserve	-	12,778
closing balance	1,180,872	1,180,872
(iv) Movement in net unrealised gains reserve:
opening balance	159,667	527,707
net gains on non-current listed investments for the period	184,759	82,287
tax effect on above net gains (note 9)	(80,114)	-
share of associate’s net unrealised loss	(66,492)	(450,327)
net gains/(losses) on non-current listed investments for the period after tax	38,153	(368,040)
closing balance	197,820	159,667

2011 circadian annual report 69

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

21. retained earninGS and reSerVeS (continued)

21. retained earninGS and reSerVeS (continued)
	2011	2010
	$	$
(b) reserves (continued)
(v) Movement in employee equity benefts reserve:
opening balance	1,524,450	1,264,570
share-basedpayments expense (note 8(c))	231,272	259,880
closing balance	1,755,722	1,524,450
(vi) Movement in equity reserve attributable to parent:
opening and closing balance	(7,172,143)	(7,172,143)

(vii) nature and purpose of reserves:

Asset revaluation reserve

the asset revaluation reserve is used to record increments and decrements in the value of non-current assets. the reserve can only be used to pay dividends in limited circumstances.

Option reserve

this reserve is used to record the consideration received for options granted to executives and employees as part of their remuneration.

Contributed capital of associate reserve

this reserve is used to record the Group’s equity accounting of share issues by its associated entities.

Net unrealised gains reserve

this reserve records fair value changes on listed investments (other than investment in listed associate) and the Group’s equity share of its associate’s listed investments.

Employee equity benefits reserve

this reserve is used to record the value of equity benefits provided to executives and employees as part of their remuneration. refer to note 26 for further details on the equity benefit plans.

Equity reserve attributable to parent

this reserve recognises the non-controlling interests’ share of the change in the net assets of Vegenics on new investments (capital injections) made by the parent in Vegenics, which are offset by the relevant effect of additional investments made by non-controlling interests. the premium paid by circadian on acquisition of the balance of Vegenics’ non-controlling interests is also recognised in this account.

70 2011 circadian annual report

22. caSH FloW StateMent reconciliation

22. caSH FloW StateMent reconciliation
	2011	2010
	$	$
(a) reconciliation of net loss after tax to net cash fows from operations
net loss	(10,265,346)	(6,948,240)
Adjustments for:
depreciation	28,085	28,589
net loss on disposal of non-current assets	3,730	1,167
net proft on disposal of investments	(15,274)	(13,899)
Gain on cessation of equity accounting	-	(2,839,768)
employee benefts expense	231,272	259,880
share of associates’ net (profts)/losses	(31,195)	20,441
impairment losses on non-current fnancial investments	611,439	1,793,554
Write back of loan to associate	-	(629,987)
net exchange differences	273,572	(16,513)
Changes in assets and liabilities:
(increase)/decrease in prepayments	(8,514)	41,401
decrease/(increase) in interest receivable	8,080	(3,005)
decrease in other receivables	47,097	146,690
(decrease)/increase in payables	(150,827)	321,147
increase/(decrease) in employee provisions	42,029	(952)
(increase)/decrease in deferred tax assets	(143,905)	107,745
(decrease)/increase in deferred tax liabilities	(45,808)	1,757
net cash used in operating activities	(9,415,565)	(7,729,993)
(b) non-cash fnancing and investing activities
share-basedpayments expense (note 26)	231,272	259,880
	231,272	259,880

2011 circadian annual report 71

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

23. reSearcH and deVelopMent eXpenSeS

23(a). Interests in joint venture operations on research and development

Parties	Pharmaceutical research
	and development project	share of project income(i)		loss	contributed(ii)
		2011	2010	2011	2010
		%	%	$	$
Polychip Pharmaceuticals Pty ltd
and Monash university	dicarba Analogues	50	50	80,000	-
cancer therapeutics Pty ltd
and Monash university	Peptide-based cancer Vaccine	75	75	-	39,038
				80,000	39,038
23(b). other non-joint venture operations on research and development
other non-joint venture researchproject costs(iii)				6,490,095	4,256,296
				6,570,095	4,295,334

(i) there was no project income in the current year or in the prior year from any of the joint venture projects.

(ii) these amounts represent the company’s, or controlled entities’, share of the research and development costs incurred and expensed on a project.

(iii) the other non-joint venture research project costs predominantly relate to the development programs in respect to the Vascular endothelial Growth Factors (VeGF), based therapeutics.

there are no expenditure commitments relating to joint venture research projects in the current or prior year.

the consolidated entity has nil assets in the financial statements employed in the joint ventures.

there were no impairment losses in the assets employed in the joint venture operations.

72 2011 circadian annual report

24. related partY diScloSureS

(a) Subsidiaries

the consolidated financial statements include the financial statements of circadian and the subsidiaries listed in the following table:

		book value of parent entity investment and %	book value of parent entity investment and %	equity interest
	2011	2011	2010	2010
name of company	$	%	$	%
circadian ocular oy	-	100	-	-
circadian Pharmaceuticals (Aust) Pty ltd(iv)	-	100	-	100
circadian shareholdings Pty ltd(i)	1	100	-	-
Precision Patchclamps (int) Pty ltd(iv)	-	100	-	100
Polychip Pharmaceuticals Pty ltd	2,064,929	100	2,121,620	100
fibre optics (Aust) Pty ltd(iv)	-	100	2,415,737	100
cancer therapeutics Pty ltd(ii)	-	100	-	100
neuro therapeutics limited(iv)	-	100	-	100
Vegenics Pty ltd(iii)	27,949,955	100	27,451,308	100
	30,014,885		31,988,665

(i) circadian Shareholdings pty ltd was incorporated on 24 February 2011 as trustee for the employee conditional rights Scheme. refer to note 26.

(ii) cancer therapeutics pty ltd was previously known as cancer therapeutics limited. the entity changed its status on 18 February 2011.

(iii) Vegenics pty ltd was previously known as Vegenics limited. the entity changed its status on 8 october 2010.

(iv) these entities were deregistered in the current financial year, as they have been dormant for several years. there has been no financial impact on the Group as a result of the deregistrations.

circadian is the ultimate parent entity.

all subsidiaries were incorporated in australia, except for circadian ocular oy (incorporated in Finland in the current financial year) and have the same financial year as circadian.

as at 30 June 2011, the above subsidiaries were reviewed to determine whether the investment values held by the company were impaired. as a result of this exercise, an impairment of $203,621 (2010: $374,101) was recognised in profit or loss during the current financial year.

in undertaking the impairment test with respect to the investment in Vegenics, the company assessed progress of the research and development activities against the milestones established for these activities. provided the development milestones are being achieved, or in the company’s opinion are likely to be achieved, in the time frames expected, the company does not consider its investment is impaired. a detailed summary of progress of the Group’s research and development activities and discussion of milestones achieved and those expected over the next 12 months is contained within the operations report.

(b) transactions with related parties

(i) loans receivable from subsidiaries of $10,753,519 (2010: $3,998,747) are non-interest bearing, stated at the lower of amortised value and recoverable value, are unsecured and have no fixed terms of repayment of principal (although repayment is not expected within a year). evidence of impairment of an investment in or a receivable from a subsidiary is when the net assets of the relevant subsidiary are lower than the relevant investment or receivable.

interest of $594,817 (2010: $350,597) was incurred by the subsidiaries for the year due to the discounting of the loans and use of the effective interest method in accordance with AASB 139 Financial Instruments: Recognition and Measurement (see note 2(g)).

2011 circadian annual report 73

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

24. related partY diScloSureS (continued)

(b) transactions with related parties (continued)

the amounts are owed by the following companies (stated at the lower of amortised value and recoverable amount):

	2011	2010
	$	$
Subsidiaries
Vegenics Pty ltd	10,753,519	3,998,747

the loan which has been advanced to Vegenics during the year was used for working capital purposes and predominantly for the funding of research and development activities. the directors have provided assurance that the loan provided will not be recalled until there is evidence that the entity has sufficient cash to repay this loan in the future.

the loan which has been provided to cancer therapeutics pty ltd has a nil recoverable value. the amortised value of the loan to cancer therapeutics pty ltd was $3,473,533 (2010: $3,474,022), of which $489 was reversed from impairment in 2011 (2010: impaired $6,272). the loan to neuro therapeutics limited of $2,452,303 was forgiven on 15 February 2011 as resolved by the board.

(ii) the amortised value of the loans payable to subsidiaries of $930,037 (2010: $3,418,999) are non-interest bearing, unsecured and have no fixed terms of repayment of principal (repayments are not expected within the next year, however, as the parent funds the activities of its wholly-owned subsidiaries, the loan from subsidiaries will be reduced by these amounts). interest of $62,813 was incurred by the parent during the year (2010: $184,593) due to the discounting of the loans and use of the effective interest method in accordance with AASB 139 Financial Instruments: Recognition and Measurement (see note 2(t)).

Instruments: Recognition and Measurement(see note 2(t)).
the amounts are owed to the following companies:	2011	2010
	$	$
Subsidiaries
Precision Patchclamps (int) Pty ltd	-	67,558
circadian Pharmaceuticals (Aust) Pty ltd	-	88,251
Polychip Pharmaceuticals Pty ltd	930,037	1,081,050
fibre optics (Aust) Pty ltd	-	2,182,140
	930,037	3,418,999

the loans to the parent from precision patchclamps (int) pty ltd and circadian pharmaceuticals (aust) pty ltd were forgiven on 15 February 2011 as resolved by their respective boards. the subsidiaries have since been deregistered. the loan to the parent from Fibre optics (aust) pty ltd was forgiven on 21 June 2011 and the subsidiary has since been deregistered. the loans forgiven resulted in income of $3,124,080 (2010: nil) in the parent entity.

(iii) in accordance with a management services agreement between circadian and Vegenics, circadian charged Vegenics $2,520,000 (2010: $2,520,000) for the provision of management and related support services by circadian.

(iv) For details of director related party transactions refer to note 25(e).

74 2011 circadian annual report

25. KeY ManaGeMent perSonnel

25. KeY ManaGeMent perSonnel
		consolidated
	2011	2010
	$	$
(a) Compensation of key management personnel
short-term employee benefts	1,658,559	1,716,033
Post employment benefts	125,401	144,290
long-term benefts	-	-
termination benefts	-	98,230
share-basedpayments expense	177,314	191,292
total compensation	1,961,274	2,149,845

details of the key management personnel are included within the remuneration report section of the directors’ report.

(b) options and rights held by key management personnel (consolidated)

		balance at				balance at end		not
		beginning of	Granted as	options	net change	of period	exercisable	exercisable*
		period 1 July	remuneration	exercised	other	30 June	(i.e. vested)	(i.e. not vested)
Executive directors
r. klupacs	2011	1,000,000	520,000	-	-	1,520,000	1,000,000	520,000
	2010	1,000,000	-	-	-	1,000,000	-	1,000,000
Other executives
M. baldwin	2011	200,000	200,000	-	-	400,000	-	400,000
	2010	200,000	-	-	-	200,000	-	200,000
M. Gerometta	2011	100,000	160,000	-	-	260,000	-	260,000
	2010	100,000	-	-	-	100,000	-	100,000
M. sullivan	2011	-	-	-	-	-	-	-
	2010	-	-	-	-	-	-	-
r. chadwick	2011	160,000	180,000	-	-	340,000	-	340,000
	2010	160,000	-	-	-	160,000	-	160,000
Total	2011	1,460,000	1,060,000	-	-	2,520,000	1,000,000	1,520,000
	2010	1,460,000	-	-	-	1,460,000	-	1,460,000

these options have not legally vested. Vested options, which must achieve share price hurdles in order to vest, will only become exercisable in 2011 (for options issued in 2008 and 2007) and 2012 (for options issued in 2009). conditional rights were granted during the current financial period. the rights will become exercisable on achievement of certain milestones. refer to note 26(b)(ii) for details of the conditional rights Scheme.

2011 circadian annual report 75

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

25. KeY ManaGeMent perSonnel (continued)

(c) shareholdings of key management personnel (consolidated)

ordinary shares held in circadian (number)

		balance at				balance at end
		beginning of	Granted as	on exercise	net change	of period
		period 1 July	remuneration	of options	other	30 June
Directors
r. klupacs	2011	124,481	-	-	73,038	197,519
	2010	85,481	-	-	39,000	124,481
d. fisher	2011	117,500	-	-	-	117,500
	2010	117,500	-	-	-	117,500
d. clarke	2011	80,000	-	-	-	80,000
	2010	80,000	-	-	-	80,000
t. McMeckan	2011	30,000	-	-	8,773	38,773
	2010	20,000	-	-	10,000	30,000
c. Montagner	2011	22,058	-	-	-	22,058
	2010	-	-	-	22,058	22,058
J. skipper	2011	-	-	-	-	-
	2010	-	-	-	-	-
e. Malta	2011	50,000	-	-	-	50,000
	2010	-	-	-	50,000	50,000
Executives
M. baldwin	2011	-	-	-	-	-
	2010	-	-	-	-	-
M. Gerometta	2011	-	-	-	-	-
	2010	-	-	-	-	-
M. sullivan	2011	-	-	-	-	-
	2010	-	-	-	-	-
r. chadwick	2011	-	-	-	-	-
	2010	-	-	-	-	-
Total	2011	424,039	-	-	81,811	505,850
	2010	302,981	-	-	121,058	424,039

any equity transactions by key management personnel other than those arising from the exercise of remuneration options have been entered into under terms and conditions no more or no less favourable than those that would have been adopted if dealing at arm’s length, that is, they are on-market transactions.

(d) loans to key management personnel (consolidated)

there were no loans to key management personnel during the current financial year and the previous financial year.

76 2011 circadian annual report

(e) other transactions and balances with key management personnel and their related parties

director-related party transactions:

Purchases

(i) during the year, circadian paid $46,000 (2010: $46,000) in donations to the ludwig institute of cancer research ltd (licr). dr Jonathan Skipper, a non-executive director of circadian, is an executive officer of licr.

(ii) laboratory costs totalling $63,570 (2010: $46,800) were incurred during the year by Vegenics limited for facilities provided by licr.

(iii) legal fees, including miscellaneous expenses, totalling $87,315 (2010: $140,129) were incurred during the year by the Group for services provided by the legal firm of Minter ellison of which don clarke, a director of the company, is a partner. these legal fees were charged at commercial rates.

amounts recognised at the reporting date in relation to director-related entity transactions:

amounts recognised at the reporting date in relation to director-related entity transactions:
	2011	2010
	$	$
Assets and liabilities:
current assets	-	-
non-current assets	-	-
	-	-
Current liabilities:
Payables	2,758	29,427
non-current liabilities	-	-
	2,758	29,427
Revenues and expenses:
Administrative expenses	133,315	186,129
research & development expenses	63,570	46,800
	196,885	232,929

2011 circadian annual report 77

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

26. SHare-baSed paYMent planS

(a) recognised share-based payment expenses

the expense recognised for employee services received during the year is shown in the table below:

		2011	2010
		$	$
expense arising from equity-settled share-basedpayment transactions (note	8(c))	231,272	259,880

circadian currently operates two share-based payment plans; the option plan and the conditional rights Scheme. these are described below. there have been no cancellations or modifications to the existing options plan.

a new conditional rights Scheme was introduced on 4 March 2011 which enables eligible employees to be awarded shares which are equity settled, when certain milestones have been met by the Group. this will replace the option plan and no more new options will be granted under the existing plan. refer to note 26(b)(ii).

(b) types of share-based payment plans

(i) senior Management option Plan (option Plan)

Share options were granted to executive directors and certain employees under this plan. there will be no more new options issued to executives and senior management under this option plan.

in valuing transactions settled by way of issue of options, no account is taken of any performance conditions, other than market conditions linked to the price of the shares of circadian. all options issued have market performance conditions so as to align shareholder return and reward for the company’s key management personnel.

the option plan was implemented to offer options which are subject to performance hurdles in January 2007. the options issued to employees (including senior executives) in 2007, 2008 and 2009 were divided equally into three tranches.

the number of options in each tranche will vest on the satisfaction of the following performance conditions during the relevant option period (2007 options within five years of grant date; 2008, 2009 and 2010 options within approximately four years of grant date).

the 2007 options issued have an exercise price of $1.50, the 2008 options issued have an exercise price of $1.30 and the 2009 options have an exercise price of $1.00.

Performance Hurdles

tranche 1 – a market price for a circadian share (Share price) achieves not less than 125% of the exercise price;

the Share price is to be calculated as the Volume Weighted average price (VWap) of circadian shares traded on the aSX over a consecutive 15 day trading period.

Vested options may only be exercised at any time in the last 12 months of the relevant option period.

the exercise price is subject to any adjustment which is required under the aSX listing rules as a consequence of a capital reorganisation or a pro-rata rights issue of shares which occurs after the grant of the options but prior to the exercise of the options.

the board has residual discretion to accelerate vesting (i.e. reduce or waive the performance Hurdles) and exercise options in the event of a takeover or merger or any other circumstance in accordance with the terms of the option plan.

options in relation to which performance conditions have not been satisfied (i.e. that do not vest) will lapse and will not able to be exercised, except in circumstances as described below.

options which have not vested will lapse where an option holder ceases employment with circadian other than on retirement, redundancy, death or total and permanent disablement, or unless as otherwise determined by the board in its absolute discretion.

Where an option holder has ceased employment with circadian as a result of resignation, retirement, redundancy, death or total and permanent disablement prior to the end of a performance period but not before the first anniversary or grant date, options (whether vested or not) may be retained by the option holder on a pro-rata basis (the pro-rata being calculated over the period from grant date).

tranche 2 – the Share price achieves not less than 150% of the exercise price; and

tranche 3 – the Share price achieves not less than 175% of the exercise price.

78 2011 circadian annual report

(ii) conditional rights scheme

the Scheme was established on 4 March 2011 to offer eligible employees conditional rights to a specified number of circadian shares subject to certain milestones. these shares are equity settled at no cost to the employees once the milestones are met. the contractual life of the rights is four years. employees who have obtained three months of satisfactory service with the Group as at 1 october 2010 are eligible to participate in the Scheme.

once the milestones have been met and the share rights exercised, the circadian shares will be issued to the Scheme trustee to be held on the employee’s behalf.

When an employee ceases employment with the Group before the share rights have vested, other than death, total and permanent disablement and redundancy, the entitlement to the rights will lapse and the share rights will cease. the employee will not be entitled to any compensation in respect of those rights which are forfeited.

if employment ceases with the Group after all of the conditions attaching to the rights are satisfied, these rights can be retained, exercised and the shares withdrawn from the Scheme.

the exercise of the rights is conditional on the Group achieving the following conditions (milestones):

Milestone 1

› 33% of the rights will vest if either of the following occurs within 18 months:
if the board determines that a material commercial licensing, joint venture, partnering or similar agreement is entered into and completed and annualised royalty income exceeds $2 million.

Milestone 2

› 67% of the rights will vest if any three of the following occur within 36 months:

Milestone 3

› 100% of the rights will vest if any three of the following occur within 48 months:
if the board determines that a material commercial licensing, joint venture, partnering or similar agreement is entered into and completed;
the share price based on a 10-day Volume Weighted average price (VWap) at any time exceeds $1.75 within 90 days of the date of the offer, which is 4 March 2011;
completion of necessary studies to have enabled the VGX-200 or VGX-300 series of molecules to be designated “formal drug development candidates”;
identification of a putative biomarker/clinical profile to enable patient selection into phase 2 clinical trials; or
annualised sales royalty income exceeding $7.5 million.
› 100 % of the rights will also vest and are able to be exercised if:
the 10-day VWap of circadian shares is not less than $1.75 at any time;
in the event of a sale, merger or takeover, or other similar event as determined by the board, the offer price per share exceeds:
(i) $1.30 per share, within the 12 months of the offer date, which is 4 March 2011
(ii) $1.50 per share, within the 24 months of the offer date
(iii) $1.75 per share, within the 36 months of the offer date
iv) $2.00 per share, within the 48 months of the offer date
if all of the events for Milestone 3 occur within 48 months of the offer date.
if the board determines that a material commercial licensing, joint venture, partnering or similar agreement is entered into and completed;
the share price based on a 10-day Volume Weighted average price (VWap) at any time exceeds $1.50 within 90 days of the date of the offer, which is 4 March 2011;
completion of necessary studies to have enabled the VGX-200 or VGX-300 series of molecules to be designated “formal drug development candidates”;
identification of a putative biomarker/clinical profile to enable patient selection into phase 2 clinical trials; or
annualised sales royalty income exceeding $5 million.

2011 circadian annual report 79

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

26. SHare-baSed paYMent planS (continued)

(c) summary of options/rights granted

the following table illustrates the number and movements in share options and rights during the current year:

2011
date of issue	22/03/2011(ii)		26/06/2009(i)	15/12/2008(i)	15/09/2008(i)	18/02/2008(i)	9/03/2007(i)	8/02/2007(i)
on issue at the beginning of the year		-	100,000	100,000	881,667	500,000	99,305	1,367,694
Granted during the year		1,560,000	-	-	-	-	-	-
exercised during the year		-	-	-	-	-	-	-
forfeited during the year		-	(22,856)	-	(100,685)	-	-	-
outstanding at the end of the year		1,560,000	77,144	100,000	780,982	500,000	99,305	1,367,694
2010
date of issue			26/06/2009(i)	15/12/2008(i)	15/09/2008(i)	18/02/2008(i)	9/03/2007(i)	8/02/2007(i)
on issue at the beginning of the year			100,000	100,000	985,000	500,000	120,000	1,400,000
Granted during the year			-	-	-	-	-	-
exercised during the year			-	-	-	-	-	-
expired during the year			-	-	(103,333)	-	(20,695)	(32,306)
outstanding at the end of the year			100,000	100,000	881,667	500,000	99,305	1,367,694
exercisable at end of the year		-	-	-	-	-	-	-
number of recipients		10	2	1	8	1	4	4
exercise price		$0.00	$1.00	$1.00	$1.00	$1.30	$1.50	$1.50
exercise period from		4/9/12	26/6/12	15/12/11	15/9/11	8/2/11	9/3/11	8/2/11
to (expiration day)		31/3/15	26/6/13	15/12/12	15/9/12	8/2/12	9/3/12	8/2/12

(i) refer to note 26(b)(i) for a summary of the options granted.

(ii) refer to note 26(b)(ii) for a summary of the rights granted.

(d) pricing models for options and conditional rights granted

the following assumptions were used to derive a value for the options and rights granted using the model as specified below as at the grant date, taking into account the terms and conditions upon which the options or rights were granted.

issue date of options/rights	22/3/11	26/6/09	15/12/08	15/9/08	18/2/08	5/3/07	8/2/07
dividend yield	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%	0.00%
expected annual volatility	45.0%	45.0%	45.0%	45.0%	37.5%	37.5%	37.5%
risk-free interest rate (p.a)	5.04%	5.08%	3.73%	5.43%	6.54%	5.79%	5.99%
expected life of option/right (years)	4.0	3.5	3.5	3.5	3.5	4.5	4.5
fair value per option/right	20.34 cents*	20.96 cents	11.28 cents	27.99 cents	24.64 cents	41.01 cents	67.45 cents
	-25.00 cents	-21.97 cents	-12.06 cents	-29.14 cents	-27.62 cents	-43.34 cents	-68.56 cents
exercise price per option/right	$0.00	$1.00	$1.00	$1.00	$1.30	$1.50	$1.50
share price at grant date	$0.700	$0.745	$0.58	$0.85	$1.025	$1.27	$1.61
Model used	binomial**	Monte carlo	Monte carlo	Monte carlo	Hull Model^	Monte carlo	Monte carlo

the fair value of 520,000 options is 20.34 cents, which are valued effective 11 november 2010 which is the date that shareholders approved the issue of conditional rights to r. Klupacs at the annual General Meeting. refer to the remuneration report section of the directors’ report.

** the binomial model is implemented by defining the upper and lower values of the stock over discrete periods of time. under the assumption of no dividends, the binomial model approximates to the black-Scholes model.

^ the Hull Model is a barrier option model which is derived using a closed-form formula not dissimilar to the black-Scholes formula.

80 2011 circadian annual report

For the options issued, from 2007 onwards, the life was based on the assumed exercise behaviour which calculates the effect of an early exercise of the option into the expected life. these estimates may not be indicative of the exercise pattern which may occur.

For the rights issued in 2011, the life was based on the expiry date quoted on the performance rights certificates of the rights granted. the expected volatility is calculated using historic share returns. these periods differed in each financial year. For those rights granted in 2011, this was a period of two years, 2010 and 2009 was a period of two years, 2008 was for a period of three years and 2003 for one year. this basis assumes that the historical volatility is indicative of future market trends which may not be the case.

options in circadian are not listed and, as such, do not have an externally verifiable price.

27. coMMitMentS

(i) operating lease commitments – Group as lessee

the Group has entered into a commercial lease for the office premises. an extension to the lease was signed in June 2008.

Subsequently the lease was extended to June 2012 however, the tenancy may be terminated at any time by the lessee, giving to the lessor not less than six months, notice of that termination. the following commitment assumes that the tenancy will be occupied for the full two year extension. if notice was to have been given at 30 June 2011, the commitment for six months rent would have amounted to $55,840 (2010: $55,840). additionally, the Group has entered into a rental agreement on office equipment for four years from 7 July 2011, the commitment within one year is $3,396 and after one year but not more than 5 years is $10,188 and is included in the schedule below.

	2011	2010
	$	$
Within one year	109,874	96,687
After one year but not more than fve years	10,188	111,680
	120,062	208,367

(ii) research projects and licence commitments
the Group has entered into research and development and intellectual property licence agreements with various parties (refer to note 23 for
details of some of the projects). expenditure commitments relating to these are payable as follows:
Within one year	960,820	3,312,359
After one year but not more than fve years	749,895	946,437
After more than fve years	398,169	233,454
	2,108,884	4,492,250

2011 circadian annual report 81

noteS to tHe conSolidated Financial StateMentS For tHe Year ended 30 June 2011

28. continGencieS

(i) Vegenics pty ltd*, a wholly owned subsidiary of circadian, is a party to various research agreements with respect to which a commitment to pay is contingent on the achievement of research milestones. assuming all milestones are achieved within the timeframes stipulated in the contracts, those which could become payable in less than one year total $732,581 (2010: $100,000) and those which could become payable in more than one year total $10,469,015 (2010: nil).

Further, under license/collaboration agreements with three third parties, payments are to be made only if certain research and clinical development milestones are achieved and royalties may become payable on any eventual sales of products developed under these agreements.

*Vegenics pty ltd was formerly known as Vegenics limited. the entity changed its status on 8 october 2010.

(ii) remuneration contingent liability – refer to “employment contracts” in the remuneration report of the director’s report with respect to payments in lieu of notice where either the Managing director resigns or the company terminates his employment.

29. eVentS aFter tHe balance SHeet date

no matters or circumstances have arisen since the end of the reporting period, not otherwise disclosed in this report, which significantly affected, or may significantly affect, the operations of the Group, the results of those operations or the state of affairs of the Group in future financial years.

30. auditorS’ reMuneration

30. auditorS’ reMuneration
	2011	2010
	$	$
the auditor of circadian is ernst & Young.
amounts received or due and receivable by ernst & Young (australia) for:
an audit or review of the fnancial report of the entity and any
other entity in the consolidated group	92,400	97,026
other services in relation to the entity and any other entity in the consolidated group
tax compliance	15,880	15,000
other tax services	24,440	13,870
assurance related
	132,720	125,896

82 2011 circadian annual report

directorS’ declaration For tHe Year ended 30 June 2010

in accordance with a resolution of the directors of circadian technologies limited, we state that:

in the opinion of the directors:
(a) the financial report, and the remuneration report included in the directors’ report of the company and of the Group are in accordance with the Corporations Act 2001 , including:
- (i) giving a true and fair view of the company’s and Group’s financial position as at 30 June 2011 and of their performance for the year ended on that date; and
- (ii) complying with australian accounting Standards, corporations regulations 2001, and international Financial reporting Standards (iFrS) as disclosed in note 2(a) of the financial statements; and
(b) there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.
this declaration has been made after receiving the declarations required to be made to the directors in accordance with section 295a of the Corporations Act 2001 for the financial year ended 30 June 2011.

For and on behalf of the board:

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robert Klupacs director Melbourne 23 august 2011

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dominque Fisher director

2011 circadian annual report 83

84 2011 circadian annual report

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2011 circadian annual report 85

aSX additional inForMation

1. diStribution oF eQuitY SecuritieS

the number of shareholders, by size of holding, of quoted fully paid ordinary shares as at 13 September 2011 is as follows:

	fully Paid	ordinary shares
category	no. of Holders	no. of shares
1–1,000	616	526,088
1,001–5,000	1,417	3,848,037
5,001–10,000	381	3,004,166
10,001–100,000	318	8,545,754
100,001–and over	35	30,472,878
	2,767	46,396,923
the number of shareholders holding less than a marketable parcel of shares are:	178	88,840

the number of shareholders holding less than a marketable parcel of shares are:

2. tWentY larGeSt SHareHolderS

the	names of the twenty largest holders of quoted fully paid ordinary shares and their respective holdings as at 13 September	names of the twenty largest holders of quoted fully paid ordinary shares and their respective holdings as at 13 September	2011 are:
rank name		no. of shares	% interest
1.	Hsbc custody nominees (Australia) limited	8,609,338	18.56
2.	licentia limited	3,150,340	6.79
3.	ludwig institute for cancer research limited	3,122,090	6.73
4.	Hsbc custody nominees (Australia) limited-Gsco ecA	2,398,682	5.17
5.	cogent nominees Pty limited	1,779,354	3.84
6.	capital Macquarie Pty limited	1,377,360	2.97
7.	citicorp nominees Pty limited	1,240,626	2.67
8.	chemical trustee limited	1,158,108	2.50
9.	national nominees limited	1,052,667	2.27
10.	Jff steven Pty limited	714,867	1.54
11.	Primdonn nominees Pty limited	650,000	1.40
12.	traders Macquarie Pty limited	647,972	1.40
13.	Mr eric lucas	354,036	0.76
14.	Mr david John Massey	322,730	0.70
15.	bond street custodians limited	282,334	0.61
16.	Mr roger William sawkins + Mr Gary robert yong Gee	249,800	0.54
17.	Mr robert John klupacs	243,519	0.52
18.	toltec Holdings Pty ltd	230,000	0.50
19.	dr Marc Gregory Achen	220,000	0.47
20.	Philadelphia investments Pty ltd	218,950	0.47
Totals		28,022,773	60.40

86 2011 circadian annual report

3. SubStantial SHareHolderS

the following information is current at 13 September 2011 based on information extracted from substantial shareholding notices given to the company by shareholders who hold relevant interests in more than 5 per cent of the company’s voting shares:

the following information is current at 13 September 2011 based on information extracted to the company by shareholders who hold relevant interests in more than 5 per cent of the	from substantial shareholding notices given company’s voting shares:
	no. of shares
Packer & co limited	7,724,421
licentia limited	3,150,340
ludwig institute for cancer research limited	3,122,090
select Asset Management limited	2,358,600

4. VotinG riGHtS

clauses 44 to 53 of the company’s constitution stipulate the voting rights of members. in summary, but without prejudice to the provisions of the constitution, every member present in person or by representative, proxy or attorney shall have one vote on a show of hands and on a poll have one vote for each ordinary share held by the member.

the company’s shares are quoted on the australian Securities exchange limited (aSX code: cir) and the otc Markets Group inc (otcQX code: cKdXY).

2011 circadian annual report 87

corporate inForMation

company circadian technologies limited abn 32 006 340 567 directors dominique Fisher, ba(Hons), Maicd (chairman) robert Klupacs, bSc(Hons), Grad dip ip law, Maipa (Managing director and chief executive officer) don clarke, llb(Hons) tina McMeckan, blibarts&Sc, Mba, Faicd errol Malta, bSc(Hons), phd (pharmacology) carlo Montagner, bSc, MSc, Grad dip child psychology Jonathan Skipper, phd company Secretary Susan Madden, bbus, cpa registered office level 1, 10 Wallace avenue, toorak, Victoria 3142 principal administrative office level 1, 10 Wallace avenue, toorak, Victoria 3142 telephone: +61 (3) 9826 0399 Facsimile: +61 (3) 9824 0083 bankers commonwealth bank of australia, Melbourne, Victoria auditors ernst & Young, 8 exhibition Street, Melbourne, Victoria 3000 Solicitors Minter ellison, rialto towers, level 23, 525 collins Street, Melbourne, Victoria 3000 Share register computershare investor Services pty ltd Yarra Falls, 452 Johnston Street, abbotsford, Victoria 3067 telephone: +61 (3) 9415 4000 or 1300 850 505 (within australia) Stock exchange listing circadian technologies limited’s shares are quoted on the australian Securities exchange limited aSX (code: cir) circadian also operates an american depositary receipt (adr) program where one adr is the equivalent of 5 shares. adrs are publicly traded on the Qtc QX in the united States of america (code cKdXY).

88 2011 circadian annual report

2011 circadian annual report 89

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level 1 10 Wallace Avenue toorak Victoria 3142 Australia t +61 (3) 9826 0399 f +61 (3) 9824 0083 www.circadian.com.au Abn 32 006 340 567

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2011 circadian annual report 90

AI assistant

Opthea Ltd — AGM Information 2011

32698_rns_2011-10-23_5609daf7-a2cf-4ed7-b42d-5609fab9088e.pdf

Notice of Annual General Meeting and Explanatory Memorandum

Circadian Technologies Limited ACN 006 340 567

Notice of Annual General Meetin g

Ordinary Business

1. Financial statements and reports

2. Remuneration Report (Resolution 1)

3. Appointment of Auditor (Resolution 2)

4. Re-election of Ms Tina McMeckan as a director (Resolution 3)

5. Other business

24 October 2011

Notes

Proxies

Undirected proxies

Definitions

Recent Amendments

Proxy vote if appointment specifies way to vote

Transfer of non-chair proxy to chair in certain circumstances

Voting entitlements

Voting Exclusion Statements

Resolution 1:

If you are a KMP or a closely related party of a KMP (or are acting on behalf of any such person) and purport to cast a vote that will be disregarded by the Company (as indicated above), you may be liable for an offence for breach of voting restrictions that apply to you under the Corporations Act.

Questions and comments by Shareholders at the meeting

Ex lanator Memorandum p y

1. Purpose of information

2. Financial statements and reports

3. Remuneration Report (Resolution 1)

Directors' Recommendation

4.

Appointment of Auditor (Resolution 2)

Directors' Recommendation

5. Re-election of Ms Tina McMeckan as director (Resolution 3)

Introduction

Biography of Ms Tina McMeckan

Directors' Recommendation

6. How to Vote

7. Glossary

Corporations Act means Corporations Act 2001 (Cth).

Circadian Technologies Ltd

Lodge your vote:



By Mail:

For all enquiries call:

Proxy Form

 For your vote to be effective it must be received by 11.00 am (AEDT) Tuesday, 22 November 2011

How to Vote on Items of Business

Appointment of Proxy

A proxy need not be a securityholder of the Company.

Signing Instructions

Attending the Meeting

 Turn over to complete the form

 www.investorcentre.com

Proxy Form

Please mark to indicate your directions

Appoint a Proxy to Vote on Your Behalf

the Chairman of the Meeting

OR

Important for Resolution 1

ORDINARY BUSINESS

SIGN

Signature of Securityholder(s) This section must be completed.

Milestones

We have

Planning

leadershiP

technology

InsIde thIs report

We know

We strive

GlioblaStoMa

MetaStatic colorectal cancer

cancerS oF unKnoWn priMarY oriGin

operations report

total operatinG coStS

dear Shareholders

our Product PiPeline

AdVAncinG our Product PiPeline

Advancement of the VGX-100 (VeGF-C antibody) program in oncology and front-of-the-eye disease.

Opthea Ltd AGM Information 2011