Opthea Ltd - Annual Report 2008 | FinancialReports.eu

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Annual Report 2008 New directions

Circadian aims to deliver superior shareholder returns by being a world class biologicals drug development company producing therapeutics for cancer and other serious diseases.

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Operations Report 3
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Operations Report	3
Management Team	8
Directors’ Report	10
Corporate Governance Statement	23
Annual Financial Report	27
Auditor’s Independence Declaration	28
Balance Sheet	29
Income Statement	30
Statement of Changes in Equity	31
Cash Flow Statement	33
Notes to the Financial Statements	34
Directors’ Declaration	77
Independent Auditor’s Report	78
ASX Additional Information	80
Corporate Information	81

Annual Report 2008

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Circadian has a tremendous base for its future growth as a drug development company.

OpEraTiONS rEpOrT

Circadian’s New Direction: A developer of therapeutics for cancer & other serious diseases

Robert Klupacs, Managing Director & CEO

Since the end of last year the Circadian Group has undergone a signifi cant and positive transition in its business.

Circadian has moved from being a biotechnology investor and incubator of early stage technologies to a developer of therapeutics for cancer and other serious diseases pursuant to the strategy announced in June 2008. This is based on the outstanding progress achieved with the development of the intellectual property of its subsidiary company Vegenics Limited (relating to Vascular Endothelial Growth Factors (VEGF) C, D and R-3).

Leadership of the company changed at the end of February this year with the retirement of Circadian’s founder Leon Serry after 24 years at the helm. He left the Circadian Group in a strong cash position, with listed assets and Vegenics’ signifi cant IP portfolio, providing a tremendous base for Circadian’s future growth as a drug development company.

The key aspects with respect to our drug development business are:

The most comprehensive intellectual property portfolio relating to VEGF-C, VEGF-D and VEGFR-3 molecules of any company in the world , that has been accumulated in our 100% owned subsidiary Vegenics. This intellectual property is the basis of our ongoing drug development programs, the initial and primary focus being on cancer therapies. Genentech Inc’s multi-billion dollar anti-cancer drug Avastin® is an antibody therapy against the closely related VEGF-A. An expanding body of scientifi c literature suggests that targeted VEGF-C and VEGF-D alone or in combination with Avastin® may provide more eff ective anti-cancer treatments through starvation of tumour blood vessel growth (angiogenesis therapies).
Ownership of 100% of Vegenics (previously 67% owned by Circadian). On 14 August 2008 Circadian acquired an additional 33% interest in Vegenics from our cofounders of that company, the Ludwig Institute for Cancer Research Ltd (LICR) and Licentia Limited which provides us with complete ownership of Vegenics’ product pipeline and its extensive intellectual property portfolio. Under this transaction LICR and Licentia have become substantial shareholders of Circadian. The Directors’ Report provides further details regarding the terms of this transaction.

• . We have at the date of this report approximately $58 million in cash and listed investments ($45 million and $13 million respectively, equating to approximately $1.28 per share).

Our strong cash position and our listed investments, which are eff ectively a source of future cash, enable us to drive our drug development program and will provide strength in negotiating future licensing or partnering arrangements.

Our partnerships . Circadian has commercial partnerships with two highly prominent biotechnology companies, ImClone Systems Inc, a NASDAQ listed company (NSDQ: IMCL) and Ark Therapeutics Group plc, an LSE listed company (LSE: AKT). Ark is developing Trinam® which is expected to enter Phase III studies in the second half of 2008. Trinam® is a treatment for vascular grafts associated with renal dialysis using our VEGF-D gene. ImClone is developing an antibody to VEGFR-3 for the treatment of solid tumours.
Ark is one of the world’s most advanced gene therapy companies and ImClone (market capitalisation: US$5.5 billion) is one of the world’s leaders in the development of therapeutic antibodies as cancer therapies having developed the drug Erbitux®.
We earn minimum annual royalties and annual license fees respectively from these companies and will receive payments on achievement of product development milestones as well as royalties on sales.
Our product pipeline . Our most advanced drug candidate, VGX-100 for the treatment of cancer is commencing pre-clinical studies with manufacturing being undertaken by Swedish company BioInvent AB. VGX-100 is an antibody to VEGF-C. We are also developing our VGX-200 series of humanized VEGF-D antibodies as anti-cancer agents, and VGX-300 (a soluble VEGFR-3 protein) for selected cancer applications.
Our outstanding management team . We have bolstered our capabilities in drug research and development (with specifi c experience in angiogenesis and therapeutic antibodies), in business development and in IP management through the recruitment of a highly experienced and credentialed management team.
A world class and internationally experienced Product Development Advisory Group . The members of this Group bring vast experience in international drug development including toxicology, clinical development, oncology and therapeutic antibodies.

The board has also engaged additional, complimentary skills with the appointments of Ms Tina McMeckan, Mr Carlo Montagner and Dr Jonathan Skipper as directors. Together they bring to the company international pharmaceutical and licensing experience and skills in commercialisation of science and technology.

With a continuing and enhanced focus on drug development, a strong board of directors and an outstanding management and advisory team we look forward to consolidating the successes of the past several months and building further exceptional value for shareholders over the next few years.

Robert Klupacs Managing Director & CEO 21 August 2008

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

OpEraTiONS rEpOrT (continued)

Our Strategy

Our business is to develop new biological therapeutic agents which can inhibit angiogenesis, primarily as novel anti-cancer agents and other diseases where angiogenesis is a key component.

Our drug development and commercialisation strategy is to develop therapeutic products to treat cancer and other diseases up to the demonstration of proof of efficacy in Phase II human trials, with subsequent clinical development being undertaken in partnership with larger pharmaceutical and/or biotechnology companies. These products are based on the intellectual property and know-how owned and controlled by Circadian’s 100% owned subsidiary Vegenics Limited.

We will consider entering into earlier partnerships if appropriate and will also selectively exploit parts of our product and intellectual property portfolio, which don’t relate to angiogenesis inhibition, through partnering deals at earlier stages of development in order to mitigate development risk and the use of the Group’s significant

cash and listed investment assets. There is potential for this to occur in the next one to two years based on the demonstrated willingness of large pharmaceutical and biotech companies in the last 12 to 18 months to sign-up early-stage deals, particularly in the field of angiogenesis and therapeutic antibodies.

The intellectual property accumulated in Vegenics has applications not just in cancer, which is the Group’s primary and initial therapeutic development focus, but also in a number of other areas such as eye disease and inflammation. Accordingly there are a number of large market opportunities the Group could develop itself or in partnership with others.

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

Our Products

What is angiogenesis therapy for cancer?

Perhaps the biggest breakthrough in the history of cancer treatment is the discovery that tumour growth can be blocked by cutting off their blood supply. Tumours cannot grow beyond a minute size (0.2 mm), without the development of new blood vessels to support their need for oxygen and nutrients, a process called “angiogenesis.” It turns out that tumours themselves actively secrete potent factors that stimulate angiogenesis. Realising this, the American doctor Judah Folkman proposed a new class of anti-cancer therapies that would “starve” tumours by inhibiting angiogenesis. The most successful of these drugs to-date is Avastin®, developed by Genentech. Avastin® was shown to significantly extend the lives of colon cancer patients and approved for use in this disease as well as for breast and lung cancers. Annual worldwide sales of Avastin® exceed US$6 billion.

A major advantage of angiogenesis inhibitors is that their sideeffects are generally far less severe than for classical chemotherapy drugs. Despite Avastin®‘s success, there is enormous scope for the development of additional and improved drugs in the class.

Circadian is in a strong position to lead the race for discovery of these next-generation drugs. Avastin® is an inhibitor of the protein Vascular Endothelial Growth Factor (VEGF-A). Circadian controls a dominant intellectual property position over the closely related proteins VEGF-C and VEGF-D, which are promising targets for anti-angiogenesis therapy in their own right.

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Anti-angiogenesis treatment of a tumour. Blocking the proangiogenic factors secreted by the tumour inhibits the growth of new blood vessels, starving the tumour.

Products we are developing

Our efforts are currently being prioritised around one antibody, VGX-100 as a cancer therapeutic, but we also have two further product development candidates in our pipeline.

The lead molecule VGX-100 (a human VEGF-C antibody) commenced clinical Good Manufacturing Practice (cGMP) production through a contract manufacturing relationship with the Swedish company BioInvent AB. VGX-100 is being developed as a treatment for solid tumours.

Our other potential product development candidates, the VGX-200 series (humanized VEGF-D antibodies), being developed in collaboration with Arana Therapeutics Limited and VGX-300 (soluble VEGFR-3 protein) have progressed with the first phase of the VGX-200 collaboration with Arana expected to be completed in Q4 2008.

Products being developed by our licensees: Ark Therapeutics Group plc and ImClone Systems Inc

Vegenics has licensing agreements with Ark Therapeutics Group plc (LSE:AKT) in respect of its intellectual property covering the VEGF-D gene. Ark is developing a VEGF-D gene therapy product known as Trinam®. In June 2008 Ark announced that, following full review by the US Food and Drug Administration (FDA), the application for Special Protocol Assessment (SPA) for its Trinam® Phase III trial, filed in April 2007, has been successful and the FDA has formally given SPA approval. Trinam® is being developed to prevent blood vessels blocking in kidney dialysis patients who have undergone vascular access graft surgery. Ark has commenced work to start the planned Phase III trial and, in addition, intends to apply to the FDA for Fast Track Designation.

The SPA process allows Ark to work closely with the FDA to ensure the design and conduct of the Phase III development programme, including the definitive clinical objectives and data analyses, are appropriate to support a marketing licence application (BLA). Trinam® has already been given Orphan Drug Status in the USA and Europe.

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Anti-Tumour Therapy Mediated via VEGF Inhibition

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Anti-Tumour Therapy Mediated via VEGF Inhibition
Tumour spread via blood vessels
VEGFR-2 VEGFR-3 (Hematogenous Metastasis)
Angiogenesis
4 anti- 2 anti- 1
anti-
VEGF-A VEGF-C, VEGF-C,
VEGF-D VEGF-D
Molecules:
VEGF-A
Anti-VEGF-A therapeutic – Avastin®
(marketed by Genentech Inc and
Primary Tumour Hoff man-La Roche)
Circadian’s VEGF-C and VEGF-D inhibitors
VEGF-C & VEGF-D
anti- 3
VEGF-C,
VEGF-D
Lymphangiogenesis
Tumour spread via lymphatic vessels
VEGFR-3
(Lymphogenous Metastasis)
sel
Vessel
d Blood Ves
Lymphatic
Tumour-Associate
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Circadian’s inhibitors (green molecules) can block the interaction of VEGF-C and VEGF-D with (1) VEGFR-3 expressed on tumour-associated blood vessels; (2) VEGFR-2 expressed on blood vessels; and (3) VEGFR-3 expressed on lymphatic vessels. Anti-VEGF-A therapeutic Avastin® blocks VEGF-A activity (4) (blue molecule) .

Activity of Circadian’s VEGF-C and VEGF-D inhibitors

Solid tumours can recruit blood vessels and lymphatic vessels by secreting proteins that bind to receptors present on the vessels. This growth of blood vessels (angiogenesis) and lymphatic vessels (lymphangiogenesis) delivers vital nutrients required for tumour growth. Agents that inhibit these processes have the potential to act as anti-cancer agents.

VEGF-A, one such protein, is a key driver of angiogenesis through its binding and activation of the receptor VEGFR-2 which is present on blood vessels. Anti-VEGF-A therapeutics block VEGF-A activity and have the potential to slow tumour growth by aff ecting blood vessel growth

into the tumour. The clinically and commercially successful Avastin® is an antibody therapy that neutralizes VEGF-A and in combination with chemotherapy is approved for the treatment of several tumour types. Circadian’s VGX-100 and VGX-200 antibodies block the activity of VEGF-C and VEGF-D respectively, two proteins highly related to VEGF-A that bind to both VEGFR-2 and VEGFR-3, a key driver of lymphatic vessel growth. Inhibitors of VEGF-C and VEGF-D have the potential to act as anti-cancer agents by aff ecting both blood vessel and lymphatic vessel growth into the tumour as well as tumour spread.

Product Pipeline

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discovery development clinical phase 1 clinical phase 2 clinical phase 3 indication
Trinam ®
Graft patency in dialysis
(Ark - licensee)
VEGFR3 Abs
Solid tumours
(ImClone - licensee)
VGX-100
Solid tumours
(In-house)
VGX-200 series
Solid tumours
(In-house)
VGX-300
Solid tumours – eye diseases
(In-house)
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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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Mr robert Klupacs (Managing Director of Circadian) with professor Kari alitalo, research professor of the Finnish academy of Sciences (University of Helsinki), who was awarded the Louis-Jeantet prize for Medicine in 2006 for having discovered the first growth factor controlling the formation of lymphatic vessels.

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OpEraTiONS rEpOrT (continued)

The Phase III study will be a US multi-centre, randomised, controlled trial, in which the efficacy and safety of Trinam® will be investigated in patients with end stage renal disease (ESRD) requiring vascular access for haemodialysis.

Ark has reported that it expects its Phase III studies to commence in H2 2008.

Results from a Phase II open-label, non-randomised, standard-care controlled trial of Trinam®, previously reported by Ark in March 2007, indicated that the access grafts of patients given the planned Phase III dose of Trinam® exhibited almost three times the Primary Unassisted Patency compared with controls. Overall patency data from the Phase II study further showed Trinam® treatment resulted in grafts remaining functional for dialysis, on average, over three times longer than in untreated controls.

Vegenics has also entered into licensing agreements with ImClone Systems Inc (NSDQ: IMCL) in respect of antibodies to VEGFR3 for human therapeutic purposes. ImClone is currently developing a lead antibody designated hF4-3C5. It is expected that ImClone may designate hF4-3C5 a formal clinical development candidate for the treatment of solid tumours within the next 4-6 months.

Further information on our partners can be obtained via their websites www.arktherapeutics.com and www.imclone.com.

Our Technology and Patents

Technology

The clinical and commercial success of Avastin®, an antibody that blocks the activity of VEGF-A, clinically validated anti-angiogenic drugs as an effective means of inhibiting solid tumour growth. By blocking the interaction of VEGF-A with its receptors, primarily VEGFR-2, the multi-billion dollar cancer therapeutic slows tumour growth by inhibiting blood vessel recruitment into the tumour, effectively starving tumours of essential nutrients and oxygen

required for growth. Avastin® which is sold by Genentech Inc and Hoffman-La Roche had US sales in 2007 of $US2.3B and worldwide sales in excess of $US6B.

Because VEGF-C and VEGF-D also can stimulate angiogenesis by interacting with VEGFR-2, inhibitors of these molecules might also have significant additional anti-angiogenic effects. As such, they have the potential to block blood vessel growth in tumours resistant to anti-VEGF-A therapy and when used in combination with drugs like Avastin®, may further inhibit angiogenesis (the growth of blood vessels) mediated by VEGFR-2, resulting in greater clinical efficacy.

VEGF-C and VEGF-D also bind and activate VEGFR-3 which drives lymphatic vessel and tumour-associated blood vessel growth. Inhibitors of VEGF-C, VEGF-D and VEGFR-3 thus have therapeutic potential to inhibit not only primary tumour growth through their anti-angiogenic activities, but to also inhibit tumour spread or metastasis via the lymphatic vessels - a mechanism of tumour dissemination that is often the deadliest aspect of many tumour types and a mechanism that is not thought to be effectively blocked by anti-VEGF-A or anti-VEGFR-2 therapeutics.

In June 2008, the VEGF technologies being developed by Circadian received a major scientific validation when the prestigious scientific journal Nature reported that researchers had uncovered a previously unknown and important role of the molecule VEGFR-3 in directing the formation of blood supply to tumours. VEGFR-3 forms part of the IP portfolio controlled by Circadian’s wholly owned subsidiary Vegenics. The paper’s authors established that VEGFR-3 has a previously unknown role in signalling blood vessel ‘sprouting’. Using antibodies to block both receptors, VEGFR-2 and VEGFR-3, the research team found an additive effect in inhibition of tumour growth by effectively starving the cancer cells. The findings indicate that the efficacy of existing anti-angiogenic therapies, such as Avastin® used in cancer therapy, may be improved by the addition of agents which inhibit VEGFR-3 mediated angiogenesis such as VEGF-C or VEGF-D antibodies.

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Patents

Circadian’s subsidiary Vegenics has the most comprehensive IP portfolio relating to VEGF-C, VEGF-D and VEGFR-3 molecules of any company in the world. This IP portfolio has applications not just in cancer but also in a number of other areas such as eye disease and infl ammation as further described below.

The VEGF patent portfolio, originally developed by the Ludwig Institute for Cancer Research Ltd and Licentia Ltd, the commercial arm of the University of Helsinki, and assigned to Vegenics in 2007, comprises more than 250 granted patents in the USA, Europe, Japan and Australia and over 500 pending patents worldwide in respect of VEGF-C, VEGF-D and VEGFR-3 and their inhibitors as well as various uses thereof. In August 2008 Vegenics was granted a further patent in the US covering all therapeutic and diagnostic uses for antibodies to VEGF-D. The expiration of the various patents is between 2015-2025 with further IP fi lings being made and to be made to further extend patent life pursuant to our IP strategy.

Listed Investments

Over time and at appropriate valuations, Circadian will move to divest itself of its listed and unlisted holdings as it did earlier in the year with the disposal of its remaining holding in Metabolic Pharmaceuticals Limited (MBP) at substantially above market price. During the year the company also continued to decrease its holding in Avexa Limited (AVX) from approximately 3.4% to under 2% (Circadian’s original interest in Avexa was 19%). Details regarding the gains made on these disposals are contained in the Director’s Report and the fi nancial report.

Circadian continues to be the largest shareholder in each of Antisense Therapeutics Limited (ANP) and Optiscan Imaging Limited (OIL).

Members of Vegenics’ Scientifi c advisory Board who made key scientifi c discoveries in the angiogenesis and lymphangiogenesis fi eld that are being developed by Vegenics (left to right): assoc. professor Marc achen, professor Kari alitalo and assoc. professor Steven Stacker.

assoc. professors Marc achen and Steven Stacker are co-heads of the angiogenesis Laboratory at the Ludwig institute for Cancer research in parkville, Melbourne.

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 off er adequate protection to enable product development, the obtaining of the necessary drug regulatory authority approvals and diffi culties caused by the rapid advancements in technology. Also a particular compound may fail the clinical development process through lack of effi cacy 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 taking into account these considerations.

This annual report may contain forward-looking 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 eff ective for use as human therapeutics and the fi nancing 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 diff er 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 2008.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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robert Klupacs Natalie Korchev alexander Szabo Megan Baldwin

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“We have bolstered our capabilities in drug research and development . . . through the recruitment of a highly experienced and credentialed management team.”

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richard Chadwick Susan Foran

Alexander Szabo, PhD, MBA

Head of Business Development

Alex Szabo, who joined the Company on 1 July 2008, has extensive experience in business development and marketing in the biotechnology industry. Prior to his appointment at Circadian, he held executive positions with leading US biotechnology companies BIAcore, Beckman-Coulter, Aff ymetrix and Stratagene. After migrating to Australia in 2001, he was initially Vice President of Business Development for Melbourne-based Cerylid Biosciences, where he closed a number of signifi cant deals with major international pharmaceutical fi rms. From 2005 until he joined Circadian, he was Vice President of Business Development for Bionomics Ltd where he successfully led business development initiatives in the fi elds of cancer, epilepsy and infl ammatory diseases. He is the recipient of a Ph.D. in Biochemistry from MIT and has held research positions with Stanford University, the Pasteur Institute, and the Sloan-Kettering Cancer Center.

Megan Baldwin, PhD Scientific Affairs Manager

MaNaGEMENT TEaM

Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Managing Director & CEO

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, Circadian’s major subsidiary. Prior to joining Circadian, he was founder and Chief Executive Offi cer of ES Cell International Pte Ltd (ESI) based in Singapore, a world leader in the development of human embryonic stem cell technology. From 1999-2001 he was Chief Operating Offi cer of the Monash Institute of Reproduction and Development, where he founded six start-up companies. Prior to that he was employed by Amrad Pharmaceuticals (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 B.Sc.(Hons) from Monash University in Pharmacology and is a registered Australian patent attorney.

Natalie Korchev, BCom, ACA

CFO, Company Secretary and Head of Operations

Natalie Korchev has been a member of Circadian’s management team since April 2000 and has more than 17 years experience as a chartered accountant. In addition to her role with Circadian, she was also previously Company Secretary of Antisense Therapeutics, managing the company through its IPO in 2001. Prior to joining Circadian she was Senior Assurance Services Manager with an international accounting fi rm now part of Ernst & Young. In that role she gained extensive experience in global fi nance through assignments both in Australia and Europe. Her clients included companies in the biotechnology, transportation/logistics and mobile communications industries providing audit, internal process reviews, strategic and business planning services.

Megan Baldwin joined the Circadian group 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 fi eld of angiogenesis-based 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 fi elds. Megan has a scientifi c background of more than ten years focused on angiogenesis and therapeutic strategies for oncology indications. She holds a Ph.D. in Medicine from the University of Melbourne, having conducted her doctoral studies at the Ludwig Institute for Cancer Research.

Richard Chadwick, PhD

Intellectual Property Manager

Richard, who joined the Circadian group in February 2008, is qualifi ed as both a European and Australian Patent Attorney. Richard joined Circadian from FB Rice & Co, where he had been working for 5 years in the Biotechnology Group. Prior to that, Richard had 10 years experience in intellectual property in the U.K. This included working as an in-house attorney at Dow Corning Limited and 5 years working as an in-house attorney at Unilever.

Susan Foran, M Pharm

Product Development Manager

Susan is a qualifi ed pharmacist with broad expertise in product development, project management and medical aff airs. Her previous experience includes roles with leading multinational fi rms GlaxoSmithKline and Kendle Pty Ltd and small biotechnology companies. In these roles, she contributed to the development of numerous products including preclinical, 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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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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DirECTOrS’ rEpOrT

FOR THE YEAR ENDED 30 JUNE 2008

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robert Klupacs Dominique Fisher John Stocker

The Directors (Board) of Circadian Technologies Limited (Circadian or Company) have pleasure in submitting their report for the year ended 30 June 2008.

Directors

The names of the Company’s Directors in offi ce during the fi nancial year and until the date of this report are as follows. Directors were in offi ce for this entire period unless otherwise stated.

Robert Klupacs Managing Director & CEO (appointed 1 March 2008) Dominique Fisher Non-Executive Chairman John Stocker Non-Executive Director Donald Clarke Non-Executive Director Tina McMeckan Non-Executive Director (appointed 19 January 2008) Carlo Montagner Non-Executive Director (appointed 1 July 2008) Jonathan Skipper Non-Executive Director (appointed 14 August 2008) Leon Serry Managing Director (retired 29 February 2008) Graeme Kaufman Executive Director (resigned 25 October 2007) James MacKenzie Non-Executive Director (resigned 31 July 2008)

The qualifi cations, experience and special responsibilities of the Company’s Directors are as follows:

Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Robert Klupacs joined Circadian Technologies Limited as an executive in August 2005 and was appointed as Managing Director of the Company on 1 March 2008. He is also Managing Director of Vegenics Limited (a Circadian subsidiary). Mr Klupacs is a registered Australian patent attorney and has been involved in the biotechnology industry for over 20 years. He has signifi cant expertise in technology commercialisation and corporate structuring and has negotiated and closed a number of major licensing transactions with international pharmaceutical and biotechnology companies throughout his career. Prior to his position at Circadian, Mr Klupacs was CEO of ES Cell International Pte Ltd (ESI), a pioneering company

in the development of human embryonic stem cell technologies based in Singapore. Prior to his role at ESI, he spent two and a half years running the Monash Institute of Reproduction and Development (MIRD) in Melbourne as its Chief Operating Offi cer, where he founded six start-up companies, and before that was employed for over 11 years by Zenyth Therapeutics Limited (formerly Amrad Corporation Ltd) with the last four years in that company as a member of the executive team and Director of Intellectual Property.

Dominique Fisher, BA (Hons), MAICD

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 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 off shore companies on technology strategies and major commercial transactions. She is Chairman of Sky Technologies Pty Ltd, Managing Director of WebAlive Pty Ltd and Director of a major development company, Leakes Rd Rockbank Pty Ltd, a Mirvac joint venture. Ms Fisher is also a Councillor of the Australia Council of the Arts, is Chairman of its Dance Board and is a member of the Prostate Cancer Foundation. Her past appointments have included Insurance Australia Group Limited (IAG), NRMA, the Malthouse Theatre, and member of the ICT Advisory Board, advising the Federal Government on key issues aff ecting the development of the information technology and communications sector. In March 2007, Ms Fisher was appointed a Non-Executive Director of Pacifi c Brands Limited.

John Stocker, AO, MB, BS, BMedSc, PhD, FTS, FRACP

Dr John Stocker was appointed as a Non-Executive Director of Circadian in May 1996 and is the Chairman of the Company’s Science Committee and a member of the Remuneration Committee. He was formerly the Commonwealth Government Chief Scientist and was Chief Executive of CSIRO from 1990 to 1995. On 3 July 2007, Dr Stocker was appointed as Chairman to the Board of CSIRO. He is also a Principal of Foursight Associates Pty Ltd and holds or held directorships in the following listed companies during the past three years:

Telstra Corporation Limited (Director since 1996) Nufarm Limited (Director since 1998)

Sigma Pharmaceuticals Ltd (Director since December 2005) Cambridge Antibody Technology Consolidated Entity Plc (March 1995 to June 2006)

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Donald Clarke

Tina McMeckan Carlo Montagner

Donald Clarke, LLB (Hons)

Don Clarke was appointed a Non-Executive Director of Circadian in September 2005 and is Chairman of the Remuneration Committee. He has been a partner with the law fi rm Minter Ellison since 1988, having joined that fi rm in 1980. His principal areas of practice include capital raisings, corporate restructures, business acquisitions and funding for business expansions and new ventures. Mr Clarke has broad commercial practice, involving predominantly ASX listed companies. He is also a Non-Executive Director of the ASX listed companies, Metabolic Pharmaceuticals Limited (appointed April 2007) and Webjet Limited (appointed January 2008). Mr Clarke is also a director of other unlisted public and private companies.

Tina McMeckan, BLibArts&Sc, MBA, FAICD

Tina McMeckan was appointed a Non-Executive Director of Circadian in January 2008 and is Chairman of the Audit Committee. Her specifi c 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, a Director of Nanotechnology Victoria Ltd and the Vision Cooperative Research Centre, and is also a Member of the National Board of Deacons law fi rm. 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. Her other appointments as a Director have included United Energy, Snowy Hydro Trading, the Westar and Kinetik Energy Group, Victorian Power Exchange, Solaris Power and the formerly listed company Alinta Limited (October 2003 to August 2007).

Carlo Montagner

Carlo Montagner was appointed a Non-Executive Director of Circadian on 1 July 2008 and is a member of Circadian’s Product Development Advisory Group. He has a wealth of experience in heading global oncology businesses for chemotherapeutic products and has more than 15 years experience in the pharmaceutical industry in the U.S., Europe, Japan and in 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

Jonathan Skipper

Schering AG/Berlex Labs USA 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 Aff airs, managing the Taxanes chemotherapy portfolio. Mr Montagner is President Oncology Pan Asia for Nasdaq listed Abraxis Bioscience Inc, CEO of privately held Specialised Therapeutics Australia 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.

Jonathan Skipper, PhD

Dr Jonathan Skipper was appointed a Non-Executive Director of Circadian on 14 August 2008. He is also a Non-Executive Director of Vegenics Limited (a Circadian subsidiary). He is Executive Director of the Ludwig Institute for Cancer Research Ltd (Executive Director for Intellectual Property and Licensing) and has 12 years experience with the Ludwig Institute for Cancer Research (LICR) in intellectual property management and technology licensing. He has scientifi c 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 Offi ce for Intellectual Property. Whilst at LICR, he has held various positions including Associate Director for Intellectual Property and Licensing, Director of the Offi ce for Program Development and Manager, Offi ce for Intellectual Property. Prior to joining LICR, Dr Skipper obtained his PhD in Immunology from the University College, London and conducted further research at the University of Virginia and the University of Oxford.

Leon Serry, FCIS, CPA

Leon Serry, who was the founding Managing Director of Circadian Technologies Limited, retired from the Company on 29 February 2008 after 24 years of service. He is a Fellow of the Chartered Institute of Secretaries (FCIS) and holds CPA status. Mr Serry was employed by Nicholas Proprietary Limited and was Company Secretary of the Leighton Family Group of Companies. He was Company Secretary of Paterson Reid & Bruce Limited during the 1970s, being appointed to that position through Ralli Brothers Bankers Limited of the UK. Mr Serry has been successful in a wide range of commercial activities. For the past three years, the only listed public directorship held by Mr Serry was that of Managing Director of Circadian Technologies Limited.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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DirECTOrS’ rEpOrT (continued)

Directors (continued)

Graeme Kaufman, MBA, BSc

Graeme Kaufman resigned as an Executive Director of Circadian on 25 October 2007 after six years with the Company. Mr Kaufman has had over 30 years experience with CSL Limited. While at CSL he held various positions including General Manager, Biosciences Division (1994 to 1999), Finance Director (1987 to 1994) and Manufacturing Manager (1984 to 1987). Mr Kaufman was also Managing Director of Syngene Limited (42% owned by Circadian), CancerProbe Pty Ltd (60% owned by Circadian) and Director of Vegenics Limited (a Circadian subsidiary). For the past three years, the only listed public directorship held by Mr Kaufman was that of Executive Director of Circadian Technologies Limited.

James MacKenzie, BBus, FCA, FAICD

James MacKenzie resigned as a Non-Executive Director of Circadian on 31 July 2008 after six years with the Company. He was also Chairman of the Company’s Audit Committee and a member of the Remuneration Committee. Mr MacKenzie has previously held the positions of Managing Director, Funds Management and Insurance at the ANZ Banking Group, Chief Executive Offi cer of Norwich Union Australia and the Transport Accident Commission. A Chartered Accountant by profession, Mr MacKenzie was also a Partner in the Melbourne and Hong Kong offi ces of an international accounting fi rm now part of Deloitte, and he remains involved with Deloitte as a consultant. He is currently Chairman of Mirvac Group and the Victorian Transport Accident Commission and is a Director of the Victorian WorkCover Authority. Mr MacKenzie also currently holds or held directorships in the following listed companies during the past three years:

Mirvac Group (Director since January 2005, Chairman since November 2005)

Pacifi c Brands Limited (Director since May 2008)

Strategic Pooled Development Ltd (Director since November 2005) Bravura Solutions Ltd (Director since April 2006)

Zenyth Therapeutics Ltd (Director from April 2005 to November 2006) MedAire Inc (Director from May 2004 to July 2005)

Company Secretary

Directors’ Interests

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

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|||||
|---|---|---|---|
|Number of|Number of|Number of|
|shares held|shares held|options over|
|directly|indirectly|ordinary shares|
|Dominique Fisher|-|67,500|-|
|Robert Klupacs|58,215|-|1,000,000|
|John Stocker|282,334|-|-|
|Don Clarke|-|80,000|-|
|Tina McMeckan|20,000|-|-|
|Carlo Montagner|-|-|-|
|Jonathan Skipper|-|-|-|

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Share Options & Performance Rights

Unissued Shares

As at the balance sheet date and the date of this report, details of Circadian Technologies Limited’s unissued ordinary shares or interests under option are as follows:

Options:

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|||||||||
|---|---|---|---|---|---|---|---|
|Number of shares|
|under option|550,000|1,400,000|120,000|500,000|
|Exercise prices|$2.62 - $3.12 $1.50|$1.50|$1.30|
|Vesting date|25/9/2003*|8/2/2011|[^]|9/3/2011|[^]|8/2/2011|[^]|
|Expiry date|25/9/2008|8/2/2012|9/3/2012|8/2/2012|

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These options were fully vested on 25/9/2006.

^ These dates are the fi rst 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 and $1.625, $1.95 and $2.275 for the options with a $1.30 exercise price (see the Remuneration Report for further details). The Company’s share price at 30 June 2008 was $0.88.

Refer to the section in this report headed Remuneration Report for details on the terms and conditions of the options granted under the Company’s option plans.

No options were exercised during the fi nancial year.

Natalie Korchev, BCom, ACA

performance rights:

Natalie Korchev, who is also the company’s CFO, has been Company Secretary of Circadian Technologies Limited for eight years. Prior to holding this position she was a senior audit manager with an international accounting fi rm now part of Ernst & Young. She has been a Chartered Accountant for 17 years. Ms Korchev is also a Director and Company Secretary for Vegenics Limited (a Circadian subsidiary) and CancerProbe Pty Ltd (60% owned by Circadian). She is Company Secretary for Syngene Limited (42% owned by Circadian) and was Company Secretary of Antisense Therapeutics Limited from November 2000 up until June 2006.

As detailed in the section of this report headed Remuneration Report, an assessment was performed shortly after 30 June 2008 to determine whether the performance hurdles were met for the performance rights granted in 2005. This assessment was performed based on Circadian’s Total Shareholder Return (TSR) relative to a comparator group of companies over the three-year performance period ending on 30 June 2008. The comparator group was the 50 ASX listed companies ranked both above and below Circadian by market capitalisation, excluding listed property trusts, at the time of grant. Circadian’s TSR fell short of the median of the comparator group for the three year period. As such the performance rights did not vest and lapsed as at 30 June 2008.

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Refer to the section in this report headed Remuneration Report for details on the terms and conditions of the performance rights granted under the Performance Rights Plan.

Dividends

No cash dividends have been paid, declared or recommended during or since the end of the fi nancial year by the Company.

Principal Activities of the Consolidated Entity

Circadian Technologies Limited’s principal activity is to develop and commercialise therapies for cancer and other serious diseases. Circadian has moved from being a biotechnology investor and incubator of early stage technologies to a developer of angiogenesis-based therapeutics for cancer and other serious diseases pursuant to the strategy it announced to the market during the year (also see the Operations Report). The extensive intellectual property portfolio covering key targets (Vascular Endothelial Growth Factors C and D) for the treatment of diseases associated with angiogenesis has been accumulated in Circadian’s unlisted subsidiary Vegenics Limited. The therapeutic applications for the VEGF technology, which functions in regulating blood supply (angiogenesis), are substantial and broad.

Operating and Financial Review

Results

The current year results refl ect the change in principal activities of the Group, as described earlier, which has transformed from being a biotechnology seed investor and incubator of early stage technologies into a drug developer for treatments of cancer as well as for other high unmet medical need disease indications.

A summary of the results is as follows:

The consolidated net loss of the Group for the year was $2,286,119 after an income tax expense of $1,169,250 (2007: profi t of $6,295,707 after an income tax expense of $5,722,746).
The net tangible asset backing per share as at 30 June 2008 was $1.28 (2007: $1.52) whereas Circadian’s share price was $0.88 (2007: $1.28).
Earnings last year refl ect the Group’s disposal of its 19% interest in Zenyth Therapeutics (a gain of $12.6 million) and the disposal of a substantial portion of its holding in Avexa (a gain of $6.8 million) off set by non-recurring license fees and intellectual property costs ($7.9 million) relating to the Group’s signifi cant VEGF technology.
All research and development costs of $3,419,266 (2007: $3,155,206) and patent costs of $1,838,058 (2007: $2,011,963) have been expensed during the year.

Commensurate with its strategy, the Group has increased its drug development activities and spend on VEGF targeted therapies which has been off set by the decrease in spend in non-core R&D activities. Patent costs have come down since the prior year due to the consolidation and rationalisation of the Group’s signifi cant VEGF intellectual property portfolio which it acquired in the prior year.

The Group has completely divested of its holding in Metabolic Pharmaceuticals Limited and the gain of $2,789,481 on the disposal of 6,580,000 ordinary shares in Avexa includes the recovery of impairment losses recognised prior to 1 July 2005 of $1,925,778.

The results also refl ect the Group’s share (under the equity accounting standards) of the losses recognised by Antisense Therapeutics Limited (ATL) of $418,294. These losses have decreased substantially since last year (from $988,570) due to licensing income earned by ATL through its licensing agreement with large global pharmaceutical company Teva Pharmaceuticals for its multiple sclerosis (MS) drug ATL1102 which recently achieved successful Phase IIa trial results. ATL reported that Teva has confi rmed its intention to continue the development of ATL1102 for MS with Teva to fund all development of ATL1102 going forward.

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 2008 fi nancial year.

Signifi cant Changes in the State of Affairs

Refer to the Principal Activities section of this report.

Consolidated cash reserves as at 30 June 2008 amounted to $46,216,626 (2007: $48,193,383).
The combined market value of the Group’s direct shareholdings in listed investments as at 30 June 2008 was $11,185,749 (2007: $19,714,398). Including its indirect interests, the market value of the listed holdings was $12,753,858 (2007: $20,521,512). During the year, the Group disposed of shares in Metabolic Pharmaceuticals Limited and Avexa Limited providing it with total sales proceeds of $5,472,191 with a total realised gain of $4,508,091 (further details are provided below).
Basic earnings per share: loss of 2.86 cents (2007: earnings per share of 27.92 cents).

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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DirECTOrS’ rEpOrT (continued)

Signifi cant Events After Balance Date

On 14 August 2008, Circadian announced that it had completed its acquisition of the Ludwig Institute for Cancer Research Ltd’s (LICR) and Licentia Limited’s (Licentia) combined 33 per cent interest in Vegenics. This increased Circadian’s interest in Vegenics from 67% to 100%.

Consideration for the acquisition of LICR’s and Licentia’s combined interest in Vegenics is in two tranches:

Tranche 1:

5,117,430 Circadian shares were issued to LICR (2,589,635 shares) and Licentia (2,527,795 shares) on 14 August 2008. This equates to a combined interest of 11.3% after the share issue;
50% of the shares will be escrowed for a period of 12 months from date of issue. The remaining 50% will be escrowed for 24 months; and
a cash payment of Euro 400,000 (A$680,272) was made to Licentia.

Tranche 2:

A further 1,155,000 Circadian shares will be issued to LICR (532,455 shares) and Licentia (622,545 shares) on the earlier to occur of certain product development milestones or the second anniversary of the date of Circadian’s acquisition of LICR’s and Licentia’s interests in Vegenics (i.e. 14 August 2010) (subject to shareholder approval, if required, under the ASX Limited Listing Rules).

LICR’s and Licentia’s nominee, Dr Jonathan Skipper (LICR’s Executive Director for Intellectual Property and Licensing) has been appointed to the board of Circadian as part of this transaction.

Corporate Objectives and Likely Developments

The Group’s drug development and commercialisation strategy is to develop therapeutic products to treat cancer and other diseases up to the demonstration of proof of effi cacy in Phase II human trials, with subsequent clinical development being undertaken in partnership with larger pharmaceutical and/or biotechnology companies. These products are based on the intellectual property and know-how owned and controlled by Circadian’s 100% owned subsidiary Vegenics Limited.

The intellectual property accumulated in Vegenics has applications not just in cancer, which is the Group’s primary and initial therapeutic development focus, but also in a number of other areas such as eye disease and infl ammation. Accordingly there are a number of large market opportunities the Group could develop itself or in partnership with others.

The Group will continue to expand its intellectual property 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 signifi cant environmental regulations.

During the fi nancial year ended 30 June 2008, the Company indemnifi ed its directors, the company secretary and executive offi cers 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 indemnifi ed the directors, the company secretary and executive offi cers against any liability incurred by them in their capacity as directors, company secretary or executive offi cers 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 offi cers for the fi nancial year ended 30 June 2008. Under the Company’s Directors’ and Offi cers’ 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.

The Group will consider entering into earlier partnerships if appropriate and will also selectively exploit parts of its product and intellectual property portfolio through partnering deals at earlier stages of development in order to mitigate development risk and the use of the Group’s signifi cant cash and listed investment assets. There is potential for this to occur in the next one to two years based on the demonstrated willingness of large pharmaceutical and biotech companies in the last 12 to 18 months to sign-up earlystage deals, particularly in the fi eld of angiogenesis and therapeutic antibodies.

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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 of these meetings as relevant to each of them is as shown. It is the Company’s practice to invite all directors to committee meetings irrespective of whether they are members, of which most attend.

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||||||
|---|---|---|---|---|
|Directors’|Meetings of Committees|
|Meetings|Audit|Remuneration Science|
|Number of|
|meetings held:|17|4|1|1|
|Number of|
|meetings attended:|
|Dominique Fisher|17|4|
|Robert Klupacs|6|
|John Stocker|16 [17]|1|1|
|Don Clarke|15 [17]|4|1|
|Tina McMeckan|7|2|
|Leon Serry|11|1|
|Graeme Kaufman|5|1|
|James MacKenzie|7 [17]|3 [4]|1|

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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.

Note that James MacKenzie was on leave of absence for approximately 4 months during the fi nancial year; and Carlo Montagner and Jonathan Skipper were appointed after fi nancial year end, accordingly they did not attend any meetings during the fi nancial year.

Committee Membership

During the year the Company had an Audit Committee, Remuneration Committee and Science Committee of the Board of Directors. In line with Circadian becoming a biologics drug development company pursuant to the strategy it announced in the latter part of the year, a Product Development Advisory Group was established on 10 June 2008. This group comprises members with collectively extensive experience in drug development and in the international pharmaceutical industry. Carlo Montagner is a member of this group and the other members are independent consultants retained by the Company. The group’s fi rst meeting is to be held in the new fi nancial year.

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

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|||||
|---|---|---|---|
|Audit|Remuneration|Science|
|J MacKenzie (Chairman)|[#]|D Clarke (Chairman) J Stocker (Chairman)|
|D Fisher|J Stocker|R Klupacs|
|D Clarke|J MacKenzie|L Serry|(retired 29/2/08)|
|T McMeckan|G Kaufman|
|(appointed 19/1/08)|[#]|(resigned 25/10/07)|
|J Goding *|

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James MacKenzie resigned as Chairman of the Audit Committee and as member of the Remuneration Committee on 31 July 2008. Tina McMeckan was appointed Chairman of the Audit Committee on 21 August 2008.
Dr James Goding is Professor of Pathology – Monash University, is an independent consultant and is not a director or an employee of the Company.

Auditor Independence

The directors have obtained a declaration of independence from Ernst & Young, the Group’s auditors, which is contained in the fi nancial report.

Non-Audit Services

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

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

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|||
|---|---|
|Tax compliance services|$20,000|
|Other tax services|$15,080|
|Assurance related|$ 5,365|

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Remuneration Report (audited)

This Remuneration Report outlines the remuneration arrangements in place for directors and executives of the Group in accordance with the requirements of the Corporations Act 2001 and its Regulations. For the purposes of this report, key management personnel of the Group are defi ned as those 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 parent company, and includes all the executives in the parent and the Group. The Group only had four persons during the year that met the defi nition of executive, namely Robert Klupacs, Leon Serry (retired 29 February 2008), Natalie Korchev and Graeme Kaufman (resigned 25 October 2007). This will change in the next fi nancial year due to the expansion of the management team.

Remuneration Committee

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 key management personnel.

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 benefi t from the retention of a high quality board and executive team. CIRCADIAN TECHNOLOGIES LIMITED

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Annual Report 2008

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DirECTOrS’ rEpOrT (continued)

Remuneration Report (audited) (continued)

Remuneration Policy

The remuneration of key management personnel is designed to enable the Group to attract, motivate and retain non-executive offi cers and executive offi cers 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 which provides the Company with the ability to attract and retain directors of the highest calibre, while incurring a cost which is acceptable to shareholders.

Structure & 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 the Executive Director) for their services as $500,000 per annum. Currently, non-executive directors are compensated to an aggregate of $354,000 per annum.

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). Eff ective from 7 September 2006 an additional annual fee of $5,000 per committee is also paid for each Board committee on which a director sits, except for the Science Committee. 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. The time committed by the Chair of the Science Committee is recognised in his director’s fee. Non-executive directors are not compensated by way of issue of securities in the Company.

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 June 2007 of the Board’s performance against specifi c qualitative performance criteria, some of which are measurable. The next evaluation is planned to be performed before the end of the 2008 calendar year. The performance evaluation of the nonexecutive 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 2008 and 30 June 2007 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 & 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.

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

Fixed remuneration (base salary and superannuation)
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 senior executives. The Managing Director also evaluates the performance of the other senior executives. The performance evaluation of the senior executives 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. Specifi c 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, profi tability is not a performance measure for STI’s although eff ective management of the Company’s resources

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in achieving value for shareholders is expected. LTI’s are linked to share price appreciation and KPI’s for STI’s are linked to activities/ milestones that are expected to create value for shareholders.

The performance of the Managing Director and the other senior executives is monitored on an informal basis throughout the year with the objective of performing a formal evaluation once a year. The process for evaluating the Managing Director’s and senior executives’ performance was reviewed in August 2008. The last Remuneration Committee at which a review of remuneration structure for the senior executives was performed in August 2008. The new key performance indicators are expected to be approved within the next month.

Table 1 of this report sets out the remuneration of directors and executives of the Company for the years ended 30 June 2008 and 30 June 2007 showing the proportion of fi xed remuneration and variable remuneration.

Fixed Remuneration

Objective

The level of fi xed compensation is set so as to provide a base level of compensation which 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’ fi xed compensation comprises salary and superannuation and is reviewed every 12 to 20 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 suffi cient incentive to the executive to achieve the operational targets and such that the cost to the Group is reasonable in the circumstances. The STI was introduced for the fi rst time during the 30 June 2007 fi nancial year.

Structure

Actual STI payments in the form of cash bonuses to each senior executive depends on the extent to which specifi c targets set at the beginning of the fi nancial 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 annual business plan. Examples of personal objectives include the achievement of certain milestones for R&D projects and securing desirable out-licensing/collaboration agreements.

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 two months after the relevant fi nancial 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.

STi bonus for the 2008 fi nancial year

The Remuneration Committee considered the STI payment for the 2008 fi nancial year within the fi rst two months after the end of that year. The STI cash bonus that is to be paid for the 2008 fi nancial year and which has been accrued is $132,500 plus relevant on-costs for senior executives. This has been determined on the basis of KPIs achieved by the senior executives.

There have been no alterations to the STI bonus plans since their 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 infl uence 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.

Options:

Share options are granted to key management personnel and certain employees.

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 Technologies Limited. All options issued have market performance conditions so as to align shareholder return and reward for the Company’s key management personnel.

Options issued in 2004

With respect to the options issued in the 2004 fi nancial year, the exercise prices were set at substantially higher prices than the Company’s share price at grant date.

The contractual life of each option granted is fi ve years. There are no cash settlement alternatives.

These options had four vesting dates, for various proportions of the total issued options, during the life of the options and are fully vested. The options issued in 2004 were “well out of the money” at the grant date and as at 30 June 2008.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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DirECTOrS’ rEpOrT (continued)

Remuneration Report (audited) (continued)

Options issued in 2007 and 2008

In January 2007, a Circadian Senior Management Option Plan (Option Plan) was implemented to off er options which are subject to performance hurdles which have been set at the levels shown below as stretch targets to achieve value for shareholders. This replaced the Circadian Executive Performance Rights Plan. The options issued to key management personnel in 2007 and 2008 pursuant to this Option Plan were divided equally into three tranches.

The options in each tranche will vest on the satisfaction of the following performance conditions during the relevant option period (2007 options within 5 years of the grant date; 2008 options within approximately 4 years of grant date) (Performance Hurdles). The 2007 options issued have an exercise price of $1.50 and the 2008 options issued have an exercise price of $1.30 (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.

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 options issued in 2008 were to Robert Klupacs, pursuant to an Executive Contract dated 20 December 2007.

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 satisfi ed (i.e. that do not vest) will lapse and will not be 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 fi rst 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).

Performance rights:

The Performance Rights Plan (Plan) which was established during the 2006 fi nancial year has been replaced by the Senior Management Option Plan and only one grant of rights was made under the Plan.

The Group used a relative Total Shareholder Return (TSR) as the performance hurdle in granting performance rights to its key management personnel. The objective of using the TSR based hurdle was to align comparative shareholder return and reward for the Company’s key management personnel.

An assessment was performed shortly after 30 June 2008 to determine whether the performance hurdles were met for the performance rights granted in November 2005. This assessment was performed based on Circadian’s TSR relative to a comparator group of companies over the three-year performance period ending on 30 June 2008. The comparator group was the 50 ASX listed companies ranked both above and below Circadian by market capitalisation, excluding listed property trusts, at the time of grant. Circadian’s TSR fell short of the median of the comparator group for the three year period. As such the performance rights did not vest and lapsed as at 30 June 2008.

The assessment was performed by the independent consulting fi rm which recommended these performance rights as a long-term incentive.

Shareholder Returns/Value

The following is a summary of shareholder returns/value for the last four fi nancial years:

	The following is a summary of shareholder returns/value for the last four f nancial years:
	2008 2007 2006 2005 $ $ $ $
	Basic earnings/(loss) per share (0.03) 0.28 (0.16) 0.54 (i) Capital return per share - - - 0.38 (i) Dividends per share - - - 0.27 (i) NTA backing per share @ 30 June 1.28 1.52 1.41 1.12 Circadian share price @ 30 June 0.88 1.28 1.05 1.18

(i) In the 2005 fi nancial year, Circadian made a profi t due to its 15% interest in a genomics instrumentation company (Axon Instruments Inc) being acquired by a U.S. entity. This provided the Company with a gain of approximately $30 million on the transaction (a non-recurring transaction). Due to this and the signifi cant increase in the cash balance arising from this transaction, the Company paid a dividend and made a capital return to its shareholders

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Due to the nature of the Group’s activities (being in the biotechnology industry) as described under Principal Activities, results year to year do fl uctuate. The share price has decreased since last year end as it has for many companies in the biotechnology sector. The factors contributing to this year’s and last year’s results are described under Operating and Financial Review of this report.

Employment Contracts

Mr Robert Klupacs, who was appointed Managing Director eff ective 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:

Mr Klupacs may resign from his position and thus terminate this contract by giving:
6 months notice if the notice of termination is given prior to 1 March 2009; or
3 months notice if the notice of termination is given on or after 1 March 2009.
On resignation, any unvested LTI options will be forfeited.
The Company may terminate this employment agreement by providing:
12 months written notice if the notice of termination is given prior to 1 March 2009; or
6 months notice if the notice of termination is given on or after 1 March 2009; or
payment in lieu of the notice period (as detailed in above two points) based on the fi xed 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, STI’s are payable on the achievement of KPI’s.
On termination on 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 fi xed, 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 contract. Refer to “Options issued in 2007 and 2008” for terms and conditions of the options granted.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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DirECTOrS’ rEpOrT (continued)

Remuneration Report (audited) (continued)

Remuneration of key management personnel

Table 1: remuneration for the year ended 30 June 2008 (Consolidated)

	Total Post Termination Share-based Performance Short-Term Employment Long-Term Benef ts Payment Total Related
	Super- Long Service Termination Salary & Fees Cash bonus annuation Leave Pay Options/rights*^ $ $ $ $ $ $ $ %
Non-Executive D Fisher J Stocker D Clarke T McMeckan1 J MacKenzie	Directors: 2008 80,004 - 7,200 - - - 87,204 - 2007 77,789 - 7,001 - - - 84,790 - 2008 69,996 - 6,300 - - - 76,296 - 2007 69,079 - 6,217 - - - 75,296 - 2008 56,004 - 5,040 - - - 61,044 - 2007 54,158 - 4,874 - - - 59,032 - 2008 23,015 - 2,071 - - - 25,086 - 2007 - - - - - - - - 2008 56,004 - 5,040 - - - 61,044 - 2007 54,158 - 4,874 - - - 59,032 -
Sub-total Non-Executive Directors	2008 285,023 - 25,651 - - - 310,674 - 2007 255,184 - 22,966 - - - 278,150 -
Executive Directors: R Klupacs2 2008 341,669 87,500 38,625 - - 107,272 575,066 33.87 2007 296,063 75,000 33,396 - - 38,597 443,056 25.64 L Serry3 2008 417,160 - 34,925 7,308 - 11,095 470,488 2.36 2007 582,084 37,500 55,763 10,962 - 542,245^ 1,228,554 47.19 G Kaufman4 2008 131,283 - 9,600 - 46,359 - 187,242 - 2007 311,928 20,000 29,874 - - 49,396 411,198 16.88 Other Key Management Personnel: N Korchev 2008 249,996 45,000 26,550 7,438 - 22,287 351,271 19.16 2007 225,004 20,000 22,050 13,399 - 9,324 289,777 10.12
Sub-total Executive KMP	2008 1,140,108 132,500 109,700 14,746 46,359 140,654 1,584,067 2007 1,415,079 152,500 141,083 24,361 - 639,562 2,372,585
Totals	2008 1,425,131 132,500 135,351 14,746 46,359 140,654 1,894,741 2007 1,670,263 152,500 164,049 24,361 - 639,562 2,650,735

1 Appointed 19 January 2008
2 Appointed as Managing Director on 1 March 2008. R Klupacs was an executive of the Company prior to his directorship appointment.
3 Retired 29 February 2008
4 Resigned 25 October 2007
5 No non-monetary benefi ts have been provided to key management personnel.
No options have been exercised by the executive directors and other executives in the last six years.
^ Of this amount, $510,975 relates to the options granted to L Serry in the 2007 fi nancial year which are on the same terms as options granted to other executives in 2007 except that due to his tenure with the Company (he was with the Company for over 20 years), he retains all options issued regardless of his retirement date. However, pursuant to the terms of the options, certain share price hurdles must be met (as described earlier) before they vest and vested options may not be exercised earlier than 8 February 2011 (see Table 2 and note 28 of the fi nancial report for further details). Due to L Serry being able to retain all options regardless of his retirement date, accounting standard AASB 2 Share-Based Payments requires all of the options granted to L Serry to be expensed on date of grant irrespective of the fact that they have not vested and will not be exercisable until 2011.

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The value of the options attributed to compensation of certain key management personnel for the current fi nancial year represent the amortised cost of options that were granted in the 2007 and 2008 fi nancial years, and has been determined by allocating the fair value of the options equally over their respective vesting periods.

The value of the performance rights attributed to compensation of certain key management personnel for the current year has been determined based on amortising the value of total performance rights issued on a straight line basis from grant date to vesting date. The performance rights were granted in the 2006 fi nancial year, however as noted above, these performance rights lapsed as at 30 June 2008. Refer to note 28 of the fi nancial report for details on the valuation of options and performance rights.

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

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|||||||||||
|---|---|---|---|---|---|---|---|---|---|
|Vested during|
|Granted during year|Terms & Conditions for each Grant|year*|
|Fair value per option/|Exercise price|First|Last|
|right at grant date|per option/right|Expiry|Exercise|Exercise|
|No.|Grant Date|(note 29)|(note 29)|Date|Date|Date|No.|
|Directors|
|R Klupacs|2008|500,000|18/2/08|$0.246 - $0.276|$1.30|8/2/12|8/2/11|8/2/12|-|
|2007|500,000|8/2/07|$0.675 - $0.686|$1.50|8/2/12|8/2/11|8/2/12|-|
|L Serry|2008|-|-|
|2007|750,000|8/2/07|$0.675 - $0.686|$1.50|8/2/12|8/2/11|8/2/12|125,000|
|G Kaufman (i)|2008|-|-|
|2007|500,000|8/2/07|$0.675 - $0.686|$1.50|8/2/12|8/2/11|8/2/12|62,500|
|Executive|
|N Korchev|2008|-|-|
|2007|100,000|8/2/07|$0.675 - $0.686|$1.50|8/2/12|8/2/11|8/2/12|
|50,000|5/3/07|$0.41 - $0.433|$1.50|9/3/12|9/3/11|9/3/12|6,250|
|Total Options|2008|500,000|-|
|2007|1,900,000|193,750|

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The number of options that vested in the 2007 fi nancial year includes the relevant portion of those granted in the 2004 fi nancial year. The options issued in the 2004 fi nancial year have fully vested, however they have not been exercised as at the reporting date as they are “well out of the money”.

(i) The options granted to G Kaufman in the 2007 fi nancial year were forfeited during the current year. G Kaufman resigned on 25 October 2007 before reaching minimum tenure requirements to retain a pro-rata entitlement of options issued to him and before these options had vested.

During the current fi nancial year, options were granted as equity remuneration benefi ts under the long-term incentive plan to the Managing Director as disclosed in Table 2 above (these were granted prior to his appointment as Managing Director). No options have been granted to the non-executive directors under this scheme.

There were no options granted or shares issued to key management personnel since the end of the fi nancial year.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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DirECTOrS’ rEpOrT (continued)

Remuneration Report (audited) (continued)

Table 3: Options granted as part of remuneration (Consolidated)[1]

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|||||||||
|---|---|---|---|---|---|---|---|
|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 year|[2]|the year|during the year|[3]|for the year|[4]|
|$|$|$|$|
|R Klupacs|131,433|16,864|-|-|18.65%|
|N Korchev|-|-|-|-|-|
|-|-|-|-|-|
|L Serry|
|G Kaufman|-|-|-|523,150|-|

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1 For details on the valuations of the options, including models and assumptions used, refer to note 28 of the fi nancial statements.

2 The values in this column refl ect the amount recognised as an expense during the year only on the options granted during the year. 3 The options granted to G Kaufman in the 2004 and 2007 fi nancial years were forfeited during the current year. G Kaufman resigned on 25 October 2007 before reaching minimum tenure requirements to retain a pro-rata entitlement of options issued to him in February 2007 and before these options had vested.

4 This column refl ects the percentage of remuneration consisting of options and performance rights 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 other than the forfeiture of G Kaufman’s options as described in 3 above.

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

performance rights (Consolidated)

The performance rights granted in November 2005 lapsed as at 30 June 2008 as described earlier in this report under “Performance Rights”. In respect to the performance rights issued to G Kaufman, he resigned before the end of the performance period and consequently his performance rights were forfeited.

The total value of the performance rights that lapsed or were forfeited during the year are as follows:

R Klupacs $13,932 L Serry $29,465 G Kaufman $15,790

Shares issued on exercise of compensation options and performance rights (Consolidated)

There were no options or performance rights exercised by key management personnel during the 2008 and 2007 fi nancial years as they were either “out of the money” or had not vested.

This report has been signed in accordance with a Resolution of the Directors made on 21 August 2008.

For and on behalf of the Board:

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Robert Klupacs Director

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Dominique Fisher Director

Melbourne 21 August 2008

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COrpOraTE GOVErNaNCE STaTEMENT

The Board of Directors of Circadian Technologies Limited is responsible for the corporate governance of the Group and guides and monitors the business and aff airs of Circadian Technologies Limited on behalf of its shareholders.

Circadian Technologies Limited’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 fi nancial 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 2008 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”.

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

Board Functions

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 signifi cant business risk and ensuring arrangements are in place to adequately manage those risks.

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.

The responsibility for the operation and administration of the Company is delegated, by the Board, to the CEO and the executive management team. The Board ensures that this team is appropriately qualifi ed and experienced to discharge their responsibilities and has in place procedures to assess the performance of the CEO and the executive management team.

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

The roles and responsibilities of these committees are discussed throughout this Corporate Governance Statement.

The Board is responsible for ensuring that management’s objectives and activities are aligned with the expectations and risks identifi ed by the Board. The Board has a number of mechanisms in place to ensure 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 fi nancial and non fi nancial key performance indicators.

Other functions reserved to the Board include:

approving and monitoring the progress of major capital expenditure, capital management, and acquisitions and divestitures;
ensuring that any signifi cant risks that arise are identifi ed, assessed, appropriately managed and monitored;
reporting to shareholders.

Structure of the Board

The skills, experience and expertise relevant to the position of director held by each director in offi ce at the date of this report are included in the Directors’ Report under the section headed “Directors”. Directors of Circadian Technologies Limited 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 which 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.

To this end, the Board has established the following committees:

Audit
Remuneration
Science (replaced by the Product Development Advisory Group in August 2008)
Product Development Advisory Group

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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COrpOraTE GOVErNaNCE STaTEMENT (continued)

In accordance with the defi nition of independence above, and the materiality thresholds described, the following directors of Circadian Technologies Limited are considered to be independent at the date of this report:

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|||
|---|---|
|Name|Position|
|D Fisher|Chairman, Non-Executive Director|
|J Stocker|Non-Executive Director|
|D Clarke|Non-Executive Director|
|T McMeckan|Non-Executive Director|
|C Montagner|Non-Executive Director|
|J Skipper|Non-Executive Director|

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

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

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|||
|---|---|
|Name|Term in Offi ce|
|D Fisher|3 years|
|R Klupacs|6 months|
|J Stocker|12 years|
|D Clarke|3 years|
|T McMeckan|7 months|
|C Montagner|2 months|
|J Skipper|1 week|

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To ensure 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. As the Circadian board is not a large board, a formal nomination committee has not been established as no real effi ciencies would be gained from the existence of such a 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.

Trading Policy

Under the Company’s Code of Practice for the buying and selling of shares, an executive, director or relevant employees (‘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.

An employee should not deal in securities of Circadian without receiving clearance from a Committee comprised of the Managing Director and the Chairman (or in the absence of either of these two directors by any other director) who has ensured that there is no unpublished price sensitive information.

Generally, an employee must not be given clearance to deal in any securities of Circadian during a prohibited period. A ‘prohibited period’ means:

(a) any close period (that is for the period of one month before the publication of annual and half-yearly fi nancial results);
(b) any period when there exists any matter which 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 notifi es the ASX of any transaction conducted by directors in the securities of the Company.

Audit Committee

The Audit Committee operates under a charter approved by the Board. It is the Board’s responsibility to ensure that an eff ective control framework exists within the entity. This includes ensuring that there are internal controls to deal with both the eff ectiveness and effi ciency of signifi cant business processes. This includes the safeguarding of assets, the maintenance of proper accounting records and the reliability of fi nancial information as well as non-fi nancial 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 Committee.

The Audit Committee also provides the Board with additional assurance regarding the reliability of fi nancial information for inclusion in the fi nancial statements. All members of the Audit Committee are non-executive directors. The members of the Audit Committee during the year were Mr James MacKenzie, Ms Dominique Fisher, Mr Don Clarke and Ms Tina McMeckan.

The Audit 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 Committee Charter can be found on the Company’s website.

Qualifi cations of audit committee members

Mr James MacKenzie, who resigned from Circadian on 31 July 2008, was Chairman of the Audit Committee. He is the Chairman of Mirvac Group and the Victorian Transport Accident Commission and is a Director of the Victorian WorkCover Authority. He has previously held the positions of Managing Director, Funds Management and Insurance at the ANZ Banking Group, Chief Executive Offi cer of Norwich Union Australia and the Transport Accident Commission. A Chartered Accountant by profession, Mr MacKenzie was a partner of an international accounting fi rm now part of Deloitte.

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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 electronic commerce strategies and major commercial transactions and in March 2007 was appointed non-executive director of Pacifi c Brands Limited. 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 fi rm Minter Ellison since 1988, having joined that fi rm in 1980. His principal areas of practice include capital raisings, corporate restructures, business acquisitions and funding for business expansions and new ventures. In April 2007 he was appointed non-executive director of Metabolic Pharmaceuticals Limited.

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

eff ectiveness and effi ciency in the use of the Company’s resources;
compliance with applicable laws and regulations;

The Board oversees an annual assessment of the eff ectiveness of risk management and internal compliance and control. The responsibility for undertaking and assessing risk management and internal control eff ectiveness is delegated to management. Management is required by the Board to assess risk management and associated internal compliance and control procedures and report back on the effi ciency and eff ectiveness of risk management.

CEO and CFO Certification

Ms Tina McMeckan joined the Audit Committee on 19 January 2008. Her specifi c 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 Nanotechnology Victoria Limited and the Vision Cooperative Research Centre, and is also a Member of the National Board of Deacons law fi rm. She has been/is a member of audit/fi nance committees for MediHerb Holdings Limited, Nanotechnology Victoria Limited (Chair), Vision Cooperative Research Centre and the Centre for Eye Research Australia Limited (Chair). 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.

For details on the number of meetings of the Audit Committee held during the year and the attendees at those meetings, refer to the Directors’ Report under the section headed “Directors’ Meetings”.

Risk

The Board determines the Company’s risk profi le and is responsible for overseeing and approving risk management strategy and policies, internal compliance and internal control.

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;
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 specifi cally relating to the biotechnology and health industries;

The Chief Executive Offi cer and Chief Financial Offi cer have provided a written statement to the Board that:

their view provided on the Company’s fi nancial report is founded on a sound system of risk management and internal compliance and control which implements the fi nancial policies adopted by the Board; and
that the Company’s risk management and internal compliance and control system is operating eff ectively in all material respects.

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”. Also see details under “Remuneration Committee” below.

Remuneration Committee

It is the Company’s objective to provide maximum stakeholder benefi t 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.

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 (note that Circadian had three non-director executives during the year) are set out in the Directors’ Report under the section headed “Remuneration Report”.

There is no scheme to provide retirement benefi ts, other than statutory superannuation, to non-executive directors.

occupational health and safety and equal opportunity law.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008

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COrpOraTE GOVErNaNCE STaTEMENT (continued)

Remuneration Committee (continued)

The members of the Remuneration Committee during the year were Dr John Stocker, Mr James MacKenzie, and Mr Don Clarke. 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”.

Science Committee (replaced by the Product Development Advisory Group in August 2008)

The Science Committee’s role is to review proposed new projects and proposed extensions to existing projects in excess of a fi nancial commitment level as determined by the Committee as well as consider any other matters delegated to it by the Board. The Committee is also to review at least annually the Company’s pipeline of research programs.

The members of this committee during the year were Dr John Stocker (Chairman), Mr Robert Klupacs, Mr Leon Serry (retired 29 February 2008), Mr Graeme Kaufman (resigned 25 October 2007) and Dr James Goding, Professor of Pathology, Monash University who was appointed to the Committee as an independent consultant. Dr Goding is not a director nor an employee of the Company.

The combined skills of this committee provide a mix of relevant experience in the areas of scientifi c research, patents and commercial experience. For details on the number of meetings of the Science Committee held during the year and the attendees at those meetings, refer to the Directors’ Report under the section headed “Directors’ Meetings”.

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 preclinical and clinical development as well as regulatory aff airs. 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 focussed on human therapeutics with several programs in protein pharmaceuticals. Dr Howard also served as the president and scientifi c director of Aff ymax Research Institute, an institute employing combinatorial chemistry and high throughput target screening to discover drug leads.

Mr Carlo Montagner 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 USA Oncology Business Unit.

Mr Ralph Smalling has held senior positions with Amgen Inc for over 23 years including in regulatory aff airs. He has overseen the development of more than 40 antibody and recombinant protein therapies projects through various stages (preclinical to marketing).

Dr Richard Morgan has more than 25 years experience in pharmaceutical research and development including Head of Toxicology at GlaxoWellcome (now GlaxoSmithKline).

Product Development Advisory Group

(established in June 2008)

The Product Development Advisory Group’s role is to provide technical and strategic advice regarding the Company’s research, drug development and clinical programs.

The members of this Group 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 and antibody experience.

The members of the Group and their relevant experience are as follows:

Dr Errol Malta, whose credentials include working with the largest biotech company in the US, Amgen Inc, for more than 10 years, is chairman of the Advisory Group. He served as Product Development Team Leader for eight of those years responsible for global drug development and commercialisation in the US, EU and Japan.

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ANNUAL FINANCIAL REPORT

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	Auditor’s Independence Declaration 28
	Balance Sheet 29
	Income Statement 30
	Statement of Changes in Equity 31
	Cash Flow Statement 33
	Notes to the Financial Statements 34
	Directors’ Declaration 77
	Independent Auditor’s Report 78

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Annual Report 2008 – Financial Report

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BaLaNCE SHEET

AS AT 30 JUNE 2008

	Consolidated Parent
Note	2008 2007 2008 2007 $ $ $ $
ASSETS Current Assets Cash and cash equivalents 11 Receivables 12 Prepayments Other f nancial assets 13 Total Current Assets Non-Current Assets Financial investments and subsidiaries 14 Investments in associates 15 Intercompany receivables 26 Deferred tax assets 9 Plant and equipment 16 Total Non-Current Assets TOTAL ASSETS LIABILITIES Current Liabilities Payables 18 Intercompany payables 26 Income tax payable Provisions 19 Total Current Liabilities Non-Current Liabilities Deferred tax liability 9 Provisions 20 Total Non-Current Liabilities TOTAL LIABILITIES NET ASSETS EQUITY Equity attributable to equity holders of the parent Contributed equity 21 Retained earnings 22 Reserves 22 Parent interests Minority interests 23 TOTAL EQUITY	46,216,626 48,193,383 33,267,324 30,779,151 536,923 313,112 337,500 210,902 323,330 191,649 41,234 42,267 - 14,213 - -
	47,076,879 48,712,357 33,646,058 31,032,320
	3,916,107 16,118,504 29,491,803 29,585,578 2,361,158 1,755,615 - - - - 175,398 235,057 418,738 190,327 415,959 186,004 79,715 81,877 70,269 80,202
	6,775,718 18,146,323 30,153,429 30,086,841
	53,852,597 66,858,680 63,799,487 61,119,161
	1,665,234 2,332,337 361,698 381,685 - - 2,763,636 3,700,090 - 355,497 - 355,497 121,551 417,290 110,181 417,290
	1,786,785 3,105,124 3,235,515 4,854,562
	648,660 2,759,206 84,190 29,296 9,739 28,643 9,739 28,643
	658,399 2,787,849 93,929 57,939
	2,445,184 5,892,973 3,329,444 4,912,501
	51,407,413 60,965,707 60,470,043 56,206,660
	33,167,977 33,167,977 33,167,977 33,167,977 13,883,872 15,031,677 25,547,101 21,397,036 373,621 7,645,796 1,754,965 1,641,647
	47,425,470 55,845,450 60,470,043 56,206,660 3,981,943 5,120,257 - -
	51,407,413 60,965,707 60,470,043 56,206,660

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

CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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iNCOME STaTEMENT

FOR THE YEAR ENDED 30 JUNE 2008

	Consolidated Parent
Note	2008 2007 2008 2007 $ $ $ $
Finance revenue 3,264,748 2,042,919 2,520,126 1,694,727 Investment income 4,508,091 27,679,172 - - Dividends - - 5,400,000 10,200,000 Other revenue 374,918 163,796 915,000 322,554 Revenue 6 8,147,757 29,885,887 8,835,126 12,217,281 Other income 7 151,552 390,507 258,596 4,639,805 Research & development expenses 25 (3,419,266) (3,155,206) - - Patent expenses (1,838,058) (2,011,963) - - Intellectual property costs 8(a) (113,533) (7,899,850) - - Administrative expenses (3,495,095) (3,868,536) (2,860,751) (3,628,484) Occupancy expenses (130,600) (116,872) (130,600) (116,872) Impairment losses 8(b) (46,645) (39,504) (40,000) - Finance costs 8(c) - - (324,976) - Impairment of receivables from subsidiaries - - (1,487,797) (1,553,672) Share of net loss of associates 15(f) (372,981) (975,930) - - Impairment of goodwill 17 - (149,218) - - Other - (40,862) - 50,635 (Loss)/prof t before income tax (1,116,869) 12,018,453 4,249,598 11,608,693 Income tax expense 9 (1,169,250) (5,722,746) (99,533) (124,413) Net (loss)/prof t for the year (2,286,119) 6,295,707 4,150,065 11,484,280 Attributable to: Minority interests (1,138,314) (4,907,675) - - Members of the parent 22 (1,147,805) 11,203,382 4,150,065 11,484,280 Cents Cents Earnings per share for (loss)/prof t attributable to the ordinary equity holders of the parent: 10 – basic (loss)/earnings per share (2.86) 27.92 – diluted (loss)/earnings per share (2.86) 27.74	3,264,748 2,042,919 2,520,126 1,694,727 4,508,091 27,679,172 - - - - 5,400,000 10,200,000 374,918 163,796 915,000 322,554
	(1,116,869) 12,018,453 4,249,598 11,608,693 (1,169,250) (5,722,746) (99,533) (124,413)
	(2,286,119) 6,295,707 4,150,065 11,484,280
	(1,138,314) (4,907,675) - - (1,147,805) 11,203,382 4,150,065 11,484,280
	Cents Cents (2.86) 27.92 (2.86) 27.74

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

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STaTEMENT OF CHaNGES iN EQUiTY

FOR THE YEAR ENDED 30 JUNE 2008

	Minority Total Attributable to equity holders of theparent interest equity
CONSOLIDATED Note	Issued Retained Other capital earnings reserves Total $ $ $ $ $ $
At 1 July 2006 Net gains on non-current listed investments for the year 22(b) Realised gains on non-current listed investments transferred to the income statement 22(b) Realised gain on held for sale investment transferred to the income statement 22(b) Net gain on new share issue by associate 15 Total income and expense for the year recognised directly in equity Prof t/(loss) for the year Total recognised income and expense for the year Cost of share-based payment 22(b) Capital injection by minority interests Acquisition of minority interests 22(b) At 30 June 2007 At 1 July 2007 Net loss on non-current listed investments for the year 22(b) Realised gains on non-current listed investments transferred to the income statement 22(b) Net gain on new share issue by associate 15 Other equity reserves Total income and expense for the year recognised directly in equity Loss for the year Total recognised income and expense for the year Cost of share-based payment 22(b) At 30 June 2008	33,167,977 3,828,295 19,594,825 56,591,097 99,479 56,690,576 - - 5,531,858 5,531,858 - 5,531,858 - - (12,002,931) (12,002,931) - (12,002,931) - - (1,088,186) (1,088,186) - (1,088,186) - - 202,476 202,476 - 202,476
	- - (7,356,783) (7,356,783) - (7,356,783) - 11,203,382 - 11,203,382 (4,907,675) 6,295,707
	- 11,203,382 (7,356,783) 3,846,599 (4,907,675) (1,061,076) - - 646,207 646,207 - 646,207 - - - - 4,690,000 4,690,000 - - (5,238,453) (5,238,453) 5,238,453 -
	33,167,977 15,031,677 7,645,796 55,845,450 5,120,257 60,965,707
	33,167,977 15,031,677 7,645,796 55,845,450 5,120,257 60,965,707 - - (4,122,130) (4,122,130) - (4,122,130) - - (3,459,191) (3,459,191) - (3,459,191) - - 144,849 144,849 - 144,849 - - 50,979 50,979 - 50,979
	- - (7,385,493) (7,385,493) - (7,385,493) - (1,147,805) - (1,147,805) (1,138,314) (2,286,119)
	- (1,147,805) (7,385,493) (8,533,298) (1,138,314) (9,671,612) - - 113,318 113,318 - 113,318
	33,167,977 13,883,872 373,621 47,425,470 3,981,943 51,407,413

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

CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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STaTEMENT OF CHaNGES iN EQUiTY (continued)

FOR THE YEAR ENDED 30 JUNE 2008

	Total equity
PARENT Note	Issued capital Retained earnings Other reserves Total $ $ $ $
At 1 July 2006 Prof t for the year Total recognised income and expense for the year Cost of share-based payment 22(b) At 30 June 2007 At 1 July 2007 Prof t for the year Total recognised income and expense for the year Cost of share-based payment 22(b) At 30 June 2008	33,167,977 9,912,756 995,440 44,076,173 - 11,484,280 - 11,484,280
	- 11,484,280 - 11,484,280 - - 646,207 646,207
	33,167,977 21,397,036 1,641,647 56,206,660
	33,167,977 21,397,036 1,641,647 56,206,660 - 4,150,065 - 4,150,065
	- 4,150,065 - 4,150,065 - - 113,318 113,318
	33,167,977 25,547,101 1,754,965 60,470,043

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

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CaSH FLOW STaTEMENT

FOR THE YEAR ENDED 30 JUNE 2008

	Consolidated Parent
Note	2008 2007 2008 2007 $ $ $ $
CASH FLOWS FROM OPERATING ACTIVITIES: Proceeds from sale of investments Acquisition of f nancial investments/subsidiary Interest received Receipt of government grants (inclusive of GST) Royalty and license income received Management fees received (inclusive of GST) Dividend income Other receipts (inclusive of GST) Payments to suppliers, employees and for research & development and intellectual property costs (inclusive of GST) Income tax paid Net cash f ows from/(used in) operating activities 24(a) CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds from sale of plant and equipment Purchase of plant and equipment Receipts on behalf of subsidiaries Payments on behalf of subsidiaries Repayment of loans from subsidiaries Loans to subsidiaries Repayment of loan to subsidiary Loan to associate Net cash f ows from/(used in) investing activities CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issue of shares to minority interest Payment of unfranked dividends (i) Return of capital to shareholders (i) Net cash f ows from/(used in) f nancing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year 11	5,479,759 45,343,125 - - (650,000) (3,998,880) - (21,500,000) 3,129,121 1,931,833 2,107,419 1,434,247 35,669 132,883 - - 557,668 175,398 - - - - 990,000 247,500 - - 5,400,000 10,200,000 16,500 24,804 16,500 24,804 (10,027,385) (10,637,591) (3,167,310) (3,244,153) (339,424) - (339,424) -
	(1,798,092) 32,971,572 5,007,185 (12,837,602)
	3,086 700 3,086 700 (32,261) (66,101) (23,230) (64,374) - - 5,479,759 45,343,126 - - (1,629,137) (4,960,840) - - (5,400,000) (10,200,000) - - (800,000) (790,000) - - - 50,000 (40,000) - (40,000) -
	(69,175) (65,401) (2,409,522) 29,378,612
	- 690,000 - - (41,188) (4,658) (41,188) (4,658) (68,302) (5,590) (68,302) (5,590)
	(109,490) 679,752 (109,490) (10,248)
	(1,976,757) 33,585,923 2,488,173 16,530,762 48,193,383 14,607,460 30,779,151 14,248,389
	46,216,626 48,193,383 33,267,324 30,779,151

(i) Dividends and a return of capital to shareholders were declared during the fi nancial year ended 30 June 2005. During the current year, all unclaimed monies were paid over to

the State Revenue Offi ce. The prior year payments are to those shareholders who were not paid during the fi nancial year ended 30 June 2005 due to their addresses being unknown at that time.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008

1. Corporate Information

The fi nancial report of Circadian Technologies Limited (the Company) for the year ended 30 June 2008 was authorised for issue in accordance with a resolution of the directors on 21 August 2008.

Circadian Technologies Limited (the parent) is a company limited by shares incorporated in Australia whose shares are publicly traded on the Australian Stock Exchange.

The nature of the operations and principal activities of the Group are described in the Directors’ Report.

2. Summary of Signifi cant Accounting Policies

Basis of Preparation

The fi nancial report is a general-purpose fi nancial 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 fi nancial report has also been prepared on a historical cost basis, except that non-current receivables from subsidiaries and non-current payables to subsidiaries are carried at amortised cost, investments classifi ed as available-for-sale and listed options are carried at fair value, and investments in associates have been equity accounted.

The fi nancial report is presented in Australian dollars.

(a) Compliance with IFRS

Basis of preparation

(a) Compliance with IFRS
(b) New accounting standards and interpretations
(c) Basis of consolidation

The fi nancial report complies with Australian Accounting Standards as issued by the Australian Accounting Standards Board and International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board.

(d) Cash and cash equivalents
(e) Current receivables
(f) Investments and other fi nancial assets (except listed options)
(g) Listed options
(h) Impairment of fi nancial assets
(i) Investments in subsidiaries
(j) Investments in associates
(k) Interest in a jointly controlled operation
(l) Plant and equipment
(m) Leases
(n) Impairment of non-fi nancial assets other than goodwill
(o) Goodwill
(p) Intangible assets
(q) Intellectual property costs
(r) Research and development costs
(s) Payables
(t) Loans and borrowings
(u) Employee benefi ts
(v) Share-based payment transactions
(w) Contributed equity
(x) Revenue recognition
(y) Income tax
(z) Other taxes
(aa) Government grants

(ab) Earnings per share

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(b) New accounting standards and interpretations

Australian Accounting Standards and Interpretations that have recently been issued or amended but are not yet eff ective have not been adopted by the Group for the annual reporting period ended 30 June 2008. These are outlined in the table below.

Reference	Title	Summary	Application date of standard *	Impact on Group f nancial report	Application date for Group *
AASB 2007-3	Amendments to Australian Accounting Standards arising from AASB 8 [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134, AASB 136, AASB 1023 & AASB 1038]	Amending standard issued as a consequence of AASB 8_Operating Segments_.	1 January 2009	AASB 8 is a disclosure standard so will have no direct impact on the amounts included in the Group’s f nancial statements. However the standard may have an impact on the Group’s segment disclosures the extent of which is yet to be determined.	1 July 2009
AASB 2007-8	Amendments to Australian Accounting Standards arising from AASB 101	Amending standards issued as a consequence of revisions to AASB 101 Presentations of Financial Statements.	1 January 2009	The amendments are expected to only af ect the presentation of the Group’s f nancial report and will not have a direct impact on the measurement and recognition of amounts under the current AASB 101. The Group has not determined at this stage whether to present the new statement of comprehensive income as a single or two statements.	1 July 2009
AASB 2008-1	Amendments to Australian Accounting Standard – Share-based Payments: Vesting Conditions and Cancellations [AASB 2]	The amendments to AASB 2 requires instances where a failure to satisfy a non-vesting condition that is within the control of either the entity or the counterparty to be accounted for as a cancellation.	1 January 2009	The Group does not have share-based payments with non-vesting conditions and as such, is not expected to impact the Group’s f nancial report.	1 July 2009
AASB 2008-3	Amendments to Australian Accounting Standards arising from AASB 3 and AASB 127	Amending standard issued as a consequence of revisions to AASB 3 and AASB 127.	1 July 2009	Refer to AASB 3 (revised) and AASB 127 (revised) below.	1 July 2009
AASB 2008-5 and 2008-6	Improvements to IFRSs	The improvements project is an annual project that provides a mechanism for making non-urgent, but necessary, amendments to IFRSs. The IASB has separated the amendments into two parts: Part 1 deals with changes the IASB identif ed resulting in accounting changes; Part II deals with either terminology or editorial amendments that the IASB believes will have minimal impact.	1 January 2009 except for amendments to IFRS 5, which are ef ective from 1 July 2009	The Group has not yet determined the extent of the impact of the amendments, if any.	1 July 2009

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

2. Summary of Signifi cant Accounting Policies (continued)

(b) New accounting standards and interpretations (continued)

Reference	Title	Summary	Application date of standard *	Impact on Group f nancial report	Application date for Group *
AASB 2008-7	Amendments to Australian Accounting Standards – Cost of an Investment in a Subsidiary, Jointly Controlled Entity or Associate	The main amendments of relevance to Australian entities are those made to IAS 27 deleting the ‘cost method’ and requiring all dividends from a subsidiary, jointly controlled entity or associate to be recognised in prof t or loss in an entity’s separate f nancial statements (i.e. parent company accounts). The distinction between pre- and post-acquisition prof ts is no longer required. However, the payment of such dividends requires the entity to consider whether there is an indicator of impairment. AASB 127 has also been amended to ef ectively allow the cost of an investment in a subsidiary, in limited reorganisations, to be based on the previous carrying amount of the subsidiary (that is, share of equity) rather than its fair value.	1 January 2009	Recognising all dividends received from subsidiaries, jointly controlled entities and associates as income will likely give rise to greater income being recognised by the parent entity after adoption of these amendments. In addition, if the Group enters into any group reorganisation establishing new parent entities, an assessment will need to be made to determine if the reorganisation meets the conditions imposed to be ef ectively accounted for on a ‘carry-over basis’ rather than at fair value.	1 July 2009
AASB 3 (revised)	Business Combinations	The revised standard introduces a number of changes in accounting for business combinations that will impact the amount of goodwill recognised, the results in the period that an acquisition occurs, and future revenues reported.	1 July 2009	It is not currently known whether this standard will have an impact on the Group’s f nancial report.	1 July 2009

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Reference	Title	Summary	Application date of standard *	Impact on Group f nancial report	Application date for Group *
AASB 8	Operating Segments	New standard replacing AASB 114_Segment_ Reporting, which adopts a management approach to segment reporting.	1 January 2009	Refer to AASB 2007-3 above.	1 July 2009
AASB 101 (revised)	Presentation of Financial Statements	Introduces a statement of comprehensive income. Other revisions include impacts on the presentation of items in the statement of changes in equity, new presentation requirements for restatements or reclassif cations of items in the f nancial statements, changes in the presentation requirements for dividends and changes to the titles of the f nancial statements.	1 January 2009	Refer to AASB 2007-8 above.	1 July 2009
AASB 127 (revised)	Consolidated and Separate Financial Statements	The revised standard allows a change in the ownership interest of a subsidiary (that does not result in loss of control) to be accounted for as an equity transaction and will have no impact on goodwill nor will it give rise to a gain or loss.	1 July 2009	If the Group changes its ownership interest in existing subsidiaries in the future, the change will be accounted for as an equity transaction. This will have no impact on goodwill, nor will it give rise to a gain or loss in the Group’s income statement.	1 July 2009

designates the beginning of the applicable annual reporting period unless otherwise stated.

adoption of new accounting standard

The Group has adopted AASB 7 Financial Instruments: Disclosures and all consequential amendments which became applicable on 1 July 2007. The adoption of this standard has only aff ected the disclosure in these fi nancial statements. There has been no aff ect on profi t or loss or the fi nancial position of the entity.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

2. Summary of Signifi cant Accounting Policies (continued)

(c) Basis of consolidation

The consolidated fi nancial statements comprise the fi nancial statements of Circadian Technologies Limited and its subsidiaries (as outlined in note 26) as at 30 June each year (the Group). Interests in associates are equity accounted and are not part of the consolidated Group (see note (j) below).

Subsidiaries are all those entities over which the Group has the power to govern the fi nancial and operating policies so as to obtain benefi ts over their activities. The existence and eff ect of potential voting rights that are currently exercisable or convertible are considered when assessing whether a group controls another entity.

The fi nancial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies.

In preparing the consolidated fi nancial statements, all intercompany balances and transactions, income and expenses and profi t and losses resulting from intra-group transactions have been eliminated in full.

Subsidiaries 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.

Minority interests represent the portion of net profi t/loss after tax and net assets in CancerProbe Pty Ltd and Vegenics Limited not held by the Group and are presented separately from parent in the income statement and within equity in the consolidated balance sheet.

(d) Cash and cash equivalents – refer note 11

Cash and cash equivalents in the balance sheet 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 insignifi cant risk of changes in value.

For the purposes of the Cash Flow Statement, cash and cash equivalents consist of cash and cash equivalents as defi ned above.

(e) Current receivables – refer note 12

Receivables generally comprise bank interest receivable, receivable from an associated entity and GST credits receivable, and are recognised and carried at original invoice amount less an allowance for any uncollectible amounts.

Collectibility of receivables is reviewed on an ongoing basis. Debts that are known to be uncollectible are written off when identifi ed. An allowance for doubtful debts is raised when there is objective evidence that the Group will not be able to collect the debt.

(f) Investments and other financial assets

(except listed options) – refer notes 14 and 26

Investments and fi nancial assets in the scope of AASB 139 Financial Instruments: Recognition and Measurement are classifi ed as either available-for-sale investments, or loans and receivables, as appropriate.

When fi nancial assets are recognised initially, they are measured at fair value. The Group determines the classifi cation of its fi nancial assets after initial recognition and, when allowed and appropriate, re-evaluates this designation at each fi nancial year-end.

recognition and Derecognition

Purchases and sales of fi nancial 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 fl ows from the fi nancial assets have expired or been transferred.

(i) available-for-sale investments – note 14

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 profi t or loss.

The fair values of available-for-sale investments that are actively traded in organised fi nancial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date.

(ii) Loans and receivables – note 26

Loans and receivables are non-derivative fi nancial assets with fi xed or determinable payments that are not quoted in an active market. Such assets are carried at amortised cost using the eff ective 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 profi t or loss when the loans and receivables are derecognised or impaired.

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 fi nancial statements of the Group, parent and subsidiaries.

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(g) Listed options

In accordance with AASB 139 Financial Instruments: Recognition and Measurement , the Group’s holding of listed options falls within the defi nition of a derivative. The Group’s listed options are measured at fair value and any gains or losses arising from changes in their fair value are taken directly to net profi t or loss for the year.

(h) Impairment of financial assets

The Group assesses at each balance sheet date whether a fi nancial asset or group of fi nancial assets is impaired.

(i) available-for-sale investments – note 14

If there is objective evidence (i.e. signifi cant or prolonged decline in quoted market bid prices) that an available-for-sale investment is impaired, an amount comprising the diff erence between its cost and its current fair value, less any impairment loss previously recognised in profi t or loss, is transferred from equity to the income statement. Reversals of impairment losses for equity instruments classifi ed as available-for-sale are not recognised in profi t.

(ii) Financial assets carried at amortised cost

Loans receivable from subsidiaries in the parent’s accounts are fi nancial 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 diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows (excluding future credit losses that have not been incurred) discounted at the fi nancial asset’s original eff ective interest rate (i.e. the eff ective 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 profi t or loss.

The Group fi rst assesses whether objective evidence of impairment exist individually for fi nancial assets that are individually signifi cant, and individually or collectively for fi nancial assets that are not individually signifi cant. If it is determined that no objective evidence of impairment exists for an individually assessed fi nancial asset, whether signifi cant or not, the asset is included in a group of fi nancial assets with similar credit risk characteristics and that group of fi nancial 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 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 profi t or loss, to the extent that the carrying value of the asset does not exceed its amortised cost at the reversal date.

(i) Investments in subsidiaries

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 diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the current market rate of return for a similar fi nancial asset. Any subsequent reversal of an impairment loss is recognised in profi t or loss.

(j) Investments in associates – refer note 15

The Group’s investments in its associates are accounted for using the equity method of accounting in the consolidated fi nancial statements. The associates are entities in which the Group has signifi cant infl uence and which is neither a subsidiary nor a joint venture.

Under the equity method, the investments in the associates are carried in the consolidated balance sheet at cost plus postacquisition changes in the Group’s share of net assets of the associates. Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised. 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 diff erence between the recoverable amount and carrying value.

Where the investment is an unquoted investment, the amount of the loss is measured as the diff erence between the asset’s carrying amount and the present value of estimated future cash fl ows, discounted at the current market rate of return for a similar fi nancial asset. Any subsequent reversal of an impairment loss is recognised in profi t or loss.

The Group’s share of its associates’ post-acquisition profi ts or losses is recognised in the income statement, 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 income statement, while in the consolidated fi nancial 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.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

2. Summary of Signifi cant Accounting Policies (continued)

(j) Investments in associates (continued)

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.

(k) Interest in a jointly controlled operation – refer note 25

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 pharmaceutical research) 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.

(l) Plant and equipment – refer note 16

Plant and equipment are measured at cost and are depreciated 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 fi nancial year end.

(n) Impairment of non-fi nancial assets other than goodwill – refer note 15

Non-fi nancial 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 re investments in associates, see note 2(j) above.

Circadian Technologies Limited 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 expected future processes, 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 identifi able cash infl ows that are largely independent of the cash infl ows from other assets or groups of assets (cash-generating units). Non-fi nancial assets other than goodwill that suff ered an impairment are tested for possible reversal of the impairment whenever events or changes in circumstances indicate that the impairment may have reversed.

(o) Goodwill – refer note 17

Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over the Group’s interest in the net fair value of the acquiree’s identifi able assets, liabilities and contingent liabilities.

Following initial recognition, goodwill is measured at cost less any accumulated impairment losses.

Derecognition

An item of plant and equipment is derecognised upon disposal or when no further future economic benefi ts are expected from its use or disposal.

(m) 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 fulfi lment of the arrangement is dependent on the use of a specifi c asset or assets and the arrangement conveys a right to use the asset.

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

Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired.

Impairment is determined by assessing whether the subsidiary carrying on research and development activities has met its research and development milestones and also by looking at other qualitative aspects of the research and development project.

Impairment losses recognised for the goodwill are not subsequently reversed.

(p) Intangible assets

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

The Group had no fi nance leases during the 2008 and 2007 fi nancial years.

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(q) Intellectual property costs – refer note 8(a)

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.

Parent’s 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 fi nancial statements of the parent.

Borrowing costs

(r) Research and development costs – refer note 25

Borrowing costs are recognised as an expense when incurred.

Research costs are expensed as incurred.

An intangible asset arising from the development expenditure on an internal project is recognised only 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 benefi ts, 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 benefi ts 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 18

(u) Employee benefits – refer notes 19 and 20

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

Liabilities for wages and salaries, including non-monetary benefi ts 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 benefi ts 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 and currencies that match, as closely as possible, the estimated future cash outfl ows.

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 fi nancial 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 – refer note 26

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 eff ective interest method. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement.

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

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

Summary of Signifi cant Accounting Policies (continued)

(v) Share-based payment transactions – refer note 28

Equity settled transactions:

The Group provides benefi ts 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 plans in place to provide these benefi ts:

(i) the Employee Share Option Plan, which provides benefi ts to employees; and
(ii) the Performance Rights Plan, which provides benefi ts to certain key management personnel.

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, the Monte Carlo simulation or Hull model, as appropriate, are used for 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 Technologies Limited (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 fulfi lled (the vesting period), ending on the date on which the relevant employees become fully entitled to the award (the vesting date).

At each subsequent report date until vesting, the cumulative charge to the income statement 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 the income statement 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 fulfi lled, provided that all other conditions are met.

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

The dilutive eff ect, if any, of outstanding options is refl ected as additional share dilution in the computation of earnings per share. There is however no dilutive eff ect when there is a loss per share.

(w) Contributed equity – refer note 21

Ordinary shares are classifi ed 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 benefi ts will fl ow to the Group and the revenue can be reliably measured. The following specifi c 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 balance sheet date.

Deferred income tax is provided on all temporary diff erences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for fi nancial reporting purposes.

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Deferred income tax liabilities are recognised for all taxable temporary diff erences 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, aff ects neither the accounting profi t nor taxable profi t or loss; or

investments in subsidiaries, associates or interests in joint ventures, and the timing of the reversal of the temporary diff erence can be controlled and it is probable that the temporary diff erence will not reverse in the foreseeable future.

Deferred income tax assets are recognised for all deductible temporary diff erences, carry-forward of unused tax assets (or credits) and unused tax losses, to the extent that it is probable that taxable profi t will be available against which the deductible temporary diff erences, 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 diff erence 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, aff ects neither the accounting profi t nor taxable profi t or loss; or
when the deductible temporary diff erence 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 diff erence will reverse in the foreseeable future and taxable profi t will be available against which the temporary diff erences can be utilised.

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that suffi cient taxable profi t 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 balance sheet date and are recognised to the extent that it has become probable that future taxable profi t 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 the balance sheet date.

Deferred tax assets and deferred tax liabilities are off set only if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and liabilities relate to the same taxable entity and the same taxation authority.

Tax consolidation legislation

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

The head entity, Circadian Technologies Limited, and the controlled entities in the tax consolidated group continue to 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 diff erent tax consequence at the level of the group.

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

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 diff erence as a distribution from subsidiary in the income statement.

(z) Other taxes

Revenues, expenses and assets 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 balance sheet.

Income taxes relating to items recognised directly in equity are recognised in equity and not in profi t or loss.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

2. Summary of Signifi cant Accounting Policies (continued)

(z) Other taxes (continued)

Cash fl ows are included in the Cash Flow Statement on a gross basis and the GST component of cash fl ows arising from investing and fi nancing activities, which is recoverable from, or payable to, the taxation authority is classifi ed as part of operating cash fl ows.

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

(aa) Government grants

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. All grants during the years ended 30 June 2008 and 30 June 2007 relate to expense items.

(ab) Earnings per share – refer note 10

Basic earnings per share is calculated as net profi t or loss attributable to members of the parent divided by the weighted average number of ordinary shares. Diluted earnings per share is calculated as net profi t attributable to members of the parent, divided by the weighted average number of ordinary shares and dilutive potential ordinary shares. If there is a net loss there is no dilutive eff ect on earnings per share.

3. Financial Risk Management Objectives and Policies

The Group’s principal fi nancial assets comprise cash, short-term deposits and fi nancial investments. The parent’s principal fi nancial assets comprise cash, short-term deposits and intercompany receivables from wholly owned subsidiaries.

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

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

The Group uses diff erent methods to measure and manage diff erent 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 the development of future rolling cash fl ow forecasts.

The Board reviews and agrees policies for managing each of these risks as summarised below.

Risk Exposures and Responses

interest rate risk

The Group’s (including the parent) exposure to market interest rates relates primarily to the short-term deposits. The deposits are held with one of Australia’s largest banks.

The objective of managing interest rate risk is to minimise the Group’s exposure to fl uctuations in interest rates that might impact its interest revenue and cash fl ow. 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 fl ow forecast. This consideration also takes into account the costs associated with breaking a term deposit should early access to cash and cash equivalents be required. Cash is not locked into long-term deposits at fi xed rates so as to mitigate the risk of earning interest below the current fl oating rate.

The Group does not have any borrowings.

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

At 30 June 2008, if interest rates had moved, as illustrated in the table below, with all variables held constant, post tax (loss)/profi t and equity would have been aff ected as follows:

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	Post Tax	(Loss)/Prof t			Equity
Judgements of reasonably possible movements:	Higher/(Lower)				Higher/(Lower)
	2008	2007	2008		2007
	$	$	$		$
Consolidated
+0.50% (50 basis points)	(161,758)	168,677		-		-
- 0.75% (75 basis points)	242,637	(253,015)		-		-
Parent
+0.50% (50 basis points)	116,436	107,727		-		-
- 0.75% (75 basis points)	(174,653)	(161,591)		-		-

The possible movements between years are due to the Group’s lower cash balance at 30 June 2008 compared to 30 June 2007. This is partially off set by higher interest rates across the fi nancial year ended 30 June 2008 compared to the fi nancial year ended 30 June 2007 of approximately 1.3%.

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 fl uctuations 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” fi nancial 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 2008, had the share price moved, as illustrated below, with all other variables held constant, post tax (loss)/profi t and equity would have been aff ected as follows:

have been af ected as follows:
	Impact on loss	Impact on equity	Impact on prof t	Impact on equity
Judgements of reasonably possible movements:	after tax	after tax	after tax	after tax
	2008	2007	2008	2007
	$	$	$	$
Change in variables
10% increase in listed share price	-	274,128	-	1,128,295
10% decrease in listed share price	-	(274,128)	-	(1,128,295)

Investments in listed entities have decreased during the current year due to the decrease in the market value of the investments as well as the disposal of the Group’s holding in Metabolic Pharmaceuticals Limited in May 2008 and the sale of shares in Avexa Limited during the year – see note 6(b) for further details regarding the sale of these shares.

The parent has no equity price risk.

Foreign currency risk

During the year, the Group’s exposure to foreign currency risk was minimal. As a result of services predominantly provided by non-related entities in the United States, part of the Group’s payables are aff ected by movements in the US$/A$ exchange rate.

The Group does not enter into any hedging transactions.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

3. Financial Risk Management Objectives and Policies (continued)

Risk Exposures and Responses (continued)

At 30 June 2008, the Group had the following exposure to US$ foreign currency:

	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
Financial Assets Receivables Financial Liabilities Payables Net exposure	36,516 35,439 - - 670,235 1,549,865 - -
	(633,719) (1,514,426) - -

The following sensitivity is based on the foreign currency risk exposures in existence at the balance sheet date:

At 30 June 2008, had the Australian Dollar moved, as illustrated in the table below, with all other variables held constant, post tax (loss)/profi t and equity would have been aff ected as follows:

and equity would have been af ected as follows:
	Post Tax (Loss)/Prof t				Equity
Judgements of reasonably possible movements:	Higher/(Lower)				Higher/(Lower)
	2008	2007	2008		2007
	$	$	$		$
Consolidated
AUD/USD +10%	(40,328)	96,373		-		-
AUD/USD -5%	23,348	(55,795)		-		-

The reasonably possible movements at 30 June 2007 are higher than at 30 June 2008 due to the higher net exposure to the US dollar.

Management believe the balance date risk exposures are representative of the risk exposure inherent in the fi nancial instruments.

The parent has no foreign currency risk.

Credit risk

Credit risk is associated with those fi nancial 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). Due to this, there is no requirement for collateral. The parent has intercompany receivables from its wholly owned subsidiaries which are considered to be minimal credit risk.

Liquidity risk

The Group’s objective is to maintain an appropriate cash asset balance to fund its operations. The Group has minimal risk.

Fair value

The methods for estimating fair value are outlined in the relevant notes to the fi nancial statements.

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4. Signifi cant 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 diff er from the judgements, estimates and assumptions. Signifi cant judgements, estimates and assumptions made by management in the preparation of these fi nancial 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.

Taxation

The Group’s accounting policy for taxation requires management’s 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 on the balance sheet. Deferred tax assets, including those arising from unrecouped tax losses, capital losses and temporary diff erences, are recognised only where it is considered more likely than not that they will be recovered, which is dependent on the generation of suffi cient future taxation profi ts.

Assumptions about the generation of future taxable profi ts depend on management’s estimates of future cash fl ows. 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 on the balance sheet and the amount of other tax losses and temporary diff erences 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 the income statement.

(ii) Significant accounting estimates and assumptions

Classifi cation of and valuation of investments

The Group has decided to classify investments in listed securities as ‘available-for-sale’ investments and movements in fair value are recognised directly in equity. 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 by an external valuer using the models and assumptions as described in note 28. 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 signifi cant intellectual property portfolio around Vascular Endothelial Growth Factor (VEGF) C and D (angiogenic molecules). The Group is focussed primarily on developing treatments for cancer as well as for other high unmet medical need disease indications.

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

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
6. Revenue (a) Finance Revenue Interest from: – Bank 3,236,619 2,015,650 2,213,563 1,473,421 – Related party – associated company 28,079 27,249 28,079 27,249 – Related party – wholly owned subsidiaries - - 278,484 194,057 – Other unrelated persons 50 20 - - 3,264,748 2,042,919 2,520,126 1,694,727 (b) Investment Income Net gain on sale of investments (i) 4,508,091 27,679,172 - - (c) Dividends Unfranked – wholly owned subsidiaries - - 5,400,000 10,200,000 (d) Other Revenue Management fee (note 26(b)(iii)) - - 900,000 300,000 Royalty and licence fees 359,918 141,242 - - Other revenue items 15,000 22,554 15,000 22,554 374,918 163,796 915,000 322,554 Total Revenue 8,147,757 29,885,887 8,835,126 12,217,281 (i) The net gain on sale of investments of $4,508,091 (2007: $27,679,172) comprises the following: Investment in Metabolic Pharmaceuticals Ltd: Net proceeds from sale of shares 1,728,610 8,285,760 - - Cost of shares sold (10,000) - - - Net gain on sale of shares 1,718,610 8,285,760 - -	3,236,619 2,015,650 2,213,563 1,473,421 28,079 27,249 28,079 27,249 - - 278,484 194,057 50 20 - -
	3,264,748 2,042,919 2,520,126 1,694,727 4,508,091 27,679,172 - - - - 5,400,000 10,200,000 - - 900,000 300,000 359,918 141,242 - - 15,000 22,554 15,000 22,554
	374,918 163,796 915,000 322,554
	8,147,757 29,885,887 8,835,126 12,217,281
	1,718,610 8,285,760 - -

30 June 2008:

The sale relates to the remaining holding in Metabolic Pharmaceuticals Limited of 36,012,701 ordinary shares. The shares were sold on 12 May 2008.

30 June 2007:

The sale relates to 12,000,000 ordinary shares in Metabolic Pharmaceuticals Limited, sold on 29 November 2006.

The Group retained 36,012,701 shares in Metabolic after the sale of the shares, which were subsequently sold in May 2008.

Investment in Avexa Limited:

Net proceeds from sale of shares Original cost of shares sold Gain on sale of shares Recovery of impairment losses recognised prior to 1.7.05 Total	3,743,581 13,880,407 - - (2,879,878) (7,521,752) - -
	863,703 6,358,655 - - 1,925,778 410,910 - -
	2,789,481 6,769,565 - -

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30 June 2008:

The sale relates to 6,580,000 ordinary shares in Avexa Limited, sold during the period from 13 November 2007 to 12 June 2008. The Group retains 7,087,914 shares in Avexa after the sale of the shares.

All the shares sold during the current year relate to those shares which recognised an impairment loss in the 30 June 2005 year (see below). As such, the recovery of losses on the parcel of shares sold during the year amounted to $1,925,778. Also see note 14.

30 June 2007:

The Group sold 22,489,836 ordinary shares in Avexa Limited from 24 January 2007 to 25 June 2007. The Group retained 13,667,914 shares in Avexa after the sale of the shares. Total impairment losses of $4,411,119 at 30 June 2005 relating to 19,132,292 Avexa shares were recognised through profi t or loss. Of the 22,489,836 shares sold during the year, 5,464,378 shares are from the parcel which recognised the impairment loss in the 30 June 2005 year. As such, the recovery of impairment losses of $410,910 relates to this parcel of shares. Also see note 14.

	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
Investment in Zenyth Therapeutics Limited: Gross cash proceeds from disposal of investment Value of in-specie distribution of Avexa shares Cost of disposed investment Gain on disposal of investment Recovery of impairment losses recognised prior to 1.7.05 Total	- 23,176,958 - - - 1,176,691 - -
	- 24,353,649 - - - (16,804,666) - -
	- 7,548,983 - - - 5,074,864 - -
	- 12,623,847 - -

30 June 2007:

In November 2006, the Supreme Court of Victoria approved the scheme of arrangement between Zenyth Therapeutics Limited (Zenyth) and its shareholders under which all Zenyth shares were transferred to CSL Limited (CSL) in consideration of CSL paying Zenyth shareholders 82 cents per Zenyth share plus an in-specie distribution of Avexa Limited (Avexa) shares owned by Zenyth (1 Avexa share for every 6 Zenyth shares held). This resulted in the Group receiving $23,176,958 cash (representing the Group’s holding of 28,264,583 shares @ 82 cents per share) plus an in-specie distribution of 4,706,763 Avexa shares at a value of $1,176,691 (the Avexa share price on the eff ective day of distribution of those shares was 25 cents).

The recovery of impairment losses recognised prior to 1 July 2005 of $5,074,864 refl ect the diff erence between the market value of Circadian’s holding in Zenyth at 30 June 2005 and the cost of the Zenyth holding at 30 June 2005 (whereby the cost exceeded the market value).

7. Other Income

7. Other Income
Reversal of impairment of receivable from subsidiary Distributions from subsidiaries (note 9(g)) Government grant income Net foreign exchange gains	- - - 4,110,782 - - 258,596 513,091 6,020 153,888 - - 145,532 236,619 - 15,932
	151,552 390,507 258,596 4,639,805

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

		Consolidated	Consolidated
		2008	2007	2008		2007
		$	$	$		$
8.	Expenses
*(a)*	*Intellectual property costs*	113,533	7,899,850		-		-

(a) Intellectual property costs

Intellectual property costs of $7,899,850 in the prior year comprises the following:

an amount of $4 million relating to a patent portfolio in accordance with an agreement between Vegenics Limited (Circadian’s subsidiary), the Ludwig Institute for Cancer Research (LICR) and Licentia Limited (Licentia). As the intellectual property provided under this agreement is being used for research and development activities, in accordance with Vegenics’ company policy, the costs for this intellectual property have been expensed in profi t or loss. Upon Vegenics completing in excess of a $16 million capital raising on 2 April 2007, the intellectual property under the agreement between Vegenics, LICR and Licentia was assigned to Vegenics as were the licenses between LICR and its licensees of which Vegenics now receives/earns milestone income.
an amount of $2,631,925 relating to an agreement with CoGenesys Inc which provides Vegenics with rights to intellectual property in the fi eld of VEGF-C (vascular endothelial growth factors C), and complements the Vegenics patent portfolio covering VEGF-C and VEGF-D and antagonists to these molecules, developed by LICR and Licentia.
an amount of $1,267,925 paid to CoGenesys Inc in accordance with the agreement with CoGenesys relating to the acquisition of certain rights to Cambridge Antibody Technologies plc human monoclonal antibodies that target VEGF-C.

The current year costs of $113,533 relate to an upfront license fee paid to Human Genome Sciences in accordance with the license agreement which provides Vegenics with certain rights to intellectual property relating to VEGF-2 (VEGF-C) gene therapy. Annual license fees will be payable in respect to this agreement.

*(b) Impairment losses* Listed options Other listed f nancial asset Loan to associate (note 15(b)) *(c) Finance costs* Interest expense – subsidiaries (note 26(b)) *(d) Other expenses included in the Income Statement* Included in occupancy expenses: – Operating lease rentals Included in administrative expenses: – Depreciation of: Equipment and furniture Leasehold improvements Total depreciation expense – Employee benef ts expense: Salaries and fees Cash bonuses Superannuation Share-based payments expense (note 28) Other employee benef ts expense Total employee benef ts expense	- 39,851 - - 6,645 (347) - - 40,000 - 40,000 -
	46,645 39,504 40,000 -
	- - 324,976 -
	96,601 87,846 96,901 87,846 30,642 24,219 29,383 24,167 692 1,196 692 1,196
	31,334 25,415 30,075 25,363
	1,638,173 1,779,027 1,510,188 1,779,027 199,250 187,500 179,250 187,500 174,885 187,974 161,566 187,974 113,318 646,207 113,318 646,207 134,883 187,401 122,527 187,401
	2,260,509 2,988,109 2,086,849 2,988,109

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	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
9. Income Tax (a) Income Tax Expense The major components of income tax expense are: Income Statement Current income tax Current income tax (benef t)/charge Adjustments in respect of tax losses of previous years Deferred income tax Relating to origination and reversal of temporary dif erences (d) Income tax expense reported in the income statement (c) (b) Amounts charged or credited directly to equity Deferred income tax related to items charged (credited) directly to equity Net unrealised loss on listed investments Income tax benef t reported in equity	(307,447) 5,114,740 (32,375) (332,614) (16,073) (56,855) (478) (60,520) 1,492,770 664,861 132,386 517,547
	1,169,250 5,722,746 99,533 124,413
	(3,524,279) (2,535,399) - -
	(3,524,279) (2,535,399) - -

(c) Numerical reconciliation between aggregate tax expense

recognised in the income statement and tax expense calculated

per the statutory income tax rate

A reconciliation between tax expense and the product of accounting (loss)/profi t

before income tax multiplied by the Group’s applicable income tax rate is as follows:

Accounting (loss)/prof t before tax	(1,116,869)	12,018,453	4,249,598	11,608,693
At the parent entity’s statutory income tax rate of 30%
(2007: 30%)	(335,061)	3,605,536	1,274,879	3,482,608
Adjustments in respect of tax losses of previous years	(16,073)	(56,855)	(478)	(60,520)
Unrecognised unrealised & realised tax assets	1,826,952	3,536,153	12,000	-
Recognition of losses not recognised in prior years	(88,549)	(1,323,440)	-	-
Decrease in deferred tax assets due to temporary dif erences	607,833	1,624,526	65,495	497,718
Increase in deferred tax liabilities due to temporary dif erences	213,669	67,203	54,893	19,828
Expenditure not allowable for income tax purposes	94,250	593,451	430,592	725,569
Income not assessable for income tax purposes	(53,862)	(39,203)	(1,737,848)	(4,540,790)
Research and development additional deductions allowable	(116,828)	(249,927)	-	-
Fair value adjustment on investment in listed options
and other listed investment	-	11,851	-	-
Dif erence between tax gain and accounting gain
on disposal of investments – non-assessable	(963,081)	(2,046,549)	-	-
Income tax expense reported in the income statement	1,169,250	5,722,746	99,533	124,413

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

9. Income Tax (continued)

9. Income Tax(continued)
	Balance Sheet	Income Statement
	2008 2007 $ $	2008 2007 $ $
(d) Recognised deferred tax assets and liabilities Deferred income tax at 30 June relates to the following: CONSOLIDATED Deferred tax liabilities: Revaluations of listed investments to fair value (unrealised capital gains) Deferred tax assets available for of set against future taxable income: Realised capital gains tax losses Unrealised impairment losses on listed investments Temporary dif erence for investment in associate Interest receivable (future assessable income) Deferred tax assets: De-recognition of tax asset due to fair value adjustment Realised gains – reversal of prior period impairment losses Realised tax losses Employee provisions Future allowable deductions Deferred tax expense PARENT Deferred tax liabilities: Temporary dif erence on intercompany loans to subsidiaries Interest receivable (future assessable income) Deferred tax assets: Deferred tax assets available for of set against future taxable income: Realised tax losses Employee provisions Future allowable deductions Temporary dif erence on intercompany loans to subsidiaries Unrealised loss on investment in associate from prior year Deferred tax expense	(295,921) (3,820,201) - - - 1,200,063 (283,177) (109,773) (69,562) (29,295)	- - - (289,929) - 1,200,063 (173,404) (47,376) (40,267) (19,828) (622,329) - (577,733) (1,522,459) - - (97,702) 12,544 18,665 2,124
	(648,660) (2,759,206)
	- - - - 307,447 - 35,976 133,678 75,315 56,649
	418,738 190,327
	(14,628) - (69,562) (29,296)
		(1,492,770) (664,861)
		(14,628) - (40,266) (19,828) - - (97,702) 12,544 20,210 43,407 - (717,166) - 163,496
	(84,190) (29,296)
	307,447 - 35,976 133,678 72,536 52,326 - - - -
	415,959 186,004

		(132,386) (517,547)

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At 30 June 2008, there are no unrecognised temporary diff erences relating to deferred tax liabilities associated with the Group’s investments in subsidiaries, associates or joint ventures, as the Group has no liability for additional taxation should unremitted earnings be remitted (2007: $Nil).

(f) Unrecognised tax losses

Vegenics Limited had income tax losses of $2,192,657 (2007: $1,064,072) (these amounts are tax eff ected at 30%) for which no deferred tax asset is recognised on the balance sheet and are available indefi nitely for off set against future assessable income subject to continuing to meet relevant statutory tests. During the year Vegenics was 67% owned by Circadian and as such was not a member of Circadian’s tax consolidated group.

(g) Tax consolidation

(i) Members of the tax consolidated group

Circadian Technologies Limited and its 100% owned subsidiaries have formed a tax consolidated group with eff ect 1 July 2003. Circadian Technologies Limited is the head entity of the tax consolidated group.

Measurement method adopted under UIG 1052 Tax Consolidation Accounting

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).

Tax consolidation contributions/(distributions)

In preparing the accounts for Circadian Technologies Limited for the current year, the following amounts have been recognised as taxconsolidation contribution adjustments:

Total increase/(reduction) to tax expense of Circadian Technologies Limited Total increase/(reduction) to investments in subsidiaries Total distributions from subsidiaries recognised in the income statement of Circadian Technologies Limited	Parent
	2008 2007 $ $
	- - (32,071) 5,964,109 258,596 513,091

(h) Franking credit balance

The franking account balance at the end of the fi nancial year at 30% (2007: 30%) is $350,862 (2007: $11,438), which represents the amount of franking credits available for the subsequent fi nancial year.

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CIRCADIAN TECHNOLOGIES

LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

	Consolidated
	2008 2007 $ $
10. Earnings Per Share The following ref ects the income used in the basic and diluted earnings per share computations: (a) Earnings used in calculating earnings per share Net (loss)/prof t attributable to ordinary equity holders of the parent (b) Weighted average number of shares Weighted average number of ordinary shares on issue for basic earnings per share Ef ect of dilution: Share options Performance rights Weighted average number of ordinary shares adjusted for the ef ect of dilution	(1,147,805) 11,203,382
	Number Number of shares of shares 2008 2007
	40,124,498 40,124,498 - - - 257,337
	40,124,498 40,381,835

There have been no other transactions involving ordinary shares or potential ordinary shares that would signifi cantly change the number of ordinary shares or potential ordinary shares outstanding between the reporting date and the date of completion of this fi nancial report.

Share options are not dilutive as their respective exercise prices are in excess of the Company’s share price at year end.

Options and performance rights granted to employees (including key management personnel) as described in note 28 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.

	Consolidated	Consolidated
	2008	2007	2008	2007
	$	$	$	$
11. Current Assets – Cash and Cash Equivalents
Cash at bank and in hand	1,006,626	2,243,383	617,324	1,529,151
Short-term deposits	45,210,000	45,950,000	32,650,000	29,250,000
	46,216,626	48,193,383	33,267,324	30,779,151

Cash at bank earns interest at fl oating 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 fi xed rate for the respective short-term deposit periods. At year end the average rate was 7.57% (2007: 6.27%).

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	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
12. Current Assets – Receivables Interest receivable Receivable – related party (i) GST receivable (ii) Other (ii) Total current receivables	278,274 142,646 231,875 97,651 - 8,933 82,500 82,500 170,397 131,175 23,125 30,751 88,252 30,358 - -
	536,923 313,112 337,500 210,902

(i) Parent: A Management Services Agreement between Circadian and Vegenics Limited was signed in the prior year relating to the

provision of management and related support services by Circadian. The agreement provides for a management fee of $82,500

(GST inclusive) payable monthly in arrears. The related party receivable is non-interest bearing and has repayment terms of 30 days. See note 26(b)(iii).

Consolidated: The prior year receivable is from a director related entity of Vegenics Limited, being the Ludwig Institute for Cancer

Research Ltd, relating to patent costs paid on their behalf to a third party patent attorney.

(ii) These receivables are non-interest bearing, most of which have repayment terms of between 30 and 60 days.

(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. Current Assets – Other Financial Assets

Listed Australian shares – at fair value - 14,213 - -

The listed shares (available-for-sale asset) had no fi xed term and was readily saleable. These shares were sold during the current year.

14. Non-Current Assets – Financial Investments and Subsidiaries

Listed Australian shares – at fair value (a) Unlisted subsidiaries (b) (note 26) – at cost Total non-current investments	3,916,107 16,118,504 - - - - 29,491,803 29,585,578
	3,916,107 16,118,504 29,491,803 29,585,578

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

14. Non-Current Assets – Financial Investments and Subsidiaries (continued)

(a) Details of listed Australian shares

(a) Details of listed Australian shares
Ownership Interest	Fair Value (i) Cost of Investment
2008 2007 Listed Investments % %	2008 2007 2008 2007 $ $ $ $
Non-current investments: Metabolic Pharmaceuticals Ltd (ii) - 12.0 Avexa Limited (iii) 1.8 3.4 Optiscan Imaging Ltd (iv) 7.0 6.2 Associate: Antisense Therapeutics Ltd (v) (note 15) 18.7 19.3 Total listed investments	- 4,501,588 - 10,000 2,126,374 8,610,786 3,102,178 5,982,056 1,789,733 3,006,130 771,131 371,131
	3,916,107 16,118,504 3,873,309 6,363,187 7,269,642 3,595,894 3,114,766 2,864,766
	11,185,749 19,714,398 6,988,075 9,227,953

Non-current investments in listed shares (which are not associates) are designated and accounted for as “available-for-sale” fi nancial 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 fi xed 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) During the current year, the Group sold its remaining holding in Metabolic Pharmaceuticals Limited (i.e. 36,012,701 ordinary shares) for net proceeds of $1,728,610. The sale of the Metabolic shares resulted in a net profi t of $1,718,610. See note 6(b)(i) for further details.
(iii) During the current year, the Group sold a total of 6,580,000 shares in Avexa Limited for total net proceeds (after brokerage fees) of $3,743,581. The sale of the Avexa shares resulted in a net profi t of $863,703. See note 6(b)(i) for further details.
(iv) During the current year, the Group acquired an additional 1,739,130 shares in Optiscan Imaging Limited for a consideration of $400,000 through a capital raising by Optiscan in June 2008. In this capital raising, Optiscan issued a total of 13.04 million shares to Circadian and other third parties for a total consideration of $3 million.
(v) During the current year, the Group acquired an additional 4,166,667 shares in Antisense Therapeutics Limited for a consideration of $250,000 through a capital raising by Antisense Therapeutics in April 2008. In this capital raising, Antisense Therapeutics issued a total of 37.5 million shares to Circadian and other third parties for a total consideration of $2.25 million.

On subscription of the shares, the Group also received 2,083,333 attaching options exercisable at 10 cents each expiring 30 September 2009.

The Group’s total undiluted interest in Antisense Therapeutics, including its indirect interest in Antisense Therapeutics through its investment in Syngene Limited, amounted to 22.8% at year end, representing a market value of $8,837,751 (cost: $3,214,136).

(b) Details of investments in subsidiaries

Of the $29,491,803 in investments in subsidiaries, $21,500,000 relates to the investment in Vegenics Limited, which at 30 June 2008 is 67% owned by Circadian (see note 31 “Events after Balance Sheet Date” in respect to Circadian acquiring the minority interest’s 33% share of Vegenics). See note 26 regarding details of other subsidiaries.

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15. Non-Current Assets – Investments in Associates

(a) Investment details

(a) Investment details
Ownership Interest %	Carrying Amount $
Name and Principal Activities 2008 2007	2008 2007
Listed: Antisense Therapeutics Ltd – Gene directed therapeutics (i) 18.7 19.3 Unlisted: Syngene Limited – Gene diagnostics 42.4 42.4	1,186,481 1,158,947 1,174,677 596,668
	2,361,158 1,755,615

The Group’s proportion of voting power held in each associate is the same as its ownership interest. The Group’s investments in the associates are accounted for in accordance with the accounting policy described in note 2(j).

Syngene Limited is an unlisted public company whilst Antisense Therapeutics Limited is listed on the Australian Stock Exchange. The associates are both incorporated in Australia and have 30 June reporting dates.

(i) Prior to 1 January 2006, the investment in Antisense Therapeutics Limited was accounted for as an “available-for-sale” asset pursuant to AASB 139 Financial Instruments: Recognition and Measurement . As a result of the Group participating as the major investor in a capital raising by Antisense Therapeutics in February 2006 (thus increasing the Group’s holding at the time from 20.4% to 22.13%), the board of directors of Circadian determined that it has “signifi cant infl uence” over Antisense Therapeutics based on the defi nition in accounting standard AASB 128 Investments in Associates , and as such it was resolved at that time that the Group should equity account Antisense Therapeutics with eff ect from 1 January 2006.

Although the Group’s direct interest in Antisense Therapeutics has been diluted to 18.7% at year end due to subsequent capital raisings

by Antisense Therapeutics, including its indirect interest it has a 22.8% interest at year end. As such the Group has continued to equity account the results of Antisense Therapeutics.

(b) Impairment

There was an impairment loss of $40,000 in the current year relating to the write-down of the loan to Syngene Limited. This amount is included in the line item ‘Impairment losses’ in the Income Statement.

(c) Movements in the carrying amounts of the Group’s investments in associates

(c) Movements in the carrying amounts of the Group’s investments in associates
	Consolidated
	2008 2007 $ $
Antisense Therapeutics Limited: At 1 July Acquisition of shares (note 14(a)(v)) Net gain on new share issue by associate (note 22(b)(iii)) Share of movement in equity reserve Share of loss after income tax At 30 June Syngene Limited: At 1 July Share of prof t after income tax Share of net unrealised gain on listed investment for the year (i) At 30 June	1,158,947 1,945,041 250,000 - 144,849 202,476 50,979 - (418,294) (988,570)
	1,186,481 1,158,947
	596,668 438,746 45,313 12,640 532,696 145,282
	1,174,677 596,668

(i) The Group’s share of the net unrealised gain on listed investment represents Syngene’s 9.53% 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 22(b)(iv)).

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

15. Non-Current Assets – Investments in Associates (continued)

(d) Fair value of investment in listed associate

The fair value of the Group’s investment in Antisense Therapeutics Limited is $7,269,642 (2007: $3,595,894). Also see note 14(a)(v).

(e) Share of associates’ commitments – Equity accounting only

(i) An agreement exists between Syngene Limited and the Howard Florey Institute of Experimental Physiology and Medicine (Institute) whereby the Institute has granted an exclusive licence to Syngene for the technology of and patents held by the Institute in the area of hybridization histochemistry and related fi elds. Syngene is committed to pay the Institute a licence revenue fee of $50,000 per year plus a percentage of royalty income earned varying between 6% and 7.5%. The Group’s share of Syngene’s commitment is $21,190 per year plus the Group’s share of a percentage of royalty income earned.
(ii) Antisense Therapeutics Limited has an expenditure commitment of $3,482,487 relating to research and development and is payable within one year. The Group’s share of this expenditure commitment is $652,270 (2007: $692,962).

The lease expenditure commitment for Antisense Therapeutics amounts to $23,277 which is payable within one year. This commitment relates to the leasing of offi ce premises. The lease is for a term of one year with a renewal option for a further one year. The Group’s share of Antisense Therapeutics’ lease expenditure commitment is $4,360 (2007: $4,353).

The following table illustrates summarised fi nancial information relating to the Group’s associates.

The following table illustrates summarised f nancial information relating to the Group’s associates.
	Consolidated
	2008 2007 $ $
Extract from the associates’ balance sheets: Current assets Non-current assets Current liabilities Non-current liabilities Net assets Share of associates’ net assets Extract from the associates’ income statements: Revenue Net loss Share of the associates’ prof t or loss accounted for using the equity method: Loss before income tax Income tax (expense)/benef t Loss after income tax	9,877,911 8,115,571 3,713,816 1,922,288
	13,591,727 10,037,859 3,459,317 2,008,167 1,025,991 604,415
	4,485,308 2,612,582
	9,106,419 7,425,277
	2,361,158 1,755,615
	7,115,265 807,077 (2,029,966) (4,806,138) (152,255) (1,038,193) (220,726) 62,263
	(372,981) (975,930)

(g) Contingent liabilities of associates

The associates have no contingent liabilities at year end.

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	Consolidated	Consolidated
	2008	2007	2008	2007
	$	$	$	$
16. Non-Current Assets – Plant and Equipment
*Equipment and furniture at cost*
Opening balance	227,381	180,121	225,654	180,121
Additions	32,260	64,161	23,230	62,434
Disposals	(9,157)	(16,901)	(9,157)	(16,901)
Closing balance	250,484	227,381	239,727	225,654
*Accumulated depreciation*
Opening balance	146,583	137,588	146,531	137,588
Depreciation for the year	30,642	24,219	29,383	24,167
Disposals	(6,069)	(15,224)	(6,069)	(15,224)
Closing balance	171,156	146,583	169,845	146,531
Net carrying amount	79,328	80,798	69,882	79,123
*Leasehold improvements at cost*
Opening balance	73,697	73,697	73,697	73,697
Additions	-	-	-	-
Closing balance	73,697	73,697	73,697	73,697
*Accumulated depreciation*
Opening balance	72,618	71,422	72,618	71,422
Depreciation for the year	692	1,196	692	1,196
Closing balance	73,310	72,618	73,310	72,618
Net carrying amount	387	1,079	387	1,079
Total plant and equipment, net	79,715	81,877	70,269	80,202
17. Non-Current Assets – Goodwill
Reconciliation of carrying amount at the beginning and end of the year:
Gross carrying amount	-	226,165	-	-
Accumulated impairment of goodwill:
Opening balance	-	(76,947)	-	-
Impairment of goodwill for the year	-	(149,218)	-	-
	-	(226,165)	-	-
Net carrying amount at 30 June	-	-	-	-

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
18. Current Liabilities – Payables Creditors (unsecured) (i) Income received in advance Payable to shareholders (ii) PAYG tax liability	1,373,112 2,131,664 330,145 222,309 251,699 41,297 - - - 109,490 - 109,490 40,423 49,886 31,553 49,886
	1,665,234 2,332,337 361,698 381,685

(i) Creditors are non-interest bearing and are normally settled on 30 day terms. Included in the consolidated balance is an amount of $1,144,043 (2007: $1,784,931) being amounts payable by Vegenics Limited.

(ii) A capital return and two unfranked dividend payments were paid to shareholders totalling 65 cents per share during the 2005 fi nancial

year. The balance in the prior year of $109,490 represents amounts payable with respect to these distributions to shareholders with

unknown addresses. During the current year, all unclaimed monies were paid over to the State Revenue Offi ce.

(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.

19. Current Liabilities – Provisions

Annual Leave Long service leave (note 20) 20. Non-Current Liabilities – Provisions Long service leave	72,675 128,401 61,305 128,401 48,876 288,889 48,876 288,889
	121,551 417,290 110,181 417,290
	9,739 28,643 9,739 28,643

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

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	Consolidated			Parent
2008		2007	2008		2007
$		$	$		$

21. Contributed Equity

(a) Ordinary shares

(a) Ordinary shares
Issued and fully paid at 30 June	33,167,977	33,167,977	33,167,977	33,167,977
Ordinary shares on issue:	No.	No.	No.	No.
Balance at 1 July and 30 June	40,124,498	40,124,498	40,124,498	40,124,498

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

Share options and performance rights:

The Company has two share-based payment schemes: the Employee Share Option Plan under which options to subscribe for the Company’s shares have been granted to certain employees, and a Performance Rights Plan under which rights to subscribe for the Company’s shares have been granted to certain executive offi cers (refer to note 28).

(b) Capital management

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

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

See note 31 for details regarding a new share issue post year-end.

22. Retained Earnings and Reserves

(a) Movements in retained earnings were as follows: Balance at 1 July Net (loss)/prof t for the year Balance at 30 June (b) Reserves Asset revaluation reserve (i) Option reserve (ii) Contributed capital of associate reserve (iii) Net unrealised gains reserve (iv) Employee equity benef ts reserve (v) Equity reserve attributable to parent (vi) Total reserves	$ $ $ $ 15,031,677 3,828,295 21,397,036 9,912,756 (1,147,805) 11,203,382 4,150,065 11,484,280
	13,883,872 15,031,677 25,547,101 21,397,036
	734,407 734,407 734,407 734,407 19 19 19 19 1,007,683 811,855 - - 2,849,426 10,430,747 - - 1,020,539 907,221 1,020,539 907,221 (5,238,453) (5,238,453) - -
	373,621 7,645,796 1,754,965 1,641,647

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

	Consolidated	Consolidated
	2008	2007	2008	2007
	$	$	$	$
22. Retained Earnings and Reserves(Continued)
(b) Reserves (continued)
(i) Movement in asset revaluation reserve:
Opening and closing balance	734,407	734,407	734,407	734,407
(ii) Movement in option reserve:
Opening and closing balance	19	19	19	19
(iii) Movement in contributed capital of associate reserve:
Opening balance	811,855	609,379	-	-
Investment in associate (note 15):
– Gain on new share issue by associate	144,849	202,476	-	-
– Share of movement in equity reserve	50,979	-	-	-
– Tax ef ect	(58,748)	(60,743)	-	-
– Tax asset of set	58,748	60,743	-	-
Closing balance	1,007,683	811,855	-	-
(iv) Movement in net unrealised gains reserve:
Opening balance	10,430,747	17,990,006	-	-
– Net (losses)/gains on non-current listed
investments for the year	(7,120,592)	8,289,463	-	-
Tax ef ect on above net gains/(losses)	2,465,766	(2,902,887)	-	-
Share of associate’s net unrealised gain	532,696	145,282	-	-
Net (losses)/gains on non-current listed
investments for the year after tax	(4,122,130)	5,531,858	-	-
– Realised gains on non-current listed investments
transferred to the income statement	(4,517,705)	(16,974,851)	-	-
Tax ef ect on above realised gains	1,058,514	4,971,920	-	-
Net realised gains transferred to the income statement	(3,459,191)	(12,002,931)	-	-
– Realised gain after tax for the year on held for sale
investment transferred to the income statement	-	(1,088,186)	-	-
Closing balance	2,849,426	10,430,747	-	-
(v) Movement in employee equity benef ts reserve:
Opening balance	907,221	261,014	907,221	261,014
Share-based payments	113,318	646,207	113,318	646,207
Closing balance	1,020,539	907,221	1,020,539	907,221
(vi) Movement in equity reserve attributable to parent:
Opening balance	(5,238,453)	-	-	-
Minority interest’s change in share of net assets of Vegenics
due to additional investments made by the parent	-	(5,238,453)	-	-
Closing balance	(5,238,453)	(5,238,453)	-	-

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(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 and the Group’s equity share of its associate’s listed investment.

This reserve is used to record the value of equity benefi ts provided to executives and employees as part of their remuneration. Refer to note 28 for further details on the equity benefi t plans.

Equity reserve attributable to parent

This reserve recognises the minority interest’s share of the change in the net assets of Vegenics on new investments (capital injections) made by the parent in Vegenics, which are off set by the relevant eff ect of additional investments made by minority interests.

	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
23. Minority Interests Share of contributed equity Share of accumulated losses	8,922,784 8,922,784 - - (4,940,841) (3,802,527) - -
	3,981,943 5,120,257 - -

The above balances include the minority interest (33%) in Vegenics Limited and the minority interest (40%) in CancerProbe Pty Ltd. The minority interest in Vegenics’ share capital amounts to $8.64 million and the minority interest in that company’s accumulated losses amounts to $4.69 million (this includes the minority interest’s share of Vegenics’ losses for the year of $1.14 million).

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

	Consolidated	Consolidated		Parent
	2008	2007	2008	2007
	$	$	$	$
24. Cash Flow Statement Reconciliation
(a) Reconciliation of net (loss)/prof t after tax to net cash	f ows from operations
Net (loss)/prof t	(2,286,119)	6,295,707	4,150,065	11,484,280
Adjustments for:
Depreciation	31,334	25,415	30,075	25,363
Loss on disposal of plant and equipment	-	977	-	977
Employee benef ts expense	113,318	646,207	113,318	646,207
Impairment of goodwill	-	149,218	-	-
Share of associates’ net losses	372,981	975,930	-	-
Interest income from subsidiaries	-	-	(278,484)	(194,057)
Distributions from subsidiaries	-	-	(258,596)	(513,091)
Reversal of impairment of receivable from subsidiary	-	-	-	(4,110,782)
Write-down of receivables from subsidiaries	-	-	1,487,797	1,553,672
Interest expense on loans from subsidiaries	-	-	324,976	-
Fair value adjustments of current f nancial assets	-	39,504	-	-
Write-down of loan to associate	40,000	-	40,000	-
Intellectual property costs – non-cash f nancing	-	4,000,000	-	-
Changes in assets and liabilities:
(Increase)/decrease in f nancial investments and subsidiaries	327,605	13,634,376	-	(21,500,000)
(Increase)/decrease in prepayments	(131,681)	210,011	1,033	(829)
(Increase)/decrease in interest receivable	(135,628)	(111,087)	(134,224)	(66,424)
(Increase)/decrease in other receivables	(88,183)	(89,784)	7,626	(67,511)
(Decrease)/increase in payables	(556,902)	1,430,539	105,096	(261,631)
(Decrease)/increase in income tax payable	(355,497)	6,200,348	(355,497)	(393,134)
(Decrease)/increase in employee provisions	(314,643)	41,812	(326,013)	41,812
(Increase)/decrease in deferred tax assets	971,654	(544,804)	85,387	497,718
(Decrease)/increase in deferred tax liabilities	213,669	67,203	14,626	19,828
Net cash from/(used in) operating activities	(1,798,092)	32,971,572	5,007,185	(12,837,602)
(b) Non-cash f nancing and investing activities
Acquisition of intellectual property by means of a
share issue (note 8(a))	-	4,000,000	-	-
Share-based payments (note 28)	113,318	646,207	113,318	646,207
	113,318	4,646,207	113,318	646,207

(c) Disclosure of investing activities

Refer to notes 14 and 26.

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25. Interests in Joint Venture Operations

25. Interests in Joint Venture Operations
Pharmaceutical Research Share of Project Parties and Development Project Income (a)	Loss Contributed (b)
2008 2007 % %	2008 2007 $ $
Neuro Therapeutics Ltd and Anti-Allergy Asthma 67.5 67.5 Monash University Analgesics Compound 85.7 85.7 Neuro Therapeutics Ltd and University of Sydney Memory Enhancement 60 60 Neuro Therapeutics Ltd and University of Melbourne Alzheimer’s Disease Research 100 100 Neuro Therapeutics Ltd and Howard Florey Institute Paracetamol 50 50 Polychip Pharmaceuticals Pty Ltd and Monash University Dicarba Analogues 50 50 Cancer Therapeutics Ltd and Monash University Peptide-Based Cancer Vaccine 75 50 Other non joint venture research project costs	118,472 61,125 202,026 225,915 113,319 241,649 178,633 109,321 221,906 171,922 695,296 666,597 1,889,614 1,678,677
	3,419,266 3,155,206

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

(b) These amounts represent the Company’s, or controlled entities’, share of the research and development costs incurred and expensed on a project.

(c) Expenditure commitments relating to joint venture research projects are payable as follows (these amounts are included in the total commitments disclosed in note 29):

commitments disclosed in note 29):
	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
Within one year After one year but not more than f ve years	720,000 797,708 - - - 20,000 - -
	720,000 817,708 - -

(d) The consolidated entity has nil assets in the fi nancial statements employed in the joint ventures.

(e) There were no impairment losses in the assets employed in the joint venture operations.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

26. Related Party Disclosures

(a) Subsidiaries

The consolidated fi nancial statements include the fi nancial statements of Circadian Technologies Limited and the subsidiaries listed in the following table:

following table:
	Book value ofparent entity investment and % equity interest 2008 2007 $ % $ % - 100 - 100 - 100 - 100 2,882,158 100 2,898,440 100 5,109,645 100 5,187,138 100 - 100 - 100 - 100 - 100 - 60 - 60 21,500,000 67 21,500,000 67
Name of company
Circadian Pharmaceuticals (Aust) Pty Ltd Precision Patchclamps (Int) Pty Ltd Polychip Pharmaceuticals Pty Ltd Fibre Optics (Aust) Pty Ltd Cancer Therapeutics Limited Neuro Therapeutics Limited CancerProbe Pty Ltd Vegenics Limited *
	29,491,803 29,585,578

Circadian Technologies Limited is the ultimate parent entity.

All subsidiaries were incorporated in Australia and have the same fi nancial year as Circadian Technologies Limited.

As announced on 14 August 2008, Circadian acquired an additional 33% interest in Vegenics from its cofounders of that company, the Ludwig Institute for Cancer Research Ltd and Licentia Limited. This increased Circadian’s interest in Vegenics from 67% to 100%. See note 31 for further details.

(b) Transactions with related parties

Transactions and balances with related parties during the years ended 30 June 2007 and 2008 are as follows:

(i) Loans to subsidiaries of $175,398 (2007: $235,057) are non-interest bearing, stated at the lower of amortised value and recoverable value, are unsecured and have no fi xed terms of repayment of principal (although repayment is not expected within the next 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/receivable. Interest of $278,484 (2007: $194,057) was incurred by the subsidiaries for the year due to the discounting of the loans and use of the eff ective interest method in accordance with AASB 139 Financial Instruments: Recognition and Measurement (see note 2(f).

There is a loan to an associated entity of $584,987 (2007: $544,987), of which $40,000 was written down in the current year and $544,987 was written down in the 2006 fi nancial year to refl ect its fair value of $nil at year end. The loan is repayable on demand but not later than 31 May 2009 and interest is payable by the associated entity at 5% p.a.

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

	2008 2007 $ $
Subsidiaries Cancer Therapeutics Limited Neuro Therapeutics Limited Associated Entity Syngene Ltd (note 15)	175,398 235,057 - -
	175,398 235,057
	- -

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The amortised value of the amount payable by Cancer Therapeutics Limited is $2,791,590 (recoverable value $175,398) and the amortised value of the amount payable by Neuro Therapeutics Limited is $2,234,376 (recoverable value $nil). The amounts lent to these entities during the year were used for working capital purposes – predominantly the funding of research and development activities.

The respective net assets of the subsidiaries are taken into account to determine whether receivables from these companies are impaired.

(ii) Loans from subsidiaries of $2,763,636 (2007: $3,700,090) are non-interest bearing, unsecured and have no fi xed terms of repayment of principal (repayment is 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 $324,976 was incurred by the parent during the year (2007: $nil) due to the discounting of the loans and use of the eff ective interest method in accordance with AASB 139 Financial Instruments: Recognition and Measurement (see note 2(t)).

The amounts are owed to the following companies:

The amounts are owed to the following companies:
	2008 2007 $ $
Subsidiaries Precision Patchclamps (Int) Pty Ltd Circadian Pharmaceuticals (Aust) Pty Ltd Polychip Pharmaceuticals Pty Ltd# Fibre Optics (Aust) Pty Ltd^	67,558 67,558 88,251 88,251 1,130,200 2,190,957 1,477,627 1,353,324
	2,763,636 3,700,090

The amount owing to Polychip Pharmaceuticals Pty Ltd (Polychip) arose in the prior year due to the proceeds received by Circadian on behalf of Polychip on the sale of shares in Metabolic Pharmaceuticals Limited, part of which was used for working capital purposes and the payment of an unfranked dividend by Polychip to Circadian. Polychip sold the remaining holding in Metabolic Pharmaceuticals Limited during the current year, part of which was used for working capital purposes, the acquisition of shares in Antisense Therapeutics Limited and the payment of an unfranked dividend by Polychip to Circadian.
^ The amount owing to Fibre Optics (Aust) Pty Ltd (Fibre Optics) arose in the prior year due to the disposal of Fibre Optics’ investment in Zenyth Therapeutics Limited and the sale of shares in Avexa Limited, part of which were used to fund the acquisition of ordinary shares in Avexa Limited and the payment of an unfranked dividend by Fibre Optics to Circadian. Fibre Optics sold further shares in Avexa Limited during the current year, part of which were used to fund the acquisition of ordinary shares in Optiscan Imaging Limited and the payment of an unfranked dividend by Fibre Optics to Circadian.
(iii) During the year, patent costs totalling $367,165 incurred by Vegenics Limited were reimbursed to the Ludwig Institute for Cancer Research Ltd (LICR) for third-party patent attorney costs incurred by LICR in respect of the patent families as detailed in the License Agreement between Vegenics, LICR and Licentia (the commercial arm of the University of Helsinki). Dr Jonathan Skipper and Dr Andrew Simpson, directors of Vegenics since 11 July 2006, are executive offi cers of LICR.

A Management Services Agreement was signed in March 2007 between Circadian and Vegenics relating to the provision of management and related support services by Circadian to Vegenics. The agreement provides for $75,000 plus GST per month payable in arrears and is eff ective from 1 March 2007 to 30 June 2008.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

27. Key Management Personnel

(a) Details of Key Management Personnel

(i) Directors

Dominique Fisher Chairman (non-executive) Robert Klupacs Managing Director (appointed 1 March 2008) John Stocker Director (non-executive) Donald Clarke Director (non-executive) Tina McMeckan Director (non-executive) (appointed 19 January 2008) James MacKenzie Director (non-executive) Leon Serry Managing Director (retired 29 February 2008) Graeme Kaufman Executive Director (resigned 25 October 2007)

(ii) Executive

Natalie Korchev Company Secretary & Chief Financial Offi cer

Since 30 June 2008 and before the date the fi nancial report was authorised for issue, the following were changes to the key management personnel:

Carlo Montagner Director (non-executive) (appointed 1 July 2008) Jonathan Skipper Director (non-executive) (appointed 14 August 2008) James MacKenzie Director (non-executive) (resigned 31 July 2008)

(b) Compensation of Key Management Personnel

(b) Compensation of Key Management Personnel
	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
Short-term employee benef ts Post-employment benef ts Long-term benef ts Termination benef ts Share-based payment Total compensation	1,557,631 1,822,763 1,557,631 1,822,763 135,351 164,049 135,351 164,049 14,746 24,361 14,746 24,361 46,359 - 46,359 - 140,654 639,562 140,654 639,562
	1,894,741 2,650,735 1,894,741 2,650,735

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(c) Option holdings of Key Management Personnel (Consolidated)

(c) Option holdings of Key Management Personnel (Consolidated)
Balance at Balance beginning at end of period Granted as Options Net change of period 1 July Remuneration Exercised Other 30 June	Total at end of period
	Excercisable (i.e. vested) “out ofNot exercisable* the money” (i.e. not vested)
Executive Directors R. Klupacs 2008 500,000 500,000 - - 1,000,000 2007 - 500,000 - - 500,000 L. Serry (i) 2008 1,250,000 - - (1,250,000) - 2007 500,000 750,000 - - 1,250,000 G. Kaufman (ii) 2008 750,000 - - (750,000) - 2007 250,000 500,000 - - 750,000 Other Executive N. Korchev 2008 175,000 - - - 175,000 2007 25,000 150,000 - - 175,000	- 1,000,000 - 500,000 - - 500,000 750,000 - - 250,000 500,000 25,000 150,000 25,000 150,000
Total 2008 2,675,000 500,000 - (2,000,000) 1,175,000 2007 775,000 1,900,000 - - 2,675,000	25,000 1,150,000 775,000 1,900,000

The options which were issued in the 2008 and 2007 fi nancial years have not legally vested and vested options (which must achieve share price hurdles in order to vest) will only become exercisable in 2011.
(i) L. Serry retired on 29 February 2008 after 24 years of service. The options issued to L. Serry, although they have not legally vested, are deemed to be vested pursuant to AASB 2 Share-Based Payments.
(ii) G. Kaufman resigned on 25 October 2007 before reaching minimum tenure requirements to retain a pro-rata entitlement of options issued to him and before these options had vested.

(d) Performance rights held by Key Management Personnel (Consolidated)

(d) Performance rights held by Key Management Personnel (Consolidated)
Balance at Balance beginning at end of period Granted as Rights Net change of period 1 July Remuneration Exercised Other 30 June	Total at end of period
	Excercisable Not exercisable* (i.e. vested) (i.e. not vested)
Executive Directors R. Klupacs 2008 60,575 - - (60,575) - 2007 60,575 - - - 60,575 L. Serry 2008 128,110 - - (128,110) - 2007 128,110 - - - 128,110 G. Kaufman 2008 68,652 - - (68,652) - 2007 68,652 - - - 68,652	- - - 60,575 - - - 128,110 - - - 68,652
Total 2008 257,337 - - (257,337) - 2007 257,337 - - - 257,337	- - - 257,337

All the performance rights as detailed in note 28 did not vest as at 30 June 2008 and as such have lapsed in the current year.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

27. Key Management Personnel (continued)

(e) Shareholdings of Key Management Personnel (Consolidated)

Ordinary shares held in Circadian Technologies Limited (number)

		Balance at				Balance
		beginning				at end
		of period	Granted as	On exercise	Net change	of period
		1 July	Remuneration	of options	Other	30 June
Directors
R. Klupacs	2008	3,500	-	-	54,715	58,215
	2007	-	-	-	3,500	3,500
D. Fisher	2008	17,500	-	-	50,000	67,500
	2007	10,000	-	-	7,500	17,500
J. Stocker	2008	282,334	-	-	-	282,334
	2007	282,334	-	-	-	282,334
D. Clarke	2008	60,000	-	-	20,000	80,000
	2007	60,000	-	-	-	60,000
T. McMeckan (i)	2008	-	-	-	20,000	20,000
	2007	-	-	-	-	-
J. MacKenzie	2008	-	-	-	-	-
	2007	-	-	-	-	-
L. Serry (ii)	2008	2,100,000	-	-	(2,100,000)	-
	2007	2,100,000	-	-	-	2,100,000
G. Kaufman (iii)	2008	28,500	-	-	(28,500)	-
	2007	28,500	-	-	-	28,500
Executive
N. Korchev	2008	-	-	-	-	-
	2007	-	-	-	-	-
Total	2008	2,491,834	-	-	(1,983,785)	508,049
	2007	2,480,834	-	-	11,000	2,491,834

(i) T. McMeckan was appointed to the Board on 19 January 2008.

(ii) L. Serry retired as the managing director of Circadian on 29 February 2008. On date of retirement, he held 2,100,000 shares in Circadian.

(iii) G. Kaufman resigned as an executive director of Circadian on 25 October 2007. On date of resignation, he held 28,500 shares in Circadian.

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 the Group would have adopted if dealing at arm’s length, that is they are on-market transactions.

(f) Loans to Key Management Personnel (Consolidated)

There were no loans to key management personnel during the current fi nancial year and the previous fi nancial year.

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27. Key Management Personnel (continued)

(g) Other transactions and balances with Key Management Personnel and their related parties

Director Related Entity Transactions:

Purchases

(i) During the year legal fees, including miscellaneous expenses, totalling $35,990 (2007: $122,955) were incurred by the consolidated entity for services provided by the legal fi rm of Minter Ellison of which Don Clarke, a director of the Company, is a partner. These legal fees were charged at commercial rates.
(ii) Antisense Therapeutics Limited, a company in which Polychip Pharmaceuticals Pty Ltd (a 100% owned subsidiary) has an 18.7% shareholding, rented premises during the year from Castlegreen Pty Ltd, a company in which Leon Serry, Polychip’s Managing Director until his retirement on 29 February 2008, is a director and major shareholder. The total amount of rent, rates and taxes paid by Antisense Therapeutics during the period from 1 July 2007 to 29 February 2008 was $64,410 (2007: $96,872) and was based on commercial rental rates.

Revenue

(i) During the year, secretarial fees totalling $15,000 (2007: $22,500) were paid by Traders Macquarie Pty Ltd to Circadian Technologies
Limited. Leon Serry, the Managing Director of the consolidated entity until his retirement on 29 February 2008, is a director and major shareholder of Traders Macquarie Pty Ltd.

Amounts recognised at the reporting date in relation to director related entity transactions:

	2008 2007 $ $
Assets and liabilities: Current assets Non-current assets Total assets Current liabilities Payables Non-current liabilities Total liabilities Revenues and expenses: Revenue Total revenue Administrative expenses (legal fees) Other expenses (legal fees) Total expenses	- - - -
	- -
	6,660 31,851 - -
	6,660 31,851
	15,000 22,500
	15,000 22,500
	35,990 87,558 - 35,397
	35,990 122,955

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

28. 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:

	Consolidated
	2008	2007	2008	2007
	$	$	$	$
Expense arising from equity-settled share-based payment
transactions (note 8(d))	113,318	646,207	113,318	646,207

The share-based payment plans are described below. There have been no cancellations or modifi cations to any of the plans during 2008 and 2007.

(b) Types of share-based payment plans

Options

Share options are granted to executive directors and certain employees.

Options issued in 2004

With respect to the options issued in the 2004 fi nancial year, the exercise prices were set at substantially higher prices than the Company’s share price at grant date.

The contractual life of each option granted is fi ve years. There are no cash settlement alternatives.

Options issued in 2007 and 2008

In January 2007, a Circadian Senior Management Option Plan (Option Plan) was implemented to off er options which are subject to performance hurdles. This replaced the Circadian Executive Performance Rights Plan. The options issued to employees (including senior executives) in 2007 and 2008 pursuant to this Option Plan were divided equally into three tranches.

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.

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

The options issued in 2008 were to Robert Klupacs, pursuant to an Executive Contract dated 20 December 2007.

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

Performance rights

A Performance Rights Plan (Plan) was established during the 2006 fi nancial year to provide annual grants of performance rights to certain executives of the Group. The fi rst (and only) grant of performance rights was made in November 2005 to the three most senior executives. No further annual grants have been made or will be made under this Plan as the Option Plan described above has replaced this plan (see “Options Issued in 2007 and 2008” above).

An assessment was performed shortly after 30 June 2008 to determine whether the performance hurdles were met for the performance rights granted in 2005 according to Circadian’s TSR relative to a comparator group of companies over the three-year performance period ending on 30 June 2008.

The comparator group was the 50 ASX listed companies ranked both above and below Circadian by market capitalisation, excluding listed property trusts and similar entities at the time of grant. TSR measured the return provided to shareholders by share price appreciation plus reinvested dividends/entitlements over the performance period, expressed as a percentage of the investment.

In order for the performance rights to vest and to become exercisable, the TSR of the Company over the performance period had to be equal to the median of the comparator group of companies at which point 50% of the performance rights would vest. All performance rights would vest if Circadian’s TSR over the performance period was equal to or greater than the TSR of the Company at the 75[th] percentile of the comparator group ranked by their TSR performance.

Circadian’s TSR fell short of the median of the comparator group for the three year period ended 30 June 2008. As such, the performance rights did not vest and have lapsed. The assessment was performed by the independent consulting fi rm which recommended these performance rights as a long-term incentive.

The value of the performance rights have been fully expensed up to 30 June 2008.

The following table illustrates the number of and movements in performance rights during the current year:

Date of Issue On issue at the beginning of the year Granted during the year Vested during the year Expired during the year Outstanding at the end of the year	2/11/2005
	257,337 - - (257,337)
	-

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

28. Share-Based Payment Plans (continued)

(c) Summary of options granted

The following table illustrates the number of and movement in share options during the current year:

Date of Issue On issue at the beginning of the year Granted during the year Exercised during the year Expired during the year Outstanding at the end of the year Exercisable at the end of the year Number of recipients Exercise price Exercise period from To (Expiration day)	18/2/2008 (ii) 5/3/2007 (ii) 8/2/2007 (ii) 25/9/2003
	- 120,000 1,900,000 800,000 500,000 - - - - - - - - - (500,000) (250,000)
	500,000 120,000 1,400,000 550,000
	- - - 550,000 1 4 4 3 $1.30 $1.50 $1.50 (i) 8/2/2011 9/3/2011 8/2/2011 25/9/2003 8/2/2012 9/3/2012 8/2/2012 25/9/2008

(i) The exercise price on options issued are as follows:

1/3 options exercisable at $2.62 per share

1/3 options exercisable at $2.87 per share

1/3 options exercisable at $3.12 per share

(ii) Refer to note (b) above for a summary of the options granted.

(d) Option pricing models for options granted

The following assumptions were used to derive a value for the options granted using the Hull Model (for options issued in 2008), the Monte Carlo Simulation model (for options issued in 2007) and the Binomial model (for options issued in 2003) as at the grant date, taking into account the terms and conditions upon which the options were granted. The Hull Model is a barrier option model which is derived using a closed-form formula not dissimilar to the Black-Scholes formula.

Issue date of options Dividend yield Expected annual volatility Risk-free interest rate (p.a.) Expected life of option (years) Fair value per option Exercise price per option Share price at grant date Model used	18/2/2008 5/3/2007 8/2/2007 25/9/2003
	0.00% 0.00% 0.00% 1.04% 37.5% 37.5% 37.5% 45.00% 6.54% 5.79% 5.99% 5.41% 3.5 4.5 4.5 5 24.64¢ – 27.62¢ 41.01¢ – 43.34¢ 67.45¢ – 68.56¢ 68¢ – 78¢ $1.30 $1.50 $1.50 *$3.00 - $3.50 $1.025 $1.27 $1.61 $2.25 Hull Model Monte Carlo Monte Carlo Binomial

The exercise prices per option on date of grant were $3.00 to $3.50, however the exercise price has reduced by 38 cents per option as a result

of a return of capital to shareholders (38 cents per share) in October 2004. The adjusted exercise price per option is detailed in (c)(i) above.

With respect to the options issued in 2003, the expected life of the options is assumed to be total years from grant date to expiration and for the options issued in 2007 and 2008, the eff ects of early exercise have been incorporated into the calculations by using an expected life for the option that is shorter than the contractual life. These are not necessarily indicative of exercise patterns that may occur in the future. In respect to the options granted in 2007, the expected volatility was determined using historic data over a three year period from February 2004 to February 2007. In respect to the options granted in 2008, the expected volatility was determined using historic data over a three year period from February 2005 to February 2008. The expected volatility for the options issued in 2003 is based on the 12 months of monthly observations prior to September 2003. The resulting expected volatility therefore refl ects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

Options in Circadian Technologies Limited are not listed and as such do not have a market value.

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29. Commitments

(i) Operating lease commitments – Group as lessee

The Group has entered into a commercial lease for the offi ce premises. An extension to the lease was signed during the current year providing for a further two years and allows for the tenancy to be terminated with six months notice. The following commitment as at 30 June 2008 assumes that the tenancy will be occupied for the full two year extension.

30 June 2008 assumes that the tenancy will be occupied for	the full two year extension.
	Consolidated Parent
	2008 2007 2008 2007 $ $ $ $
Within one year After one year but not more than f ve years	92,694 83,557 92,694 83,557 96,301 - 96,301 -
	188,995 83,557 188,995 83,557

(ii) Research projects and license commitments

The Group has entered into research and development and intellectual property license agreements with various parties (refer to note 25 for details of some of the projects). Expenditure commitments relating to these are payable as follows:

Within one year After one year but not more than f ve years After more than f ve years	3,936,671 1,338,559 - - 905,598 332,500 - - 419,903 - - -
	5,262,172 1,671,059 - -

30. Contingencies

(i) Vegenics Limited, a 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 $228,732 (2007: $241,434) and those which could become payable in more than one year total $50,000 (2007: $300,000).

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.

(ii) Remuneration contingent liability - refer to “Employment contracts” in the Remuneration Report of the Directors’ Report with respect to payments in lieu of notice where either the Managing Director resigns or the Company terminates his employment.

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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NOTES TO THE FiNaNCiaL STaTEMENTS

FOR THE YEAR ENDED 30 JUNE 2008 (continued)

31. Events after the Balance Sheet Date

Consideration for the acquisition of LICR’s and Licentia’s combined interest in Vegenics is in two tranches:

Tranche 1:
5,117,430 Circadian shares were issued to LICR (2,589,635 shares) and Licentia (2,527,795 shares) on 14 August 2008. This equates to a combined interest of 11.3% after the share issue;
50% of the shares will be escrowed for a period of 12 months from date of issue. The remaining 50% will be escrowed for 24 months; and
a cash payment of Euro 400,000 (A$680,272) was made to Licentia.
Tranche 2:
A further 1,155,000 Circadian shares will be issued to LICR (532,455 shares) and Licentia (622,545 shares) on the earlier to occur of certain product development milestones or the second anniversary of the date of Circadian’s acquisition of LICR’s and Licentia’s interests in Vegenics (i.e. 14 August 2010) (subject to shareholder approval, if required, under the ASX Limited Listing Rules).

LICR’s and Licentia’s nominee, Dr Jonathan Skipper (LICR’s Executive Director for Intellectual Property and Licensing) has been appointed to the board of Circadian as part of this transaction.

		Consolidated
		2008	2007	2008	2007
		$	$	$	$
32. Auditors’ Remuneration
The auditor of Circadian Technologies Limited is Ernst & Young.
Amounts received or due and receivable by Ernst & Young (Australia)		for:
•	an audit or review of the f nancial report of the entity
	and any other entity in the consolidated group	91,537	92,968	64,040	60,780
•	other services in relation to the entity and any other entity
	in the consolidated group
	– tax compliance	20,000	14,100	13,500	12,680
	– other tax services	15,080	32,340	8,230	27,500
	– assurance related	5,365	11,659	4,000	2,000
	– special audits required by regulators	-	5,150	-	-
		131,982	156,217	89,770	102,960

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DirECTOrS’ DECLaraTiON

In accordance with a resolution of the directors of Circadian Technologies Limited, we state that:

In the opinion of the directors:
(a) the fi nancial 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 fi nancial position as at 30 June 2008 and of their performance for the year ended on that date; and
- (ii) complying with Accounting Standards and Corporations Regulations 2001; 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 fi nancial year ended 30 June 2008.

For and on behalf of the Board:

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Robert Klupacs Director

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Dominique Fisher Director

Melbourne 21 August 2008

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CIRCADIAN TECHNOLOGIES LIMITED

Annual Report 2008 – Financial Report

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Annual Report 2008 – Financial Report

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aSX aDDiTiONaL iNFOrMaTiON

1. Distribution of equity securities

The number of shareholders, by size of holding, of quoted fully paid ordinary shares as at 15 September 2008 is as follows:

Category	Fully Paid Ordinary Shares
	No. of Holders No. of Shares
1 - 1,000 1,261 838,975 1,001 - 5,000 1,679 4,578,781 5,001 - 10,000 426 3,399,231 10,001 - 100,000 327 8,753,372 100,001 - and over 36 27,671,569 3,729 45,241,928 577 200,807 The number of shareholders holding less than a marketable parcel of shares are:	1,261 838,975 1,679 4,578,781 426 3,399,231 327 8,753,372 36 27,671,569
	3,729 45,241,928

2. Twenty largest shareholders

The names of the twenty largest holders of quoted fully paid ordinary shares and their respective holdings as at 15 September 2008 are:

No. of Shares % interest

1.
Citicorp Nominees Pty Limited
2.
Ludwig Institute for Cancer Research Ltd
3.
Licentia Limited
4.
UBS Nominees Pty Ltd
5.
Cogent Nominees Pty Limited
6.
Capital Macquarie Pty Ltd
7.
Queensland Investment Corporation
8.
Jagen Pty Ltd
9.
JFF Steven Pty Ltd
10. Chemical Trustee Limited
11. Primdonn Nominees Pty Ltd
12. Traders Macquarie Pty Ltd
13. Audivac Pty Ltd
14. Philadelphia Investments Pty Ltd
15. Mr Eric Lucas
16. Dr John Stocker
17. Denvorcorp Holdings Pty Ltd
18. Piat Corp Pty Ltd
19. Mr David John Massey

20. Toltec Holdings Pty Ltd

7,964,873
17.61
2,589,635
5.72
2,527,795
5.59
2,101,513
4.64
1,634,323
3.61
1,377,360
3.05
1,028,886
2.27
819,322
1.81
714,867
1.58
650,000
1.44
650,000
1.44
647,972
1.43
543,400
1.20
370,000
0.82
354,036
0.78
282,334
0.62
266,621
0.59
250,000
0.55
242,730
0.54
230,000
0.51

25,245,667
55.80

3. Restricted securities

The following restricted securities are in voluntary escrow in accordance with the Share Purchase Deed between the two parties and Circadian Technologies Limited dated 11 August 2008.

						No. of Shares	Date Escrow Period Ends
Ludwig	Institute	for	Cancer	Research	Ltd	1,294,817	14/08/2009
Licentia	Limited					1,263,897	14/08/2009
Ludwig	Institute	for	Cancer	Research	Ltd	1,294,818	14/08/2010
Licentia	Limited					1,263,898	14/08/2010

4. Substantial shareholders

The following information is current at 15 September 2008 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:

		No. of
		Shares
	Packer & Co Limited	7,724,421
	Select Asset Management Limited Ludwig Institute for Cancer Research Ltd Licentia Limited	3,316,130 2,589,635 2,527,795

5. 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 Stock Exchange Limited (ASX code: CIR).

These holdings are restricted – see point 3.

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 CEO)
	John Stocker, AO, MB, BS, BMedSc, PhD, FTS, FRACP
	Donald Clarke, LLB (Hons)
	Tina McMeckan, BLibArts&Sc, MBA, FAICD
	Carlo Montagner
	Jonathan Skipper, PhD
Company Secretary	Natalie Korchev, BCom, ACA
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 Stock Exchange Ltd
	ASX code: CIR
Website	www.circadian.com.au

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CIRCADIAN TECHNOLOGIES LIMITED ABN 32 006 340 567

Level 1, 10 Wallace Ave, Toorak, Victoria 3142, Australia T +61 3 9826 0399 F +61 3 9824 0083 W www.circadian.com.au

AI assistant

Opthea Ltd — Annual Report 2008

32698_rns_2008-10-13_b4b3e636-6572-4bfa-9a6b-bc690b6131b9.pdf

CONTENTS

OpEraTiONS rEpOrT

Circadian’s New Direction: A developer of therapeutics for cancer & other serious diseases

Robert Klupacs, Managing Director & CEO

OpEraTiONS rEpOrT (continued)

Our Strategy

Our Products

What is angiogenesis therapy for cancer?

Products we are developing

Products being developed by our licensees: Ark Therapeutics Group plc and ImClone Systems Inc

Activity of Circadian’s VEGF-C and VEGF-D inhibitors

Product Pipeline

OpEraTiONS rEpOrT (continued)

Our Technology and Patents

Technology

Patents

Listed Investments

Inherent Risks of Investment in Biotechnology Companies

Alexander Szabo, PhD, MBA

Head of Business Development

Megan Baldwin, PhD Scientific Affairs Manager

MaNaGEMENT TEaM

Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Managing Director & CEO

Natalie Korchev, BCom, ACA

CFO, Company Secretary and Head of Operations

Richard Chadwick, PhD

Intellectual Property Manager

Susan Foran, M Pharm

Product Development Manager

DirECTOrS’ rEpOrT

Directors

Robert Klupacs, BSc(Hons), Grad Dip IP Law, MAIPA

Dominique Fisher, BA (Hons), MAICD

John Stocker, AO, MB, BS, BMedSc, PhD, FTS, FRACP

Donald Clarke, LLB (Hons)

Tina McMeckan, BLibArts&Sc, MBA, FAICD

Carlo Montagner

Jonathan Skipper, PhD

Leon Serry, FCIS, CPA

DirECTOrS’ rEpOrT (continued)

Directors (continued)

Graeme Kaufman, MBA, BSc

James MacKenzie, BBus, FCA, FAICD

Company Secretary

Directors’ Interests

Share Options & Performance Rights

Unissued Shares

Options:

Natalie Korchev, BCom, ACA

performance rights:

Dividends

Principal Activities of the Consolidated Entity

Operating and Financial Review

Results

Review of Operations

Signifi cant Changes in the State of Affairs

DirECTOrS’ rEpOrT (continued)

Signifi cant Events After Balance Date

Tranche 1:

Tranche 2:

Corporate Objectives and Likely Developments

Environmental Regulations

Directors’ Meetings

Committee Membership

James MacKenzie resigned as Chairman of the Audit Committee and as member of the Remuneration Committee on 31 July 2008. Tina McMeckan was appointed Chairman of the Audit Committee on 21 August 2008.

Auditor Independence

Non-Audit Services

Remuneration Report (audited)

Remuneration Committee

DirECTOrS’ rEpOrT (continued)

Remuneration Report (audited) (continued)

Remuneration Policy

Remuneration Structure

Non-Executive Director Remuneration

Objective

Structure & performance

Opthea Ltd Annual Report 2008