papyrus australia limited...responsibilities include the sale and distribution of papyrus products...

PAPYRUS AUSTRALIA LIMITED ABN 63 110 868 409

www.papyrusaustralia.com.au

A N N U A L R E P O R T

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PAPYRUS AUSTRALIA LTD AND CONTROLLED ENTITIES

ABN 63 110 868 409

CORPORATE DIRECTORY

DIRECTORS

David Michael Wyatt (Chairman) Ramy Abraham Azer (Managing Director)

Donald Clinton Stephens Christopher David Smerdon Edward Michael Byrt Graeme Alan Menzies

COMPANY SECRETARY

Vincent Peter Rigano

Ground Floor, Elizabeth House, 231 North Terrace Adelaide SA 5000

EXECITIVE OFFICERS

Grant Douglas Pigot – Chief Operating Officer Anthony Cichonski – General Manager – Production William Halliday – General Manager – Engineering Colin Wylie – General Manager – Sales & Marketing

PRINCIPAL OFFICE

Building 42, Adelaide University Research Precinct, 12 Queen Street, Thebarton SA 5031 www.papyrus.australia.com.au

AUDITORS’

Grant Thornton Level 1, 67 Greenhill Road, Wayville SA 5034

COMPANY SOLICITORS’

Norman Waterhouse Lawyers Level 15, 45 Pirie Street Adelaide Vic. 5000

COMPANY BROKERS

Taylor Collison Limited Level 2, 12 Pirie Street Adelaide SA 5000 Inquiries: (08)8212 2688

SHARE REGISRTY

Computershare Investor Services Pty Ltd Level 5, 115 Grenfell Street Adelaide SA 5000

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TABLE OF CONTENTS

SECTION page

TABLEOFCONTENTS

1 CHAIRMAN’SREPORT 2

2 OPERATIONREPORT 3

3 CORPORATEGOVERNANCESTATEMENT 7

4 DIRECTORS’REPORT 12

5 AUDITOR’SINDEPENDENCEDECLARATION 20

6 FINANCIALSTATEMENTS 21

7 NOTESTOTHEFINANCIALSTATEMENTS 25

8 DIRECTORS’DECLARATION 42

9 INDEPENDENTAUDITREPORT 43

10 SHAREHOLDERS’INFORMATION 46

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CHAIRMAN’S REPORT

Dearshareholders,

PapyrusAustraliacontinuedtomakesolidprogressduringtheyearandtheboardbelievesthatthecompanyiswell-positionedtotakesignificantstepsinimplementingitscommercialisationstrategyinthecomingyear.

Thecompanyhascontinuedtomanageitsexpenditurewithinbudgetandtoconserveworkingcapitalasfaraspossible.Thesuccessoftheconversionofall10millioninitialshareholderoptionstoshareson1stApril2008,raisingafurther$2millioninworkingcapital,wasespeciallypleasinginagenerallydifficultmarket.

AsdetailedintheoperationsreportthecompanyhascontinuedTrialproductioninAdelaidefortestingandevaluationandanadvancedfieldproductionmachinehasbeendesigned.A

rangeofproducttypeshasbeenproducedandmarketevaluationhasbeenencouraging.ThefirstJointVentureAgreementwasexecutedwithMelbourne-basedQFLfortheconstructionandoperationofthefirstcommercialmanufacturinglineinNorthQueensland.ThisagreementalsoprovidesforalicenseforQFLtoproducefibre,paperandveneerinVietnamfollowingsuccessfulimplementationoftheoperationinQueensland.

Thecompanyhassecuredthethreenecessarypartnersforthefirstcommercialfactory(plantation,operatorandengineering)andthetermsofthesepartnershipagreementspositionsthecompanyfavourablytoconservecashreservesuntilrevenuesfromproductsalesandlicensingfeesbegintoflow.Itisanticipatedthattheserevenueswillcommenceoverthenext6months.

Insupportofourgrowingoperationswecontinuedtobuildourteamoftalentedprofessionals.IacknowledgethecontinuedleadershipofMr.RamyAzerourManagingDirectorandCEOandthededicatedeffortsofhishardworkingteam.

Ialsoacknowledgethesupportofmyfellowdirectorswhohavecontinuedtoplayavaluableroleinstrategicandcorporateguidanceofyourcompany.

Inconclusion,Ithankyouforyourongoingpatientsupport.WeareconfidentthatPapyrusAustraliawillenterthenextbusinessphaseintheyearahead.

Yourssincerely,

DavidWyattChairman

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Papyrus Australia Ltd

Operations Report2007/2008

Corporate

During the reporting period the following events occurred:• 9,604,350listedoptionswereconvertedtoordinaryshares.• AloaninPapyrusTechnologyPtyLtdfor$313,654wasextinguishedbytheissueof634,413 ordinaryfullypaidshares.• 1,000,000unlistedoptionswereissuesexpiringin2012.• Themembersregisterincreasedby10.8%toatotalof1,626members.

Operations

1. ENGINEERING

TheCompanyhascontinuedtoworkcloselywithSAbasedCompany,SAGEAutomationontheconstructionofthefirst‘fieldversion’ofthePapyrusTechnology,basedonthefirstPapyrusManufacturingLineinstalledinAdelaide.

SAGEhasaccumulatedawealthofexperienceinthedesignofthePapyrusManufacturingprocessandconstructionofthefirstCommercialLinetobeinstalledinNthQueenslandisontrack,withcompletionexpectedbyendofJanuary2009.

ThePapyruslineinstalledinAdelaidehasbeenmovedtoNthQueenslandwhereitwillbeoperatedforthepurposeofinterimcommercialproductionuntilthenewlineisinstalledinearly2009

2. PRODUCT DEVELOPMENT

TheCompanyhascompletedsignificantworkintheareaofproductdevelopment,workingcloselywithanumberofpotentialcustomerstoensurethatthereissignificantdemandfortheproductsthattheTechnologywillultimatelyproduce.Someoftheproductgroupsidentifiedanddevelopedinclude:

Decorative VeneersHighqualitytimberreplacementproductswithappealinmarketssuchasfurniture,commercialfitouts,superyachts,ferriesandluxurycars.

Thereisahighlevelofdemandforenvironmentallysustainable,decorativeproductsforuseinthesemarkets,characterisedbyshrinkingavailabilityoftimberproductsfromtraditionalsources.

Theproductsarehighvalue,withdemandincreasingincommercialmarketswherethereisstrongpressuretoselectproductswithlowembeddedcarbontoconstructbuildingwithahigh‘green’content.

ProductsCustomershaveidentifiedavarietyofusesforthePapyrusproductsinanumberofdifferentmarkets.Thepaperproductspossessbothdecorativeandfunctionalapplicationsincluding:

• Art & Craft Applications Thedecorativeappearanceandthecapacitytoprintthematerialusingavarietyofcommon methodsmakeithighlysuitableformanystationeryapplicationsincludingmenus,certificates, weddingsetc.

• Food Packaging Themoistureandgreaseresistancepropertiesarehighlydesirableinthismarketwherethere ishighdemandforenvironmentallysustainable,functionalproducts.Applicationsinclude wrapsandclamlinersforquickservicerestaurants,baking,cartonlinersforhighmoistureand greaseproductsetc.

• Industrial Products Thebarrierpropertiesandtherelativephneutralityofthematerialmakeitsuitableforanarray

ofapplicationsincludingexplosives,electronicsandcorrosivewrapsforsteelproducts.

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CSIRO Testing

TheCompanycontinuestoworkcloselywithCSIROForestSciencesDivisioninrelationtothedevelopmentoffibreproductsthatcanbedirectlyutilisedintheproductionofpaperandboardproductsusingcurrentcommercialmanufacturingmethods.

Thetestinghasdemonstratedthatafibrefeedstockmanufacturedfromthebananatreetrunkwillimpartsuperiorphysicalpropertiestopaperproducts,allowinggreaterefficienciesinmanufactureandavoidmuchofthechemicaltreatmentandenergyinputsassociatedwithtimberbasedfibreresources.

TheCompanyexpectstolodgeapatentcoveringtheprocessofproducingthefibrefeedstockdescribedabove.

3. NORTH QUEENSLAND MANUFACTURING FACILITY

TheCompanysignedaJointVentureAgreementwithMelbournebasedQFL(throughtheirCompanyWorldFutureFibrePtyLtd–WFF),tooperatethefirstCommercialManufacturingFacilityinNorthQueensland.

TheAgreementcoversthedemonstrationofthePapyrusTechnologytopotentialLicenseesandthemanufactureofthePapyrusproductsforCustomers,fortheapplicationsdetailedearlierinthisreport.

FollowingsatisfactoryperformanceintheoperationoftheFacility,WFFpossessfirstrightofrefusaltorolloutthePapyrusTechnologythroughoutVietnamwhereover90,000Haofbananagrows.

Inaddition,theCompanyhassecuredaccesstothenecessaryrawmaterialsrequiredtooperatethefacility,whichwillbeinstalledontheMtUnclePlantation,situatedintheAthertonTablelands.TheCompanyhassecuredsufficientrawmaterialsfortheoperationoftheFacilitywithanumberofgrowersintheregion,withvolumeproductionsettocommenceinMarch2009.

4. ADMINISTRATION

AusIndustryTheCompanysuccessfullyappliedandobtained,additionalCommercialReadyGrantfundinginearly2008,takingthetotalGrantsumto$1.5M.

TheCompanyhascompletedthecommercialisationworksoftheCommercialReadyGrantprocesssome6monthsearlyon31July2008.

The Mt Uncle Plantation – Walkamin, Nth Queensland

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StaffTheCompanyhasmadeanumberofstrategicappointmentstoensurethatexpertiseisavailabletocompletethefinalelementsofthecommercialisationprocess.

• General Manager – Production TonyCichonskicomestoPapyruswithspecificexpertiseintheareaofpaperandboard productionwithover30yearsofexperienceworkingforcompaniessuchasCarterHolt Harvey,AMCORandAustralianCorrugatedBox.

ResponsibilitiesincludealloperationalaspectsofthePapyrusTechnologyandliaisonwith theJVpartnerinNorthQueenslandinrelationtotheconstructionoftheManufacturingFacility, installationofthePapyrusManufacturingLineandon-goingoperationofthelinetovolume production.

• General Manager – Engineering BillHallidayisanElectricalEngineer,withadetailedbackgroundinthedesignandinstallation ofproductioninstallationsbothinAustraliaandoverseasforCompaniessuchasMistraland Clipsal. ResponsibilitiesincludeliaisonwithSAGEAutomationinrelationtothedesignofthePapyrus ManufacturingLinetobeinstalledinNorthQueensland,and,managementresponsibility forthedesignandconstructionofsubsequentPapyrusManufacturingLinestobeinstalledand commissionedinstrategiclocationsworldwide.

• General Manager – Sales & Marketing ColinWyllieisanexpertinthemanufacture,distributionandsaleoftimberveneerandboard productsandcomestoPapyruswithover30yearsofexperience,latterlyasSalesand MarketingManagerofGunnsVeneers.

ResponsibilitiesincludethesaleanddistributionofPapyrusproductstothesemarketsin Australiaandoverseasandwillliaisonwithproductionpersonneltoensurethatappropriate productionstandardsaremaintainedtoservicethesehighvaluemarketsinthelongerterm.

5. LOOKING FORWARD

Licensing the Papyrus TechnologyTheCompanyhasaclearplanfortherolloutoftheTechnologyinstrategiclocationsthroughouttheworld,basedonthecommercialfacilitycurrentlyunderconstructioninNorthQueensland.Thestrategiclocationshavebeenselectedonthebasisofthefollowingcriteria:

• ThepresenceofentitiescapableofconstructingtherequiredfacilitiestohousethePapyrus ManufacturingLine.• ThecapabilitytooperatethePapyrusManufacturingprocess,producingproductstoPapyrus specifications.• Accesstosufficientrawmaterialstosupplythemanufacturingprocess.• ProximitytolargeareasofbananaplantationsallowingtherolloutoftheTechnologyinthe future.

Australia & VietnamTheCompanyhassignedaJVAgreementfortheoperationofthefirstexampleofthePapyrusTechnology,whichwillbeusedasademonstrationsitefortheotherstrategiclocationslistedbelow.

Followingcommencementofvolumeproduction,WFFhasthefirstoptiontorollouttheTechnologyintoVietnam,withaccesstoover90,000Haofbananaplantationsavailable.

ThepotentialnumberofPapyrusmanufacturinglinesthatcouldultimatelybecommissionedinVietnamcouldexceed150,withafurther20linestobepotentiallyinstalledinAustraliainthefuture.

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European UnionTheCompanyhassignedanAgreementwiththeHayotfamily,whoarepartofmajorEUbananasupplierBANAMART,basedinMartinique.

TheAgreementcoversthelicensetousethePapyrusTechnologytomanufacturePapyrusproductstospecificationsinitiallyinMartinique,followedbytheCaribbeanregioninthelongerterm.

BanamartpossesssignificantcontactswiththeEUtomarketandsellthePapyrusproductstosupermarketchainssuchasNaturaliaandCarrefourandwillpotentiallybeinvolvedinthispartoftheprocessaspartoftheiroverallJointVenturewithPapyrusintheCaribbeanregion.

TheAgreementprovidesforafirstrightofrefusaltorollouttheTechnologyintoSouthAmerica,basedonsatisfactoryperformanceinMartinique.

TheCaribbeanregiongrowsapproximately150,000Haofbananasannually,withover850,000HagrowninSouthAmerica.

Distribution and Sale of Papyrus Products In European UnionTheCompanyhasfinalisedanAgreementforthedistributionofPapyrusVeneerandBoardproductsintheEuropeanUnion,withMonacobasedVeneerdistributor,3WToutBois.

3WToutBoishaveover90yearsofexperienceinthesemarkets,withmajorprojectsundertakenfortheBeijingOlympicsaswellascommercialconstructionprojectsinDubai.

TheAgreementcoversthesaleofPapyrusveneerproductsintheEuropeanUnion,formarketsincludingfurniture,commercialconstructionprojectsaswellasinteriorfinishesforaircraft,superyachtsandcommercialvehicles.

3WToutBoisManagingDirector,MarioCassinindicatedhisexcitementwiththeAgreementwiththefollowingquote;”ThePapyrusproductswillbreathenewlifeintotheindustrywhichisdesperatetosourceenvironmentallysustainable,naturalproductsthatdonotdegradeourlimitedtimberresourcesworldwide.”

Vladimir Hayot and Papyrus Managing Director Ramy Azer, following the Execution of the Agreement to License the Papyrus Technology in the European Union

3W Tout Bois Director Mario Cassin and Papyrus Director Graeme Menzies following the execution of the Distribution Agreement in Paris.

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CORPORATE GOVERNANCE STATEMENT

IntroductionTheboardofdirectorsisresponsibleforthecorporategovernanceofPapyrusAustraliaLtd(theCompany)anditscontrolledentities(theGroup).TheCompanyoperatesinaccordancewiththecorporategovernanceprinciplesassetoutbytheASXCorporateGovernanceCouncilandrequiredunderASXlistingrules.

TheCompanydetailsbelowthecorporategovernmentpracticesinplaceattheendofthefinancialyear,allofwhichcomplywiththeprinciplesandrecommendationsoftheASXcorporategovernancecouncilunlessotherwisestated.

Principle 1: Lay solid foundations for management and oversight

Board ResponsibilitiesTheboardareaccountabletotheshareholdersfortheperformanceoftheCompanyandhaveoverallresponsibilityforitsoperations.DaytodaymanagementoftheCompany’saffairsandtheimplementationofthecorporatestrategyandpolicyinitiatives,areformallydelegatedbytheboardtothemanagingdirectorandultimatelytoseniorexecutives.

Thekeyresponsibilitiesoftheboardinclude:

• ApprovingthestrategicdirectionandrelatedobjectivesoftheCompanyandmonitoring managementperformanceintheachievementoftheseobjectives; • AdoptingbudgetsandmonitoringthefinancialperformanceoftheCompany; • Reviewingannuallytheperformanceofthemanagingdirectorandseniorexecutives againsttheobjectivesandperformanceindicatorsestablishedbytheboard; • Overseeingtheestablishmentandmaintenanceofadequateinternalcontrolsand effectivemonitoringsystems; • Overseeingtheimplementationandmanagementofeffectivesafetyandenvironmental performancesystems; • Ensuringallmajorbusinessrisksareidentifiedandeffectivelymanaged; • EnsuringthattheGroupmeetsitslegalandstatutoryobligations.

Forthepurposesoftheproperperformanceoftheirduties,thedirectorsareentitledtoseekindependentprofessionaladviceatPapyrusAustraliaexpense,unlesstheboarddeterminesotherwise.Theboardschedulesmeetingsonaregularbasisandothermeetingsasandwhenrequired.

Theboardhasnotpubliclydisclosedastatementofmattersreservedfortheboard,ortheboardcharterandthereforetheCompanyhasnotcompliedwithrecommendation1.3oftheCorporateGovernanceCouncil.GiventhesizeoftheCompanyandthecurrentskillsandexpertiseoftheboard,disclosureoftheboardcharterisnotconsiderednecessary.

Principle 2: Structure the board to add value

Size and composition of the BoardAtthedateofthisstatementtheboardconsistsoffivenonexecutivedirectorsandoneexecutive.Director’sareexpectedtobringindependentviewsandjudgementtotheboard’sdeliberations.

TheboardconsidersthistobeanappropriatecompositiongiventhesizeanddevelopmentoftheGroupatthepresenttime.ThenamesofdirectorsincludingdetailsoftheirqualificationsandexperiencearesetoutintheDirectors’ReportofthisFinancialReport.

IndependenceTheboardisconsciousoftheneedforindependenceandensuresthatwhereaconflictofinterestmayarise,therelevantdirector(s)leavethemeetingtoensureafullandfrankdiscussionofthematter(s)underconsiderationbytherestoftheboard.ThosedirectorswhohaveinterestsinspecifictransactionsorpotentialtransactionsdonotreceiveBoardpapersrelatedtothosetransactionsorpotentialtransactions,donotparticipateinanypartofadirectors’meetingwhichconsidersthosetransactionsorpotentialtransactions,arenotinvolvedinthedecisionmakingprocessinrespectofthosetransactionsorpotentialtransactions,andareaskednottodiscussthosetransactionsorpotentialtransactionswithotherdirectors.

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Atthedateofthisstatementtheboardconsistsoffivenonexecutivedirectors,DrDWyatt,whoisalsochairmanoftheboard,MrEByrt,MrGMenzies,MrCSmerdon,MrDStephensandamanagingdirector,MrRAzer.DrWyattandMrStephensholdsignificantequitysecuritiesinthecompany.Messrs.Byrt,MenziesandSmerdonhavenoothermaterialrelationshipwiththeCompanyoritssubsidiaryotherthantheirdirectorships.TheCompanythereforehasthreeindependentdirectorsasthatrelationshipiscurrentlydefined.

TheboarddoesnotconsistofamajorityofindependentdirectorsandthereforetheCompanyhasnotcompliedwithrecommendation2.1oftheCorporateGovernanceCouncil.TheboardconsidersthecurrentstructuretobeanappropriatecompositiongiventhesizeanddevelopmentoftheGroupatthepresenttime.

Nomination, retirement and appointment of Director’s TheboardhasnotestablishedanominationcommitteeandthereforetheCompanyhasnotcompliedwithrecommendation2.4oftheCorporateGovernanceCouncil.GiventhesizeoftheCompanytheboarddoesnotconsideraseparatecommitteeappropriate.Theboardtakesultimateresponsibilityforthesematters.

Thecomposition/membershipoftheboardissubjecttoreviewinanumberofways,asoutlinedbelow:

• TheCompany’sconstitutionprovidesthatateveryAnnualGeneralMeeting,onethirdof thedirectorsshallretirefromofficebutmaystandforreelection. • Boardcompositionisalsoreviewedperiodicallyeitherwhenavacancyarisesorifitis consideredthattheboardwouldbenefitfromtheservicesofanewdirector,giventhe existingmixofskillsandexperienceoftheboardwhichshouldmatchthestrategic demandsoftheGroup.Onceithasbeenagreedthatanewdirectoristobeappointed,a searchwouldbeundertaken,sometimesusingtheservicesofexternalconsultants. Nominationsaresubsequentlyreceivedandreviewedbytheboard.

Evaluation of Board performanceTheboardcontinuestoreviewperformanceandidentifywaystoimproveperformance.Thechairmanisresponsibleforreviewingtheboardperformanceonanannualbasis.

Board Committee’sItistheroleoftheboardtooverseethemanagementoftheCompanyanditmayestablishappropriatecommitteestoassistinthisrole.Thecompositionofthecommitteesshallbeasfollows:

• themajorityofthemembersofeachCommitteeoftheboardwillbenon-executive directors; • eachcommitteewillhaveacharterapprovedbytheboard;and • eachcommitteewillmaintainminutesofeachmeetingofthecommittee,whichwillbe circulatedtoalldirectors.

Theboardhasestablishedanaudit,riskandcompliancecommittee.AtthepresenttimenoothercommitteeshavebeenestablishedbecauseofthesizeoftheCompanyandtheinvolvementoftheboardintheoperationsoftheCompany.TheboardtakesultimateresponsibilityfortheoperationsoftheCompanyincludingremunerationofdirectorsandexecutivesandnominationstotheboard.

Theboardhasnotpubliclydisclosedtheprocessforevaluatingtheperformanceoftheboard,itscommitteesandindividualdirectors.Therefore,theCompanyhasnotcompliedwithrecommendation2.5oftheCorporateGovernanceCouncil.GiventhesizeoftheCompany,theboarddoesnotconsiderdisclosureoftheperformanceevaluationprocessnecessary.Theboardtakesultimateresponsibilityforthesematters.

Principle 3: Promote ethical and responsible decision making

Code of ConductTheboardrecognisestheneedfordirectorsandemployeestoobservethehigheststandardsofbehaviourandbusinessethicswhenengagingincorporateactivity.TheCompanyintendstomaintainareputationforintegrity.TheCompany’sofficersandemployeesarerequiredtoactinaccordancewiththelawandwiththehighestethicalstandards.Theboardhasadoptedaformal

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codeofconductapplyingtotheboardandallemployees.However,theCompanyhasnotpubliclydisclosedthecodeofconductandthereforetheCompanyhasnotcompliedwithrecommendation3.1oftheCorporateGovernanceCouncil.GiventhesizeoftheCompany,theboarddoesnotconsiderdisclosureofthecodeofconducttobenecessary.Theboardtakesultimateresponsibilityforthesematters.

Securities Trading PolicyTheCompany’sconstitutionpermitsdesignatedpersonstoacquiresecuritiesintheCompany,howeverCompanypolicyprohibitsdesignatedpersonsfromdealingintheCompany’ssecuritiesatanytimewhilstinpossessionofpricesensitiveinformationandfor24hoursafter:

• Anymajorannouncements; • ThereleaseoftheCompany’squarterly,halfyearlyandannualfinancialresultstothe AustralianStockExchange;and • TheAnnualGeneralMeeting.

DirectorsmustadvisethechairmanoftheboardbeforebuyingorsellingsecuritiesintheCompany.Allsuchtransactionsarereportedtotheboard.InaccordancewiththeprovisionsoftheCorporationsActandtheListingRulesoftheAustralianStockExchange,theCompanyadvisestheExchangeofanytransactionconductedbydirectorsinsecuritiesintheCompany.

TheCompanyhasnotestablishedandpubliclydisclosedapolicyconcerningtradinginCompanysecuritiesbydirectors,seniorexecutivesandemployeesotherthanasdisclosedabove,andthereforehasnotcompliedwithrecommendation3.2oftheCorporateGovernanceCouncil.GiventhesizeoftheCompany,theboarddoesnotconsiderestablishmentordisclosureofatradingpolicytobeappropriate.Theboardtakesultimateresponsibilityforthesematters.

Principle 4: Safeguard integrity in financial reporting

TheCompanyaimstostructuremanagementtoindependentlyverifyandsafeguardtheintegrityoftheirfinancialreporting.ThestructureestablishedbytheCompanyincludes: • Reviewandconsiderationofthefinancialstatementsbytheauditcommittee; • Aprocesstoensuretheindependenceandcompetenceofthecompany’sexternal auditors.

Audit CommitteeTheaudit,riskandcompliancecommitteecomprisesMrDonaldStephens(chairman)whoisindependentofseniormanagementandoperatingexecutivesoftheCompany,MrChristopherSmerdonandDrDavidWyattandthecompanysecretary.Duetothesizeoftheboard,theCompanyhasnotcompliedwithrecommendation4.2oftheCorporateGovernanceCouncilofhavingamajorityofmemberswhoareindependent.TheBoardwillannuallyconfirmthemembershipofthecommittee.

Thecommittee’sprimaryresponsibilitiesareto:

• overseetheexistenceandmaintenanceofinternalcontrolsandaccountingsystems; • overseethemanagementofriskwithintheCompany; • overseethefinancialreportingprocess; • reviewtheannualandhalf-yearfinancialreportsandrecommendthemforapprovalby theboardofdirectors; • nominateexternalauditors; • reviewtheperformanceoftheexternalauditorsandexistingauditarrangements;and • ensurecompliancewithlaws,regulationsandotherstatutoryorprofessional requirements,andtheCompany’sgovernancepolicies.

GiventheskillsandexperienceofthemembersoftheauditcommitteetheCompanyhasnotdocumentedaformalcommitteecharterandthereforehasnotcompliedwithrecommendation4.3oftheCorporateGovernanceCouncil.

Theboardcontinuestomonitorthecompositionofthecommitteeandtherolesandresponsibilitiesofthemembers.

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Principle 5: Make timely and balanced disclosure

TheCompanyhasapolicythatallshareholdersandinvestorshaveequalaccesstotheCompany’sinformation.TheboardensuresthatallpricesensitiveinformationisdisclosedtotheASXinaccordancewiththecontinuousdisclosurerequirementsoftheCorporation’sActandASXListingRules.ThecompanysecretaryhasprimaryresponsibilityforallcommunicationswiththeASXandisaccountabletotheboardthroughthechairforallgovernancematters.

TheCompanyhasnotpubliclydisclosedaformaldisclosurepolicyandthereforehasnotcompliedwithrecommendation5.1oftheCorporateGovernanceCouncil.GiventhesizeoftheCompany,theboarddoesnotconsiderapublicdisclosurepolicytobeappropriate.Theboardtakesultimateresponsibilityforthesematters.

Principle 6: Respect the rights of shareholders

TheboardstrivestoensurethatShareholdersareprovidedwithsufficientinformationtoassesstheperformanceoftheCompanyanditsdirectorsandtomakewell-informedinvestmentdecisions.

InformationiscommunicatedtoShareholdersthrough:

• annual,half-yearlyandquarterlyfinancialreports; • annualandothergeneralmeetingsconvenedforshareholderreviewandapprovalof boardproposals; • continuousdisclosureofmaterialchangestoASXforopenaccesstothepublic;and • theCompanymaintainsawebsitewhereallASXannouncements,noticesandfinancial reportsarepublishedassoonaspossibleafterreleasetoASX.

AllinformationdisclosedtotheASXispostedontheCompany’swebsitewww.papyrusaustralia.com.au.

Theauditorisinvitedtoattendtheannualgeneralmeetingofshareholders.Thechairmanwillpermitshareholderstoaskquestionsabouttheconductoftheauditandthepreparationandcontentoftheauditreport.

TheCompanyhasnotdesignedorpubliclydisclosedacommunicationspolicyandthereforehasnotcompliedwithrecommendation6.1oftheCorporateGovernanceCouncil.GiventhesizeoftheCompany,theboarddoesnotconsiderdisclosureofacommunicationspolicytobeappropriate.Theboardtakesultimateresponsibilityforthesematters.

Principle 7: Recognise and manage risk

TheboardhasidentifiedthesignificantareasofpotentialbusinessandlegalriskoftheCompany.Theidentification,monitoringand,whereappropriate,thereductionofsignificantrisktotheCompanyistheresponsibilityofthemanagingdirectorandtheboard.Theboardhasalsoestablishedtheaudit,riskandcompliancecommitteewhichaddressestheriskoftheCompany.

Theboardreviewsandmonitorstheparametersunderwhichsuchriskswillbemanaged.Managementaccountsarepreparedandreviewedwiththemanagingdirectoratsubsequentboardmeetings.Budgetsarepreparedandcomparedagainstactualresults.

ManagementhavedesignedandimplementedariskmanagementandinternalcontrolsystemtomanagetheCompany’smaterialbusinessrisksandreportedtotheboardastoitsoperatingeffectiveness.

Managing Director and Company Secretary declaration to the Board of Director’sThemanagingdirectorandthecompanysecretarywillberequiredtostateinwritingtotheboardthattheCompany’sfinancialreportspresentatrueandfairview,inallmaterialrespects,oftheCompany’sfinancialconditionandoperationalresultsareinaccordancewithrelevantaccountingstandards.IncludedinthisstatementwillbeconfirmationthattheCompany’sriskmanagementandinternalcontrolsareoperatingefficientlyandeffectively.


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TheCompanyhasnotestablishedorpubliclydisclosedapolicyfortheoversightandmanagementofmaterialbusinessrisksandthereforehasnotcompliedwithrecommendation7.1oftheCorporateGovernanceCouncil.GiventhesizeoftheCompany,theboarddoesnotconsiderestablishmentordisclosureofariskmanagementpolicytobeappropriate.Theboardtakesultimateresponsibilityforthesematters.

Principle 8: Remunerate fairly and responsibly

Thechairmanandthenon-executiveDirectorsareentitledtodrawdirectorsfeesandreceivereimbursementofreasonableexpensesforattendanceatmeetings.TheCompanyisrequiredtodiscloseinitsannualreportdetailsofremunerationtodirectors.Themaximumaggregateannualremunerationwhichmaybepaidtonon-executivedirectorsis$300,000.ThisamountcannotbeincreasedwithouttheapprovaloftheCompany’sshareholders.PleaserefertotheremunerationreportwithintheDirector’sReportfordetailsregardingtheremunerationstructureofnon-executivedirectors,executivedirectorsandseniorexecutives.

TheboardhasnotestablishedaremunerationcommitteeordisclosedaremunerationcommitteecharterandthereforetheCompanyhasnotcompliedwithrecommendation8.1and8.3respectivelyoftheCorporateGovernanceCouncil.GiventhesizeoftheCompanytheboarddoesnotconsideraseparatecommitteeappropriate.Theboardtakesultimateresponsibilityforthesematters.

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PAPYRUS AUSTRALIA LTD AND CONTROLLED ENTITIESABN 63 110 868 409

DIRECTORS' REPORT

Directors

The names of directors in office at any time during or since the end of the year are:

Dr. David M Wyatt Mr. Edward M ByrtMr. Ramy A Azer Mr. Graeme A MenziesMr. Donald C Stephens Mr. Christopher D Smerdon

Company Secretary

Principal Activities

Operating Results

Dividends Paid or Recommended

Review of Operations

Operational

On 15 October 2007, 250,000 share options were granted to key management personnel with an exercise period of 15 October 2009 to 14 October 2012 at an exercise price of $0.80, and a further 250,000 share options were granted exercise period of 15 October2010 to 14 October 2012 at an exercise price of $1.25. The options hold no voting or dividend rights and are transferable.

The company focus to date has been on engineering activities associated with building commercial manufacturing lines to produce thematerial derived from the banana tree trunk.

No significant change in the nature of the principal activities occurred during the financial year.

The operating loss of the consolidated entity after providing for income tax was $1,863,725.

No dividends were paid during the financial year and no dividends are recommended to be paid.

Corporate

During the financial year, 9,604,350 listed options were converted to shares at 20 cents per share.

On 8 October 2007, 250,000 share options were granted to key management personnel with an exercise period of 8 October 2009 to 7 October 2012 at an exercise price of $0.80, and a further 250,000 share options were granted with a exercise period of 8 October2010 to 7 October 2012 at an exercise price of $1.25. The options hold no voting or dividend rights and are transferable.

On 23 November 2007, a loan in Papyrus Technology Pty Ltd for $313,654 was extinguished by the issue of 634,413 ordinary fully paid shares at a price of 49.44 cents per share.

The principal activities of the consolidated entity during the period was the commercialisation of the banana paper technology.

Your directors present their report on the company and its controlled entities for the financial period ended 30 June 2008.

Directors have been in office since the start of the financial year to date of this report unless otherwise stated.

The following person held the position of company secretary at the end of the financial year:

Mr Vincent Rigano - Bachelor of Accountancy, Certified Practising Accountant. Mr. Rigano has in excess of 26 years experience in providing accounting, corporate secretarial and consulting services to a large number of corporate clients. Mr. Rigano was appointed company secretary on 8 September 2004.

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DIRECTORS' REPORT (Cont)

Operational (cont)

During the financial year, $1,920,870 was raised from the conversion of 9,604,350 listed option.

On 23 November 2007, a loan in Papyrus Technology Pty Ltd for $313,654 was extinguished by the issue of 634,413 ordinary fully paid shares.

The following significant change in the state of affairs occurred during the period:

Financial Position

The net assets of the consolidated entity as at 30 June 2008 amounted to $4,345,948, with a cash balance of $2,145,022.

The directors believe the group is in a financial position to continue its operations.

Significant Changes in State of Affairs

An additional grant of $330,000 was approved by AusIndustry which increased the commercialisation grant from $1.2M to $1.53M.

The company during the year appointed three senior executives, Mr Cichonski as General Manager - Production, Mr Halliday as General Manager - Engineering and Mr Wyllie as General Manager - Sales and Distribution. All three bring significant, specialisedexpertise that will assist the company to capitalise on progress made to date.

The company has secured the three necessary partners for the first commercial factory: the plantation (Mt Uncle) - access to rawmaterial and site for the commercial manufacturing facility, the operator (QFL) - purpose built facilities and factory operation and, engineering company (SAGE) - installation and commission of the production line. The terms of these partnership agreements positions the company favourably to conserve cash reserves until revenue from product sales and licensing fees begin to flow. It is anticipated that these revenues will commence over the next 6 months.

CSIRO Forest Sciences Division was engaged to undertake a program of testing of the Papyrus product range. The detailed resultsshowing that the incorporation of Papyrus products into a range of basic paper products including newsprint and recycled box boardsimproved overall strength and minimised the costs normally associated with processing timber based raw materials. These findingshighlight the functionality of Papyrus products in a range of commodity markets, characterised by high volume and increasing difficulties in sourcing traditional raw material.

The company continued trial production in Adelaide for testing and evaluation by potential customers. In addition, design workcommenced on a field production line (Beta 1) in collaboration with SAGE Automation in Adelaide.

SAGE has been contracted to construct the field production line (Beta 1). This production line is expected to be delivered andcommissioned at the Mt Uncle site in North Queensland by the end of 2008, and commercially operational no later than March 2009.

The company has secured a site for the construction of the first commercial production facility that will contain the field productionline. Located at the Mt Uncle plantation near Mareeba on the Atherton Tableland, west of Cairns, a purpose built facility will be constructed to showcase the Papyrus Technology.

A joint venture agreement was signed with a Melbourne based company, QFL. QFL will fund the construction of a new factory building and the joint venture will operate the field production line in North Queensland in early 2009. A license was granted to QFL toproduce fibre, paper and veneers in Vietnam following the successful implementation of the operation in Queensland. Vietnam isconsidered to be a significant market as it produces over nine times the raw material for the Papyrus process as does Australia.

Page 2



Director Loans

Meetings of Directors

Number eligible to attend

Numberattended

Numbereligible to

attend

Number attended

Dr. D M Wyatt 11 11 3 3Mr. R A Azer 11 10 - -Mr. D C Stephens 11 10 3 3Mr. E M Byrt 11 11 - -Mr. G A Menzies 11 10 - -Mr. C D Smerdon 11 11 3 3

Indemnifying Officers

Options

Date of ExpiryExercise

Price

ClosingBalance

30 June 2007 Exercised IssuedListed Unlisted

2 December 2004 31 March 2010 $0.25 16,240,000 - - - 16,240,0002 December 2004 31 March 2010 $0.30 8,493,155 - - - 8,493,15514 April 2005 31 March 2010 $0.25 2,000,000 - - - 2,000,00014 April 2005 31 March 2008 $0.20 9,604,350 9,604,350 - - -16 May 2005 15 May 2010 $0.25 50,000 - - - 50,00030 June 2006 31 March 2010 $0.40 200,000 - - - 200,00014 August 2006 13 August 2011 $0.40 500,000 - - - 500,00014 August 2006 13 August 2011 $0.50 500,000 - - - 500,0008 October 2007 7 October 2012 $0.80 - - 250,000 - 250,0008 October 2007 7 October 2012 $1.25 - - 250,000 - 250,00015 October 2007 14 October 2012 $0.80 - - 250,000 - 250,00015 October 2007 14 October 2012 $1.25 - - 250,000 - 250,000

37,587,505 9,604,350 1,000,000 - 28,983,155

Directors' Meetings Audit Committee

During the financial year, 11 meetings of directors were held. Attendance by each director during the year were as follows:

A liability existed in the wholly owned subsidiary, Papyrus Technology Pty Ltd, between the subsidiary and Mr. R Azer. The loan was discharged during 2008 by the issue of 634,413 ordinary fully paid shares at an issue price of 49.44 cents per share.

No person entitled to exercise options had or has any right by virtue of the option to participate in any share issue of any otherbody corporate.

At the date of this report, the following options to acquire ordinary shares had been issued:

Grant Date

The company has agreed to pay premiums to insure each of the directors and the secretary of the company against liabilities for costs and expenses incurred by them in defending any legal proceedings arising out of their conduct while acting in the capacity of officers of the company, other than conduct involving a wilful breach of duty in relation to the company. The policywill be effective from the 1 July 2008 and the total premium to be paid $12,497.

Closing Balance30 June 2008

Page 7

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Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155






Grant Date



Page 7



After Balance Day Events

Information on Directors

David M Wyatt - Chairman (Non-executive).

Qualifications - PhD, MBA, Graduate Diploma Education, Bachelor Applied Science.

Experience -

Direct IndirectInterest in Shares Ordinary Shares 1,587,514 167,114and options Options 1,793,757 83,557

Special Responsibilities -

Directorships held in other listed entities - Nil

Ramy A Azer -

Qualifications -

Experience -

Direct IndirectInterest in Shares Ordinary Shares - 21,226,413and options Options - 11,046,000

SpecialResponsibilities -


Donald C Stephens - Director (Non-executive).

Qualifications - Bachelor of Accounting, FCA.

Experience -

Direct IndirectInterest in Shares Ordinary Shares 217,114 -and options Options 83,557 3,250,000


Directorships held in other listed entities -

Appointed chairman in 2004. Board member since 2004. Current chairman of GreenEdge Ethical Investments Ltd, and former managing director of PanBio Ltd between 1991 to 1998.

The company is in the process of relocating the manufacturing line (Alpha) to Mt Uncle in Queensland, expected to be completed byend September 2008. The manufacturing line will be utilised to begin production of products until the first field manufacturing line construction is completed in late 2008.

Responsibilities include overall strategic direction and leadership of the board and its committees and member of the Audit committee.

Managing Director (Executive).

MSTC, MSc (Eng), Grad Dip Bus, Bachelor Engineering (Mechanical).

Responsibilities include overseeing and direction of the engineering and commercialisation process of the banana technology.

Board member since 2004 and managing director since 2005. He has 10 years experience with Papyrus Technology Pty Ltd.

Current director of Mithril Resources Ltd.

Board member since 2004. Director of Mithril Resources Ltd and company secretary of Minotaur Exploration Ltd and Petratherm Ltd. He is a Chartered Accountant with 21 years experience.

Responsibilities include corporate governance and is a member of the Audit Committee.

14

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Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155






Grant Date



Page 7



Edward M Byrt - Director (Non-executive).

Qualifications - LLB.

Experience -

Direct IndirectInterest in Shares Ordinary Shares - 950,536and options Options - -



Graeme A Menzies - Director (Non-executive).

Qualifications - LLB.

Experience -

Direct IndirectInterest in Shares Ordinary Shares 51,790 - and options Options 783,424 -


Directorships held in other listed entities -

Christopher D - Director (Non-executive).

Qualifications - Nil

Experience -

Direct IndirectInterest in Shares Ordinary Shares 310,483 - and options Options - 840,241



Responsibilities Include assistance and advice on operational matters and Member of the Audit Committee.

Responsibilities include assistance and advice in legal and operational matters.

Since listing Mr. Menzies has sold 15,057 ordinary shares.

Current director of Moby Oil & Gas Ltd and Octanex NL.

Board member since December 2004. He has 6 years experience as Managing Director of VectraCorporation Ltd and extensive experience in management and building of new businesses. He is a current director of the South Australian Government Motorsport Board, Kangaroo Island Sealink Pty Ltd and Coachlines of Australia Pty Ltd

Board member since 2004. He is a legal practioner with over 30 years specialising in commerce and public law, corporate governance and international business.

Responsibilities include assistance and advice in legal and operational matters.

Board member since 2004. He is a legal practioner with over 30 years experience in the areas of corporate restructures, takeovers and capital raising.

Smerdon

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Remuneration Report (audited)

Remuneration Policy

Details of Remuneration

2008

Salary, Fees& Comm-issions

Superan-nuation

Contribution

Options Total

Directors $ $ $ $

Dr. D M Wyatt 43,600 - - 43,600 Mr. R A Azer 323,000 27,000 - 350,000 Mr. D C Stephens 32,700 - - 32,700 Mr. E M Byrt 32,700 - - 32,700 Mr. G A Menzies 32,700 - - 32,700 Mr. C D Smerdon 32,700 - - 32,700

Specified Executives

Mr. V P Rigano 32,700 - - 32,700 Mr. G D Pigot 146,789 13,211 8,699 168,699 Mr. W Halliday 146,789 13,211 78,167 238,167 Mr. A Cichonski 146,789 13,211 81,068 241,068

970,467 66,633 167,934 1,205,034

This report details the nature and amount of remuneration for each director of Papyrus Australia Ltd, and for the executives receiving the highest remuneration.

The remuneration for each director and specified executive of the consolidated entity during the year was as follows:

All remuneration paid to directors and executives is expensed as incurred. Executives are also entitled to participate in the company share option scheme. Options are valued using the Black-Scholes methodology.

The board policy is to remunerate non-executive directors at market rates based on comparable companies for time,commitment and responsibilities. The board determines payments to non-executive directors and reviews their remuneration annually, based on market practice, duties and accountability. Independent external advice is sought when required.

The current remuneration policy is the application of market rates for remuneration purposes, the intention is that anyfuture policy will be designed to align director and executive objectives with shareholder and business objectives by providing a fixed remuneration component and offering specific long-term incentives based on key performance areas affecting the consolidated entity's financial results.

The board currently determines the nature and amount of remuneration for board members and senior executives of the consolidated entity.

The executive directors and other executives receive a superannuation guarantee contribution required by the government, which is currently 9%, and do not receive any other retirement benefits. Some individuals, however, may choose to sacrifice part of their salary to increase payments towards superannuation.

Page 5



Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155






Grant Date



Page 7

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Details of Remuneration (Cont)

Key Management Performance Compensation

2007Post Employment

BenefitShare Based

PaymentsCash, Salary & Commission Superannuation Options Total

Directors $ $ $ $

Dr. D M Wyatt 43,600 - - 43,600 Mr. R A Azer 194,200 12,976 - 207,176 Mr. D C Stephens 32,700 - - 32,700 Mr. E M Byrt 32,700 - - 32,700 Mr. G A Menzies 32,700 - - 32,700 Mr. C D Smerdon 32,700 - - 32,700


Mr. V P Rigano 32,700 - - 32,700 Mr. G D Pigot 129,198 10,003 11,301 150,502

530,498 22,979 11,301 564,778

Directors Date Granted Granted No. Fair Value on issue *

ExpenseRecognisedDuring the

Current Year

Dr. D M Wyatt - - - Mr. R A Azer - - - Mr. D C Stephens - - - Mr. E M Byrt - - - Mr. G A Menzies - - - Mr. C D Smerdon - - -


Mr. V P Rigano - - - Mr. G D Pigot - - 8,699 Mr. W Halliday 8 October 2007 500,000 248,572 78,167Mr. A Cichonski 15 October 2007 500,000 264,846 81,068

1,000,000 513,418 167,934

Employment Contracts of Directors and Specified Executives

The company may terminate the services contract without cause by providing (1) months written notice. Termination payments aregenerally not payable on resignation or dismissal for serious misconduct. In the instance of serious misconduct the company canterminate services contract at any time. Any options granted in accordance with the company's employee share option plan not exercised before or on the date of termination will lapse.

* Fair value has been calculated using the Black-Scholes methodology as detailed in Note 20 to the Financial Statements.

Options Issued as Part of Remuneration for the year ended 30 June 2008

Options are issued to directors and executives as part of their remuneration. The options are not issued based on performance criteria, but are issued to directors and executives of Papyrus Limited to increase goal congruence between executives, directors and shareholders.

The employment conditions of the managing director, Mr Azer, are formalised in a services contract with Talisker (SA) Pty Ltd.

Page 6



Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155






Grant Date



Page 7

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Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155






Grant Date



Page 7



Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155



Grant Date








Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155



Grant Date








Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155



Grant Date








Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155



Grant Date






Se

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19



Grant DateExercise

PriceNumber of

Shares Issued14 April 2005 $ 0.20 9,604,350

Proceedings on Behalf of the Company

Non-audit Services

Environmental Issues

Auditor's Independence Declaration

Signed in accordance with a resolution of the Board of Directors.

Ramy AZER, Director

Dated this 26th Day of September 2008

The auditor's independence declaration for the year ended 30 June 2008 has been received and is attached.

No person has applied for leave Court to bring proceedings on behalf of the company or intervene in any proceedings towhich the company is a party for the purpose of taking responsibly on behalf of the company for all or part of those proceedings.

The company was not a party to any such proceedings during the year.

During the year ended 30 June 2008, the following ordinary shares were issued on the exercise of listed options grantedat IPO. No further shares have been issued since that date. No amounts are unpaid on any of the shares.

The Group’s operations are not currently subject to any significant environmental regulations under either Commonwealth or State legislation. The Group however believes that it has adequate systems in place for the management of any future environmental regulations.

No fees for non-audit services were paid/payable to the external auditors during the year ended 30 June 2008.

Page 8



Director Loans



Numberattended

Numbereligible to

attend

Number attended



Options


Price

ClosingBalance



37,587,505 9,604,350 1,000,000 - 28,983,155






Grant Date



Page 7


DIRECTORS' DECLARATION

The directors of the company declare that:

1.

(a) comply with Accounting Standards and the Corporations Regulations 2001; and

(b)

2. the Managing Director and Company Secretary have each declared that:

(a)

(b)

(c) the financial statements and notes for the financial year give a true and fair view;

3.

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

Ramy AZER, Director


in the director's opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

the financial statements and notes, as attached, are in accordance with the Corporations Act 2001 and:

give a true and fair view of the financial position as at 30 June 2007 and the performance for the year ended on that date of the company and consolidated group;

the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

the financial statements and notes for the financial year comply with the Accounting Standards; and

Page 31

Au

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Grant Thornton South Australian Partnership ABN 27 244 906 724

Level 1, 67 Greenhill Rd Wayville SA 5034 GPO Box 1270 Adelaide SA 5001 DX 275 Adelaide

T 61 8 8372 6666F 61 8 8372 6677E [email protected] www.grantthornton.com.au




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INCOME STATEMENTFOR THE YEAR ENDED 30 JUNE 2008

2008 2007 2008 2007Notes $ $ $ $

Revenues 2 145,114 149,241 145,114 149,241

Depreciation expense 3 (8,641) (11,296) (5,623) (7,479)Employment Expenses (978,164) (597,274) (978,164) (597,274)Other expenses 3 (1,022,034) (887,393) (1,022,034) (888,718)

Loss before income tax (1,863,725) (1,346,722) (1,860,707) (1,344,230)

Income tax expense 4 - 31,200 - 31,200

Loss for the year (1,863,725) (1,377,922) (1,860,707) (1,375,430)

Loss attributable to members of the parent entity (1,863,725) (1,377,922) (1,860,707) (1,375,430)

Cents Cents

Basic earnings per share (cents per share) 7 (3.27) (2.56)

Diluted earnings per share (cents per share) 7 (3.27) (2.56)

The accompanying notes form part of these financial statements

Consolidated Group Parent Entity

Page 10



2008 2007 2008 2007Notes $ $ $ $

Revenues 2 145,114 149,241 145,114 149,241




Loss for the year (1,863,725) (1,377,922) (1,860,707) (1,375,430)


Cents Cents





Page 10



2008 2007 2008 2007Notes $ $ $ $

Revenues 2 145,114 149,241 145,114 149,241




Loss for the year (1,863,725) (1,377,922) (1,860,707) (1,375,430)


Cents Cents





Page 10



2008 2007 2008 2007Notes $ $ $ $

Revenues 2 145,114 149,241 145,114 149,241




Loss for the year (1,863,725) (1,377,922) (1,860,707) (1,375,430)


Cents Cents





Page 10

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BALANCE SHEETAS AT 30 JUNE 2008

Note 2008 2007 2008 2007$ $ $ $

CURRENT ASSETSCash and Cash Equivalents 8 2,145,022 2,193,065 2,144,808 2,192,851Trade and Other Receivables 9 75,235 109,618 75,235 109,618

TOTAL CURRENT ASSETS 2,220,257 2,302,683 2,220,043 2,302,469

NON-CURRENT ASSETSTrade and Other Receivables 9 - - 375,709 62,054Financial Assets 10 - - 230,085 230,085Property, Plant and Equipment 12 1,777,919 1,548,963 1,766,091 1,534,115Intangible Assets 13 2,583,694 1,972,863 2,003,671 1,392,840

TOTAL NON-CURRENT ASSETS 4,361,613 3,521,826 4,375,556 3,219,094

TOTAL ASSETS 6,581,870 5,824,509 6,595,599 5,521,563

CURRENT LIABILITIESTrade and Other Payables 14 247,259 1,174,891 226,815 1,154,445Short-Term Provisions 15 56,067 48,555 56,067 48,555

TOTAL CURRENT LIABILITIES 303,326 1,223,446 282,882 1,203,000

NON-CURRENT LIABILITIESTrade and Other Payables 14 - 313,655 - -Other Non-Current Liabilities 16 1,932,596 480,193 1,932,596 480,193

TOTAL CURRENT LIABILITIES 1,932,596 793,848 1,932,596 480,193

TOTAL LIABILITIES 2,235,922 2,017,294 2,215,478 1,683,193

NET ASSETS 4,345,948 3,807,215 4,380,121 3,838,370

EQUITYIssued Capital 17 8,567,800 6,333,275 8,567,800 6,333,275Reserves 18 325,915 157,982 325,915 157,982Accumulated Losses (4,547,767) (2,684,042) (4,513,594) (2,652,887)

TOTAL EQUITY 4,345,948 3,807,215 4,380,121 3,838,370



Page 11



Note 2008 2007 2008 2007$ $ $ $





TOTAL ASSETS 6,581,870 5,824,509 6,595,599 5,521,563






NET ASSETS 4,345,948 3,807,215 4,380,121 3,838,370


TOTAL EQUITY 4,345,948 3,807,215 4,380,121 3,838,370



Page 11



Note 2008 2007 2008 2007$ $ $ $





TOTAL ASSETS 6,581,870 5,824,509 6,595,599 5,521,563






NET ASSETS 4,345,948 3,807,215 4,380,121 3,838,370


TOTAL EQUITY 4,345,948 3,807,215 4,380,121 3,838,370



Page 11



Note 2008 2007 2008 2007$ $ $ $





TOTAL ASSETS 6,581,870 5,824,509 6,595,599 5,521,563






NET ASSETS 4,345,948 3,807,215 4,380,121 3,838,370


TOTAL EQUITY 4,345,948 3,807,215 4,380,121 3,838,370



Page 11

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STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 30 JUNE 2008

Note Ordinary

RetainedEarnings

Share Options Reserve

Total$ $ $ $

Balance as at 1 July 2006 4,033,434 (1,306,120) 146,681 2,873,995

Shares issued during the year 2,299,841 - - 2,299,841Loss attributable to members of the parent entity - (1,377,922) - (1,377,922)Options reserve on recognition of employee share options - - 11,301 11,301

Balance as at 30 June 2007 6,333,275 (2,684,042) 157,982 3,807,215

Shares issued during the year - - - -Loss attributable to members of the parent entity - (1,863,725) - (1,863,725)Options reserve on recognition of employee share options - - 167,933 167,933








Consolidated Group

Parent Entity

Page 12



Note Ordinary

RetainedEarnings


Total$ $ $ $












Consolidated Group

Parent Entity

Page 12



Note Ordinary

RetainedEarnings


Total$ $ $ $












Consolidated Group

Parent Entity

Page 12



Note Ordinary

RetainedEarnings


Total$ $ $ $












Consolidated Group

Parent Entity

Page 12

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Note 2007 2006 2007 2006$ $ $ $



NON-CURRENT ASSETSTrade and Other Receivables 9 - - 62,054 62,190Financial Assets 10 - - 230,085 230,085Property, Plant and Equipment 12 1,548,963 53,230 1,534,115 34,566Intangible Assets 13 1,972,863 1,280,880 1,392,840 700,857


TOTAL ASSETS 5,824,509 3,543,553 5,521,563 3,236,926

CURRENT LIABILITIESTrade and Other Payables 14 1,174,891 216,581 1,154,445 194,946Short-Term Provisions 15 48,555 15,186 48,555 15,186


NON-CURRENT LIABILITIESTrade and Other Payables 14 313,655 313,655 - -Other Non-Current Liabilities 16 480,193 124,136 480,193 124,136

TOTAL CURRENT LIABILITIES 793,848 437,791 480,193 124,136

TOTAL LIABILITIES 2,017,294 669,558 1,683,193 334,268

NET ASSETS 3,807,215 2,873,995 3,838,370 2,902,658


TOTAL EQUITY 3,807,215 2,873,995 3,838,370 2,902,658




CASH FLOW STATEMENTFOR THE YEAR ENDED 30 JUNE 2008

Note 2008 2007 2008 2007$ $ $ $

CASH FLOWS FROM OPERATING ACTIVITIESReceipts from customers 63,548 100 63,548 100Payments to suppliers and employees (2,248,224) (1,544,018) (2,248,223) (1,544,154)Grant Funds Received 938,703 922,566 938,703 922,566Interest received 125,488 158,661 125,488 158,661

NET CASH PROVIDED BY (USED IN)OPERATING ACTIVITIES 19 (1,120,485) (462,691) (1,120,484) (462,827)

CASH FLOWS FROM INVESTING ACTIVITIESPurchase of property, plant and equipment (237,597) (1,064,911) (237,598) (1,064,910)Development costs (610,831) (691,983) (610,831) (691,983)Repayment of loans by rellated parties - - - 136

NET CASH PROVIDED BY (USED IN)INVESTING ACTIVITIES (848,428) (1,756,894) (848,429) (1,756,757)

CASH FLOWS FROM FINANCING ACTIVITIESProceeds from the Issue of shares 1,920,870 2,268,641 1,920,870 2,268,641

NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES 1,920,870 2,268,641 1,920,870 2,268,641

Net increase/(decrease) in cash held (48,043) 49,056 (48,043) 49,057

Cash at the beginning of financial year 2,193,065 2,144,009 2,192,851 2,143,794

Cash at end of financial year 8 2,145,022 2,193,065 2,144,808 2,192,851



Page 13



Note 2008 2007 2008 2007$ $ $ $












Page 13



Note 2008 2007 2008 2007$ $ $ $












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Note 2008 2007 2008 2007$ $ $ $












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NOTES TO THE FINANCIAL STATEMENTSFOR THE YEAR ENDED 30 JUNE 2008

NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES

(a) Principles of Consolidation

(b) Income TaxThe charge for current income tax expense is based on the profit for the year adjusted for any non-assessable or disallowed items. It is calculated using the tax rates that have been enacted or are substantially enacted by the balance sheet date.

Deferred tax is accounted for using the balance sheet liability method in respect of temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements. No deferred income tax will be recognised from the initial recognition of an asset or liability, excluding a business combination, where there is no effecton accounting or taxable profit or loss.

Deferred tax is calculated at the tax rates that are expected to apply to the period when the asset is realised or liability issettled. Deferred tax is credited in the income statement except where it relates to items that may be credited directly to equity, in which case the deferred tax is adjusted directly against equity.

The accounting policies set out below have been consistently applied to all years presented.

A controlled entity is any entity that Papyrus Australia Limited has the power to control the financial and operating policies of so as to obtain benefits from its activities.

All inter-company balances and transactions between entities in the consolidated entity, including any unrealised profits or losses, have been eliminated on consolidation. Accounting policies of subsidiaries have been changed where necessary to ensure consistencies with those policies applied by the parent entity.

Where controlled entities have entered or left the consolidated entity during the year, their operating results have been included from the date control was obtained or until the date control ceased.

A list of controlled entities is contained in Note 11 to the financial statements. All controlled entities have a June financialyear-end.

Reporting Basis and Conventions

The financial report has been prepared on an accruals basisand is based on historical costs modified, where applicable, by the measurement at fair value of selected non-current assets, financial assets and financial liabilities.

Accounting Policies

Basis of Preparation

The financial report is a general purpose financial report that has been prepared in accordance with Australian Accounting Standards, including Australian Accounting Interpretations, other authoritative pronouncements of the Australian Accounting Standards Board and the Corporations Act 2001.

The financial report covers the consolidated group of Papyrus Australia Ltd and controlled entities, and Papyrus Australia Ltd as anindividual parent entity. Papyrus Australia Ltd is a listed public company, incorporated and domiciled in Australia.

Australian Accounting Standards set out accounting policies that the AASB has concluded would result in a financial report containing revellent and reliable information about transactions, events and conditions to which they apply. Compliance with Australian Accounting Standards ensures that the financial statements and notes also comply with International Financial Reporting Standards. Material accounting policies adopted in the preparation of this financial report are presented below.

Page 14

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NOTE 1 - STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (CONT)

(b) Income Tax (cont)

(c) Plant and Equipment

(d) Depreciation

Class of fixed assets Depreciation RatesPlant & Equipment 10 - 40%

An asset's carrying amount is written down immediately to its recoverable amount if the asset's carrying amount is greater than its estimated recoverable amount.

Gains and losses on disposals are determined by comparing proceeds with the carrying amount. These gains and losses are included in the income statement. When revalued assets are sold, amounts included in the revaluation reserve relating to that asset are transferred to retained earnings.

The carrying amount of plant and equipment is reviewed annually by directors to ensure it is not in excess of the recoverable amount from these assets. The recoverable amount is assessed on the basis of the expected net cash flows that will be received from the asset's employment and subsequent disposal. The expected net cash flows have been discounted to their present values in determining recoverable amounts.

The cost of fixed assets constructed within the economic entity includes the cost of materials, direct labour, borrowing costsand an appropriate proportion of fixed and variable overheads.

The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.

The depreciable amount of all fixed assets is depreciated on a diminishing value basis over their useful lives to the economic entity commencing from the time the asset is held ready for use.

Subsequent costs are included in the asset's carrying amount or recognised as a separate asset, as appropriate, only whenit is probable that future economic benefits associated with the item will flow to the group and the cost of the item can be measured reliably. All other repairs and maintenance are charged to the income statement during the financial period in which they are incurred.

Plant and equipment are measured on the cost basis.

Deferred income tax assets are recognised to the extent that it is probable that future tax profits will be available against which deductible temporary differences can be utilised.

The amount of benefits brought to account or which may be realised in the future is based on the assumption that no adverse change will occur in income taxation legislation and the anticipation that the economic entity will derive sufficient future assessable income to enable the benefit to be realised and comply with the conditions of deductibility imposed by thelaw.

Papyrus Australia Limited and its wholly-owned Australian subsidiaries have formed an income tax consolidated group under the tax consolidation regime. Each entity in the group recognises its own current and deferred tax liabilities, except for any deferred tax liabilities resulting from unused tax losses and tax credits, which are immediately assumed by the parent entity. The current tax liability of each group entity is then subsequently assumed by the parent entity. The group notified the Australian Tax Office that it had formed an income tax consolidated group to apply from 1 July 2005. The tax consolidated group has entered a tax sharing agreement whereby each company in the group contributes to the income tax payable in proportion to their contribution to the net profit before tax of the tax consolidated group.

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(e) Leases

(f)

(g) IntangiblesPatents and Intellectual Property

(h) Financial InstrumentsRecognition

Available-for-sale Financial AssetsAvailable-for-sale financial assets are reflected at fair value. Unrealised gains and losses arising from changes in fair valueare taken directly to equity.

Impairment testing is performed annually for goodwill and tangible assets with indefinite lives.

Lease incentives under operating leases are recognised as a liability and amortised on a straight-line basis over the life of thelease term.

Leases of fixed assets where substantially all the risks and benefits incidental to the ownership of the asset, but not the legalownership that is transferred to entities in the economic entity, are classified as finance leases.

Finance leases are capitalised by recording an asset and a liability at the Lower of the amounts equal to the fair value of theleased property or the present value of the minimum lease payments, including any guaranteed residual values. Lease payments are allocated between the reduction of the lease liability and the lease interest expense for the period.

Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or the lease term.

Lease payments for operating leases, where substantially all the risks and benefits remain with the lessor, are charged as expenses in the periods in which they are incurred.

Financial instruments are initially measured at cost on trade date, which includes transaction costs, when the related contractual rights or obligations exist. Subsequent to initial recognition these instruments are measured as set out below.

Research and Development

Where is it is not possible to estimate the recoverable amount of an individual asset, the group estimates the recoverable amount of the cash-generating unit to which the asset belongs.

Expenditure during the research phase of a project is recognised as an expense when incurred. Development costs are capitalised only when technical feasibility studies identify that the project will deliver future economic benefits and these benefits can be measured reliably.

Development costs have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the project.

Patents and intellectual property are recognised at cost of acquisition. Patents and intellectual property have a finite life andare carried at cost less any accumulated amortisation and impairment losses. Patents and intellectual property are amortised on a systematic basis matched to the future economic benefits over the useful life of the cash-generating assets towhich they relate.

Impairment of AssetsAt each reporting date, the group reviews the carrying values of its tangible and intangible assets to determine whether there is any indication that those assets have been impaired. If such an indication exists, the recoverable amount of the asset, being the higher of the asset's fair value less costs to sell and value-in-use, is compared to the asset's carrying value. Any excess of the asset's carrying value over its recoverable amount is expensed to the income statement.

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NOTE 5 - KEY MANAGEMENT PERSONNEL COMPENSATION (CONT)

(b) Compensation Options

2008 Granted No.

Value per option at

grant dateExercise

Price First Exercise Date Last Exercise

DateKey Management Personnel Compensation $ $Dr. D M Wyatt 500,000 - 0.25 02-December-2004 31-March-2010

500,000 - 0.30 02-December-2004 31-March-2010Mr. R A Azer 375,000 - 0.25 02-December-2004 31-March-2010

375,000 - 0.30 02-December-2004 31-March-2010Mr. D C Stephens 375,000 - 0.25 02-December-2004 31-March-2010

375,000 - 0.30 02-December-2004 31-March-2010Mr. E M Byrt 375,000 - 0.25 02-December-2004 31-March-2010

375,000 - 0.30 02-December-2004 31-March-2010Mr. G A Menzies 375,000 - 0.25 02-December-2004 31-March-2010

375,000 - 0.30 02-December-2004 31-March-2010Mr. C D Smerdon 375,000 - 0.25 02-December-2004 31-March-2010

375,000 - 0.30 02-December-2004 31-March-2010Mr. V P Rigano 250,000 - 0.25 02-December-2004 31-March-2010

200,000 - 0.40 02-December-2004 31-March-2010Mr. G D Pigot 500,000 - 0.40 14-August-2007 13-August-2011

500,000 - 0.50 14-August-2008 13-August-2011Mr. W Halliday 250,000 - 0.80 08-October-2009 07-October-2012

250,000 - 1.25 08-October-2010 07-October-2012Mr. A Cichonski 250,000 - 0.80 15-October-2009 14-October-2012

250,000 - 1.25 15-October-2010 14-October-2012 7,200,000

2007 Granted No. Value per Exercise First Exercise Date Last Exercise Key Management Personnel Compensation $ $Dr. D M Wyatt 500,000 - 0.25 02-December-2004 31-March-2010








500,000 - 0.50 14-August-2008 13-August-2011 6,200,000

All options were granted for nil consideration

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(h) Financial Instruments (cont)

Fair Value

Impairment

(i)

(j)

(k) Goods and Services Tax (GST)

(l) Comparative Figures

(m) Revenue

(n) Government Assistance

Fair value is determined based on current bid prices for all quoted investments. Valuation techniques are applied to determine the fair value for all unlisted securities, including recent arm’s length transactions, reference to similar instrumentsand option pricing models.

At each reporting date, the group assess whether there is objective evidence that a financial instrument has been impaired. In the case of available-for-sale financial instruments, a prolonged decline in the value of the instrument is considered to determine whether an impairment has arisen. Impairment losses are recognised in the income statement.

Cash and cash equivalents include cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within short-term borrowings in current liabilities on the balance sheet.

Interest revenue is recognised on a proportional basis taking into account the interest rates applicable to the financial assets.

Government assistance relating to expense items are recognised as income over the periods necessary to match the assistance to the costs they are compensating. Assistance relating to assets are credited to deferred income at fair value and are credited to income over the expected useful life of the asset on a straight line basis.

Provision is made for the company's liability for employee benefits arising from services rendered by employees to balance date. Employee benefits that are expected to be settled within one year have been measured at the amounts expected to be paid when the liability is settled, plus related on-costs. Employee benefits payable later than one year have been measured at the present value of the estimated future cash outflows to be made for those benefits.

Employee Benefits

Cash and Cash Equivalents

All revenue is stated net of the amount of goods and services tax (GST).

Revenues, expenses & assets are recognised net of the amount of GST, except where the amount of GST incurred is not recoverable from the Australian Taxation Office. In these circumstances the GST is recognised as part of the cost of acquisition of the asset or as part of an item of the expense. Receivables and payables in the balance sheet are shown inclusive of GST.

Cash flows are presented in the cash flow statement on a gross basis, except for the GST component of investing and financing activities, which are disclosed as operating cash flows.

When required by Accounting Standards, comparative figures have been adjusted to conform to changes in presentation forthe current financial year.

Revenue from the sale of goods is recognised upon the delivery of goods to customers.

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(o) Critical Accounting Estimates and Judgments

Key Estimates - Impairment

Significant Accounting Estimate

2008 2007 2008 2007$ $ $ $

NOTE 2 - REVENUE

Operating ActivitiesInterest received from other parties 115,949 149,141 115,949 149,141 Other revenue 29,165 100 29,165 100

145,114 149,241 145,114 149,241


The directors evaluate estimates and judgements incorporated into the financial report based on historical knowledge and best available current information. Estimates assume a reasonable expectation of future events and are based on current trends and economic data, obtained externally and within the group.

The group assesses impairment at each reporting date by evaluating conditions specific to the group that may lead to impairment of assets. Where an impairment trigger exists, the recoverable amount of the asset is determined. Value-in-use calculations performed in assessing recoverable amounts incorporate a number of key estimates.

The group has capitalised the development costs related to the development of the Banana Ply Paper Technology, the recoverability of this asset is dependent on the successful commercialisation. At 30 June 2008 the commercialisation was not complete.

Page 18







2008 2007 2008 2007$ $ $ $

NOTE 2 - REVENUE


145,114 149,241 145,114 149,241





Page 18







2008 2007 2008 2007$ $ $ $

NOTE 2 - REVENUE


145,114 149,241 145,114 149,241





Page 18





2008 Granted No.

Value per option at

grant dateExercise












250,000 - 1.25 15-October-2010 14-October-2012 7,200,000









500,000 - 0.50 14-August-2008 13-August-2011 6,200,000


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2008 2007 2008 2007$ $ $ $

NOTE 3 - LOSS FOR THE YEAR

ExpensesDepreciation of non current assets:Plant and equipment 8,641 11,296 5,623 7,479

Other expensesAudit fees 26,200 27,000 26,200 27,000Professional service 303,784 174,184 303,784 174,184Travel and accommodation 95,744 69,243 95,744 69,243Directors fees 160,000 160,000 160,000 160,000Company secretarial 30,000 30,000 30,000 30,000Rent & Communication expenses 218,516 86,374 218,516 86,374Patent expenses 36,787 155,157 36,787 155,157Share registry and ASX expenses 65,178 65,245 65,178 65,245Other expenses 85,825 120,190 85,825 121,515

1,022,034 887,393 1,022,034 888,718

NOTE 4 - INCOME TAX

The componants of tax expense comprise:Deferred tax - 31,200 - 31,200

The prima facie tax on loss from ordinary activitiesbefore income tax is reconciled to the income taxas follows:

Prima facie tax (benefit) from ordinary activities beforeincome tax at 30% (2007: 30%) (559,118) (404,017) (558,212) (403,269)Add: Non-allowable items 3,680 20,583 3,680 20,583Add: Tax losses not brought to account 555,438 383,433 554,533 382,686Less: Deferred tax asset not brought to account for taxeffect on share transaction costs - - - -

Income tax attributable to entity - 31,200 - 31,200

Tax LossesThe directors estimate that the potential future incometax benefit at the year end not brought to account is 938,871 383,433 937,218 382,686

NOTE 5 - KEY MANAGEMENT PERSONNEL COMPENSATION

(a)

Key Management Person Position

Dr. D M Wyatt Chairman - Non-ExecutiveMr. R A Azer Managing Director - ExecutiveMr. D C Stephens Director - Non-ExecutiveMr. E M Byrt Director - Non-ExecutiveMr. G A Menzies Director - Non-ExecutiveMr. C D Smerdon Director - Non-ExecutiveMr. V P Rigano Company SecretaryMr. G D Pigot Chief Operation OfficerMr. W Halliday General Manager - EngineeringMr. A Cichonski General Manager - Production


Names and positions held of consolidated and parent entity key management personnel in office at any time during the financial year.



2008 2007 2008 2007$ $ $ $

NOTE 3 - LOSS FOR THE YEAR

ExpensesDepreciation of non current assets:Plant and equipment 8,641 11,296 5,623 7,479

Other expensesAudit fees 26,200 27,000 26,200 27,000Professional service 303,784 174,184 303,784 174,184Travel and accommodation 95,744 69,243 95,744 69,243Directors fees 160,000 160,000 160,000 160,000Company secretarial 30,000 30,000 30,000 30,000Rent & Communication expenses 218,516 86,374 218,516 86,374Patent expenses 36,787 155,157 36,787 155,157Share registry and ASX expenses 65,178 65,245 65,178 65,245Other expenses 85,825 120,190 85,825 121,515

1,022,034 887,393 1,022,034 888,718

NOTE 4 - INCOME TAX

The componants of tax expense comprise:Deferred tax - 31,200 - 31,200

The prima facie tax on loss from ordinary activitiesbefore income tax is reconciled to the income taxas follows:

Prima facie tax (benefit) from ordinary activities beforeincome tax at 30% (2007: 30%) (559,118) (404,017) (558,212) (403,269)Add: Non-allowable items 3,680 20,583 3,680 20,583Add: Tax losses not brought to account 555,438 383,433 554,533 382,686Less: Deferred tax asset not brought to account for taxeffect on share transaction costs - - - -

Income tax attributable to entity - 31,200 - 31,200

Tax LossesThe directors estimate that the potential future incometax benefit at the year end not brought to account is 938,871 383,433 937,218 382,686

NOTE 5 - KEY MANAGEMENT PERSONNEL COMPENSATION

(a)

Key Management Person Position

Dr. D M Wyatt Chairman - Non-ExecutiveMr. R A Azer Managing Director - ExecutiveMr. D C Stephens Director - Non-ExecutiveMr. E M Byrt Director - Non-ExecutiveMr. G A Menzies Director - Non-ExecutiveMr. C D Smerdon Director - Non-ExecutiveMr. V P Rigano Company SecretaryMr. G D Pigot Chief Operation OfficerMr. W Halliday General Manager - EngineeringMr. A Cichonski General Manager - Production


Names and positions held of consolidated and parent entity key management personnel in office at any time during the financial year.

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2008 Granted No.

Value per option at

grant dateExercise












250,000 - 1.25 15-October-2010 14-October-2012 7,200,000









500,000 - 0.50 14-August-2008 13-August-2011 6,200,000


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2008 Granted No.

Value per option at

grant dateExercise












250,000 - 1.25 15-October-2010 14-October-2012 7,200,000









500,000 - 0.50 14-August-2008 13-August-2011 6,200,000


Page 20





2008 Granted No.

Value per option at

grant dateExercise












250,000 - 1.25 15-October-2010 14-October-2012 7,200,000









500,000 - 0.50 14-August-2008 13-August-2011 6,200,000


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(c) Option HoldingsNumber of Options held by Key Management Personnel

Balance1 July 2007

Granted as Compen-sation

OptionsExercised Balance

30 June 2008

TotalExercisable

30 June 2008Dr. D M Wyatt 1,877,314 - - 1,877,314 1,877,314 Mr. R A Azer 11,046,000 - - 11,046,000 11,046,000 Mr. D C Stephens 3,333,557 - - 3,333,557 3,333,557 Mr. E M Byrt - - - - - Mr. G A Menzies 783,424 - - 783,424 783,424 Mr. C D Smerdon 970,241 - 130,000 840,241 840,241 Mr. V P Rigano 3,026,874 - - 3,026,874 3,026,874 Mr. G D Pigot 1,000,000 - - 1,000,000 1,000,000 Mr. W Halliday - 500,000 - 500,000 500,000 Mr. A Cichonski - 500,000 - 500,000 500,000

22,037,410 1,000,000 130,000 22,907,410 22,907,410

(d) ShareholdingsNumber of Shares held by Key Management Personnel

Balance1 July 2007

Received as Compen-sation

OptionsExercised

Net Change Other*

Balance30 June 2008

Dr. D M Wyatt 1,754,628 - - - 1,754,628 Mr. R A Azer 20,592,000 - - 634,413 21,226,413 Mr. D C Stephens 217,114 - - - 217,114 Mr. E M Byrt 950,536 - - - 950,536 Mr. G A Menzies 36,733 - - 15,057 51,790 Mr. C D Smerdon 180,483 - 130,000 - 310,483 Mr. V P Rigano 153,747 - 60,000 - 213,747 Mr. A Cichonski - - - 20,000 20,000

23,885,241 - 190,000 669,470 24,744,711

* Net Change Other refers to shares purchased and sold during the financial year.

2008 2007 2008 2007$ $ $ $

NOTE 6 - AUDITORS' REMUNERATION

Remuneration of the auditor of the parent entity for:

- auditing or reviewing the financial report 26,200 27,000 26,200 27,000 - other services - - - -

26,200 27,000 26,200 27,000


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2008 2007 2008 2007$ $ $ $

NOTE 7 - EARNINGS PER SHARE

(a) Reconciliation of Earnings to Profit or Loss

Loss (1,863,725) (1,377,922)

Earnings used in the calculation of basic EPS (1,863,725) (1,377,922)

Earnings used in the calculation of dilutive EPS (1,863,725) (1,377,922)

(b)57,066,150 53,926,081

Weighted average number of options outstanding - -

57,066,150 53,926,081

Cents Cents

Basic earnings per share (cents per share) (3.27) (2.56)Diluted earnings per share (cents per share) (3.27) (2.56)

NOTE 8 - CASH & CASH EQUIVALENTS

Cash at bank and in hand 447,694 61,438 447,480 61,438 Short term deposits 1,697,328 2,131,627 1,697,328 2,131,413

2,145,022 2,193,065 2,144,808 2,192,851

2,145,022 2,193,065 2,144,808 2,192,851

Parent EntityConsolidated Group

Weighted average number of ordinary shares outstanding during the year used in calculation of basic EPS

Weighted average number of ordinary shares outstanding during the year used in calculation of dilutive EPS

RECONCILIATION OF CASH

Cash & Cash Equivalents

The effective interest rate on short-term deposits was 6.88% (2007:6.03%), these deposits have an average maturity of 60 days.

Cash at the end of the financial year as shown in the cash flow statement is reconciled to items in the Balance sheet as follows:

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2008 2007 2008 2007$ $ $ $

NOTE 9 - TRADE AND OTHER RECEIVABLES

CURRENTGST Receivable 49,427 102,516 49,427 102,516Other Debtors 25,808 7,102 25,808 7,102

75,235 109,618 75,235 109,618NON-CURRENTAmounts receivable from: - Wholly owned subsidiaries - - 375,709 62,054

NOTE 10 - FINANCIAL ASSETS

NON-CURRENTAvailable-for-sale Financial AssetsUnlisted investments, at cost - Shares in controlled entities - - 230,085 230,085

NOTE 11 - CONTROLLED ENTITIES2008 2007

Controlled EntitiesCountry of

Incorporation

Parent Entity:Papyrus Australia Ltd Aust. - -

Subsidiaries of Papyrus Australia Ltd:Papyrus Technology Pty Ltd Aust. 100 100

2008 2007 2008 2007$ $ $ $

NOTE 12 - PROPERTY, PLANT AND EQUIPMENTPlant & equipment at cost 99,568 98,392 50,844 49,666Accumulated depreciation (56,299) (47,658) (19,403) (13,780)Capital works in progress 1,734,650 1,498,229 1,734,650 1,498,229

1,777,919 1,548,963 1,766,091 1,534,115

Movements in carrying amounts

Balance at beginning of year 1,548,963 53,230 1,534,115 34,566Additions 1,176 8,800 1,178 8,798Disposals - - - -Depreciation expense (8,641) (11,296) (5,622) (7,478)Capital works in progress 236,421 1,498,229 236,421 1,498,229

Carrying amount at end of year 1,777,919 1,548,963 1,766,092 1,534,115

Shares in controlled entities comprise investment in the ordinary issued capital of Papyrus Technology Pty Ltd. There is no fixed returnor maturity date attached to this investment.

Recoverability of the carrying amount of shares in controlled entities is dependant on the successful development of the machine to convert banana trees into banana ply products (BPP) and the sale of these BPP products.

Percentage Owned (%)





2008 2007 2008 2007$ $ $ $








Incorporation



2008 2007 2008 2007$ $ $ $


1,777,919 1,548,963 1,766,091 1,534,115











2008 2007 2008 2007$ $ $ $








Incorporation



2008 2007 2008 2007$ $ $ $


1,777,919 1,548,963 1,766,091 1,534,115











2008 2007 2008 2007$ $ $ $








Incorporation



2008 2007 2008 2007$ $ $ $


1,777,919 1,548,963 1,766,091 1,534,115











2008 2007 2008 2007$ $ $ $








Incorporation



2008 2007 2008 2007$ $ $ $


1,777,919 1,548,963 1,766,091 1,534,115











2008 2007 2008 2007$ $ $ $








Incorporation



2008 2007 2008 2007$ $ $ $


1,777,919 1,548,963 1,766,091 1,534,115









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2008 2007 2008 2007$ $ $ $

NOTE 13 - INTANGIBLE ASSETS

Patents and Intellectual PropertyCost 580,023 580,023 - -Accumulated amortisation and impairment - - - -

Net carrying value 580,023 580,023 - -

Development costsCost 2,003,671 1,392,840 2,003,671 1,392,840Accumulated amortisation and impairment - - - -

Net carrying value 2,003,671 1,392,840 2,003,671 1,392,840

Total Intangibles 2,583,694 1,972,863 2,003,671 1,392,840

The expenditure relates to development of the banana ply project not yet completed.

Patents and IntellectualProperty

DevelopmentCosts

$ $Consolidated Entity

Year ended 30 June 2007Balance at beginning of year 580,023 700,857Additions - 691,983Disposals - -

- - Impairment loss - -

Closing value at 30 June 2007 580,023 1,392,840

Year ended 30 June 2008Balance at beginning of year 580,023 1,392,840Additions - 610,831Disposals - -




Development costs have a finite life and at the date of this report the banana ply project is yet to be completed.

Amortisation charge

Amortisation charge

Patents and intellectual property have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the cash-generating assets to which they relate.

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2008 2007 2008 2007$ $ $ $

NOTE 13 - INTANGIBLE ASSETS

Patents and Intellectual PropertyCost 580,023 580,023 - -Accumulated amortisation and impairment - - - -

Net carrying value 580,023 580,023 - -

Development costsCost 2,003,671 1,392,840 2,003,671 1,392,840Accumulated amortisation and impairment - - - -

Net carrying value 2,003,671 1,392,840 2,003,671 1,392,840

Total Intangibles 2,583,694 1,972,863 2,003,671 1,392,840

The expenditure relates to development of the banana ply project not yet completed.

Patents and IntellectualProperty

DevelopmentCosts

$ $Consolidated Entity

Year ended 30 June 2007Balance at beginning of year 580,023 700,857Additions - 691,983Disposals - -



Year ended 30 June 2008Balance at beginning of year 580,023 1,392,840Additions - 610,831Disposals - -




Development costs have a finite life and at the date of this report the banana ply project is yet to be completed.

Amortisation charge

Amortisation charge

Patents and intellectual property have a finite life and are amortised on a systematic basis matched to the future economic benefits over the useful life of the cash-generating assets to which they relate.

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2008 2007 2008 2007$ $ $ $








Incorporation



2008 2007 2008 2007$ $ $ $


1,777,919 1,548,963 1,766,091 1,534,115









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NOTE 14 - TRADE AND OTHER PAYABLES

CURRENTUnsecured liabilitiesTrade payables 172,859 540,968 152,415 520,522Sundry payables and accrued expenses 74,400 633,923 74,400 633,923

247,259 1,174,891 226,815 1,154,445

NON-CURRENTUnsecured liabilitiesLoan from director (Note 22) - 313,655 - -

- 313,655 - -

NOTE 15 - SHORT-TERM PROVISIONSConsolidated

GroupParent Entity

$ $Employee EntitlementsOpening balance at 1 July 2007 48,555 48,555Additional provisions 7,512 7,512Amounts used - -

Balance at 30 June 2008 56,067 56,067

2008 2007 2008 2007$ $ $ $

Analysis of Total ProvisionsCurrent 56,067 48,555 56,067 48,555

NOTE 16 - OTHER NON-CURRENT LIABILITIES

Deferred Government Assistance 1,932,596 480,193 1,932,596 480,193

NOTE 17 - ISSUED CAPITAL

8,567,800 6,333,275 8,567,800 6,333,275

2008 2007Ordinary shares No. No.At the beginning of the reporting period 57,743,245 50,078,000

Shares issued in the year: - 7,665,24550,000 -

457,500 -52,500 -

191,280 -634,413 -247,250 -230,856 -145,000 -

8,229,964 -

At Reporting date 67,982,008 57,743,245

- 23 November 2007

Consolidated Entity

67,982,008 (2007: 57,743,245) fully paid ordinary shares

- 11 July 2007- 17 August 2007- 4 October 2007- 17 October 2007

- 8 April 2008

- 19 December 2007- 1 February 2008- 25 February 2008





2008 2007 2008 2007$ $ $ $

NOTE 14 - TRADE AND OTHER PAYABLES

CURRENTUnsecured liabilitiesTrade payables 172,859 540,968 152,415 520,522Sundry payables and accrued expenses 74,400 633,923 74,400 633,923

247,259 1,174,891 226,815 1,154,445

NON-CURRENTUnsecured liabilitiesLoan from director (Note 22) - 313,655 - -

- 313,655 - -

NOTE 15 - SHORT-TERM PROVISIONSConsolidated

GroupParent Entity

$ $Employee EntitlementsOpening balance at 1 July 2007 48,555 48,555Additional provisions 7,512 7,512Amounts used - -

Balance at 30 June 2008 56,067 56,067

2008 2007 2008 2007$ $ $ $

Analysis of Total ProvisionsCurrent 56,067 48,555 56,067 48,555

NOTE 16 - OTHER NON-CURRENT LIABILITIES

Deferred Government Assistance 1,932,596 480,193 1,932,596 480,193

NOTE 17 - ISSUED CAPITAL

8,567,800 6,333,275 8,567,800 6,333,275

2008 2007Ordinary shares No. No.At the beginning of the reporting period 57,743,245 50,078,000

Shares issued in the year: - 7,665,24550,000 -

457,500 -52,500 -

191,280 -634,413 -247,250 -230,856 -145,000 -

8,229,964 -

At Reporting date 67,982,008 57,743,245

- 23 November 2007

Consolidated Entity

67,982,008 (2007: 57,743,245) fully paid ordinary shares

- 11 July 2007- 17 August 2007- 4 October 2007- 17 October 2007

- 8 April 2008

- 19 December 2007- 1 February 2008- 25 February 2008



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NOTE 17 - ISSUED CAPITAL (CONT)

NOTE 18 - RESERVES

Option Reserve

2008 2007 2008 2007$ $ $ $

NOTE 19 - CASH FLOW INFORMATION

(1,863,725) (1,377,922) (1,860,707) (1,375,430)

Non-cash flows in profit- Depreciation 8,641 11,296 5,623 7,479- Net loss on disposal of plant and equipment - - - -- Share option expense 167,933 11,301 167,933 11,301- Tax effect of float costs - 31,200 - 31,200

- (Increase)/Decrease in trade and other receivables 34,383 (44,184) 34,383 (44,184)- Increase/(Decrease) in trade payables and accruals (413,932) 516,192 (413,931) 517,381- Increase/(Decrease) in other liabilities - 356,057 - 356,057- Increase/(Decrease) in provisions 7,512 33,369 7,512 33,369

Cash flow from operations (2,059,188) (462,691) (2,059,187) (462,827)

During the year 9,604,350 listed options were exercised for ordinary shares at an exercise price of $0.20 per share.

During the year 634,413 ordinary shares were issued at an exercise price of $0.4944 per share as settlement for a long term loanin the Subsidiary.

Ordinary shares participate in dividends and the proceeds on winding up of the parent entity in proportion to the number of sharesheld.

Reconciliation of cash flows from operations with Profit/(Loss) after Income Tax

Profit/(Loss) after income tax

Changes in assets and liabilities, net of the effects of purchase of subsidiary

At the shareholders meetings each ordinary share is entitled to one vote when a poll is called, otherwise each shareholder has one vote on a show of hands.

The option reserve records items recognised as expenses on valuation of employee share options and options issued to brokers as part of the broker sponsoring agreement.


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NOTE 18 - RESERVES

Option Reserve

2008 2007 2008 2007$ $ $ $


(1,863,725) (1,377,922) (1,860,707) (1,375,430)













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NOTE 18 - RESERVES

Option Reserve

2008 2007 2008 2007$ $ $ $


(1,863,725) (1,377,922) (1,860,707) (1,375,430)













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NOTE 20 - SHARE BASED PAYMENTS

Number of Options

WeightedAverage

Exercise Price$

Number of Options

WeightedAverage

Exercise Price $

Outstanding at the beginning of the year 22,204,525 0.28 22,021,370 0.27 Granted 1,000,000 1.03 1,000,000 0.45 Forfeited - - - - Exercised - - 816,845 0.27 Expired - - - - Outstanding at year-end 23,204,525 0.31 22,204,525 0.28 Exercisable at year-end 22,954,525 0.28 21,204,525 0.27

08 Oct 2009 08 Oct 2010 15 Oct 2009 15 Oct 20100.57$ 0.49$ 0.53$ 0.46$ 0.86$ 0.86$ 0.82$ 0.82$

72.40% 72.40% 72.40% 72.40%

5 years 5 years 5 years 5 years

6.43% 6.43% 6.43% 6.43%

On 8 October 2007, 250,000 share options were granted to key management personnel with an exercise period of 8 October 2009 to 7 October 2012 at an exercise price of $0.80, and a further 250,000 share options were granted with an exercise period of 8 October 2010 to 7 October 2012 at an exercise price of $1.25. The options hold no voting or dividend rights and are transferable.

On 15 October 2007, 250,000 share options were granted to key management personnel with an exercise period of 15 October 2009 to 14 October 2012 at an exercise price of $0.80, and a further 250,000 share options were granted with an exercise period of 15 October 2010 to 14 October 2012 at an exercise price of $1.25. The options hold no voting or dividend rights and are transferable.

All options granted to key management personnel are for ordinary shares in Papyrus Australia Ltd, which confer a right to one ordinary share for every option held.

2008 2007

Risk-free interest rate (based on government bonds)

Option life (expressed as weighted volatility used in the modelling under Black-Sholes model)

Expected volatility (expressed as weighted volatility used in the modelling under Black-Scholes model)

Share price

The weighted average fair value of the options granted during the year was $0.51

Fair value at grant date

The options outstanding at 30 June 2008 had a weighted average exercise price of $0.28 and a weighted average remaining contractual life of 3.36 years. Exercise prices range from $0.25 to $1.25 in respect of options outstanding at 30 June 2008.

This price was calculated by using a Black-Scholes option pricing model applying the following inputs:

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2008 2007 2008 2007$ $ $ $

NOTE 20 - SHARE BASED PAYMENTS (CONT)

Wholly Owned Group

24,000 24,000 24,000 24,000

- 5,500 - 5,500

8,102 10,852 8,102 10,852

38,400 36,000 38,400 36,000

- - - -

Legal fees were paid to Menzies & Partners for provision of legal services.Mr. G A Menzies is a partner of Menzies & Partners.

Legal fees were paid to Norman Waterhouse Lawyers for provision of legal advice. Mr. E M Byrt is a director of Norman Waterhouse Lawyers.

A non interest bearing loan liability between Papyrus Technology Pty Ltd and Mr. R Azer was extinguished by the issue of 634,413 fully paid ordinary shares in Papyrus Australia Ltd at a price of $0.4944 per share.

Accounting Fees paid to V P Rigano & Co Pty Ltd for accounting services provided. Mr V P Rigano is a director of V P Rigano & Co Pty Ltd.


NOTE 21 - EVENTS AFTER THE BALANCE SHEET DATE

No material events have occurred subsequent to balance date.

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

Historical volatility has been the basis for determining expected share pricevolatility as it is assumed that this is indicative of future trends, which may not eventuate.

The life of the options is based on the historical exercise patterns, which may not eventuate in the future.

Management fees were paid to DCS Corporate Advisors Pty Ltd for management services provided. Mr. D C Stephens is the sole director of DCS Corporate Advisors Pty Ltd.

NOTE 22 - RELATED PARTY TRANSACTIONS

Transaction with related parties:

The wholly owned group consists of those entities listed in Note 11.

Loans to the wholly owned subsidiary relate to the provision of working capital.



2008 2007 2008 2007$ $ $ $

NOTE 20 - SHARE BASED PAYMENTS (CONT)

Wholly Owned Group

24,000 24,000 24,000 24,000

- 5,500 - 5,500

8,102 10,852 8,102 10,852

38,400 36,000 38,400 36,000

- - - -

Legal fees were paid to Menzies & Partners for provision of legal services.Mr. G A Menzies is a partner of Menzies & Partners.

Legal fees were paid to Norman Waterhouse Lawyers for provision of legal advice. Mr. E M Byrt is a director of Norman Waterhouse Lawyers.

A non interest bearing loan liability between Papyrus Technology Pty Ltd and Mr. R Azer was extinguished by the issue of 634,413 fully paid ordinary shares in Papyrus Australia Ltd at a price of $0.4944 per share.

Accounting Fees paid to V P Rigano & Co Pty Ltd for accounting services provided. Mr V P Rigano is a director of V P Rigano & Co Pty Ltd.


NOTE 21 - EVENTS AFTER THE BALANCE SHEET DATE

No material events have occurred subsequent to balance date.

Transactions between related parties are on normal commercial terms and conditions no more favourable than those available to other parties unless otherwise stated.

Historical volatility has been the basis for determining expected share pricevolatility as it is assumed that this is indicative of future trends, which may not eventuate.

The life of the options is based on the historical exercise patterns, which may not eventuate in the future.

Management fees were paid to DCS Corporate Advisors Pty Ltd for management services provided. Mr. D C Stephens is the sole director of DCS Corporate Advisors Pty Ltd.

NOTE 22 - RELATED PARTY TRANSACTIONS

Transaction with related parties:

The wholly owned group consists of those entities listed in Note 11.

Loans to the wholly owned subsidiary relate to the provision of working capital.

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NOTE 23 - FINANCIAL INSTRUMENTS

(a) Financial Risk Management

(i) Liquidity Risk

(ii) Interest Rate Risk

2008 2007 2008 2007 2008 2007 2008 2007% % $ $ $ $

Financial Assets

Cash and cash equivalents 6.88% 6.03% 2,145,022 2,193,065 - - 2,145,022 2,193,065 Receivables - - - - 75,235 109,618 75,235 109,618

2,145,022 2,193,065 75,235 109,618 2,220,257 2,302,683

Financial Liabilities

Trade and sundry payables - - - - 247,259 1,488,546 247,259 1,488,546

- - 247,259 1,488,546 247,259 1,488,546 Total Net Financial Assets 2,145,022 2,193,065 (172,024) (1,378,928) 1,972,998 814,137

(b) Net Fair Value of Financial Assets and Liabilities

Non Interest Bearing Total

The net fair value of cash, cash equivalent and non interest bearing monetary financial assets and financial liabilities of theconsolidated group approximate their carrying value.

The balances are not materially different from those disclosed in the Balance Sheet of the consolidated group.

The consilidated group's activities expose it to a variety of financial risks. Due to the size of the current operation these risks aremanaged by the Board of Directors and the CFO. The risks identified are:-

The net fair value of other monetary financial assets and financial liabilities is based on discounting future cash flows by thecurrent interest rates for assets and liabilities with similar risk profiles.

Exposures arise predominantly from assets and liabilities bearing viable interest rates as the consolidated group intends to hold fixed rate assets and liabilities to maturity.

The consolidated group manages liquidity risk by establishing long term cash flow forecasts for the development on the group's products. Cash requirements are managed around these forecasts.

WeightedAverage Floating Interest Rate

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2008 2007 2008 2007$ $ $ $

NOTE 24 - CAPITAL AND LEASING COMMITMENTS

Operating Lease Commitments

Payable - minimum lease payments- not later than 12 months 252,049 118,256 252,049 118,256 - between 12 months and 5 years 429,354 357,580 429,354 357,580

681,403 475,836 681,403 475,836

NOTE 25 - SEGMENT REPORTING

Business segments

Geographical segments

NOTE 26 - CHANGES IN ACCOUNTING STANDARDS

New accounting standards and interpretations

The consolidated entities operates solely within Australia.

The vehicle leases are non-cancellable leases with a 2 to 5 year term and a residual pay-out value of $76,838.

Certain new accounting standards and interpretations have been published that are not mandatory for 30 June 2008 reporting period. The Group's and the parent entity's assessment of the impact of these new standards and interpretations is set out below.

(i) AASB 2007-3: Amendments to Australian Accounting Standards [AASB 5, AASB 6, AASB 102, AASB 107, AASB 119, AASB 127, AASB 134,AASB 136, AASB 1023 & AASB 1038]AASB 2007-3 are applicable to annual reporting periods beginning on or after 1 January 2009. The Group has not adopted the standards early.Application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's and the parent entity's financial instruments.

The consolidated group has one business segment being the Research and Development and Commercialisation division which is involved in the commercialisation of the Banana Ply Paper (BPP) technology.


Non-cancellable operating leases contracted for but not capitalised in the financial statements

The property lease is a non-cancellable lease with a three year term, with rent payable monthly in advance. Contingent rental provisions within the lease agreement require the minium lease payments shall be increased by the lower of CPI or 4% per annum. An option exists to renew the lease at the end of the three year term for an additional term of 3 years.

(ii) AASB 8 Operating SegmentsAASB-8 is applicable to reporting periods commencing on or after 1 January 2009. The Group has not adopted the standards early. Application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's and the parent entity's financial instruments.

(iii) AASB 2007-6 Amendments to Australian Accounting Standards [AASB 1, AASB 101, AASB 1111 AASB 116 & AASB 138]AASB 2007-6 are applicable to annual reporting periods beginning on or after 1 January 2009. The Group has not adopted the standards early.Application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's and the parent entity's financial instruments.

(iv) AASB 123 Borrowing CostsAASB - 123 is applicable to reporting periods commencing on or after 1 January 2009. The Group has not adopted the standards early.Application of the standards will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's and the parent entity's financial instruments.

(v) AASB 2007-8 Amendments to Australian Accounting Standards [AASB 101]AASB 2007-8 is applicable to annual reporting periods beginning on or after 1 January 2009. The Group has not adopted the standard early.Application of the standard will not affect any of the amounts recognised in the financial statements, but will impact the type of information disclosed in relation to the Group's and the parent entity's financial instruments.

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DIRECTORS' DECLARATION

The directors of the company declare that:

1.

(a) comply with Accounting Standards and the Corporations Regulations 2001; and

(b)

2. the Managing Director and Company Secretary have each declared that:

(a)

(b)

(c) the financial statements and notes for the financial year give a true and fair view;

3.

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

Ramy AZER, Director


in the director's opinion there are reasonable grounds to believe that the company will be able to pay its debts as and when they become due and payable.

the financial statements and notes, as attached, are in accordance with the Corporations Act 2001 and:

give a true and fair view of the financial position as at 30 June 2007 and the performance for the year ended on that date of the company and consolidated group;

the financial records of the company for the financial year have been properly maintained in accordance with section 286 of the Corporations Act 2001;

the financial statements and notes for the financial year comply with the Accounting Standards; and

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PAPYRUS AUSTRALIA LTD AND CONTROLLED ENTITIES ABN 63 110 868 409

SHAREHOLDERS INFORMATION

All shareholder information is current as at 30 September 2008.

Difference in Results Reported to ASX There is no material differences between the figures reported in the financial statements and those lodged with the ASX in the Company’s September 4E.

Cash Usage The entity has used its cash and assets in a form readily converted to cash and in a manner which is consistent with its business objectives.

Audit Committee The members of the audit committee are set out in the director’s report.

Corporate Governance Papyrus’s corporate governance practices are set forth in the section headed Corporate Governance of the Annual Report.

Substantial Holders Substantial Holders in the Company are set out below:

Number Held Percentage

Ordinary Shares Ramy Azer 20,592,000 31.22%

Quoted Equity Securities There are 67,982,008 quoted ordinary shares and 1,626 holders of these shares.

There are 99 shareholdings held in less than marketable parcels.

Voting Rights There are two classes of equity securities issued by the Company, ordinary shares and options, with voting rights attached only to the ordinary shares. One share equates to one vote.

Distribution of security holders

Category (size of Holding) Number Ordinary

Shareholders1 - 1,000 93 1,001 - 5,000 356 5,001 – 10,000 291 10,000 – 100,000 808 100,000 – and over 78 1,626

Restricted and Unquoted Equity Securities

Ordinary Shares There are no restricted and/or unquoted ordinary shares.

Unquoted Options There are 28,983,155 unquoted options, and 19 holders of these options.

Substantial Unquoted Options Holders Substantial Holders in the Company are set out below:

Unquoted Options Number Held Percentage

Ramy Azer 11,046,000 38.11%

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020 Largest Shareholders – Ordinary Shares

Name Number of Ordinary Fully Paid Shares Held

% Held of Issued Ordinary Capital

1 Ramy Azer 21,226,413 31.22% 2 Bond Street Custodians Ltd 1,964,000 2.89% 3 David Wyatt 1,754,628 2.58% 4 Mohamad Abbas 1,125,000 1.65% 5 Stroud Nominees Pty Ltd 950,536 1.40% 6 Colin Keith Menzies & Patricia May Menzies 784,000 1.15% 7 Vincent Peter Rigano 600,000 0.88% 8 Your Child’s Nursery Pty Ltd 535,000 0.79% 9 Your Childs Nursery Pty Ltd 500,353 0.74% 10 Gary Raymond Christoffel 500,012 0.74% 11 Glenn Jobling 443,455 0.65% 12 Dagres Pty Ltd 432,000 0.64% 13 Justin Mackenzie Macintosh & Delia Stacy Macintosh 400,000 0.59%

14 Michael Andrew Whiting & Tracey Anne Whiting 337,875 0.50%

15 Resource Asia Ltd 315,000 0.46% 16 Cleveland & Associates Pty Ltd 300,000 0.44% 17 Carmel Elizabeth Whiting 275,000 0.40% 18 Anna Wong 275,000 0.40% 19 Stephen John Ardron 269,121 0.40% 20 Foresight Pty Ltd 266,812 0.39%

33,254,205 49.91%

Company Particulars The name of the company secretary is Mr. Vincent Rigano.

The address of the principal registered office is: C/- V P Rigano & Co. Certified Practicing Accountants Ground Floor Elizabeth House 231 North Terrace Adelaide SA 5000. Telephone (08) 8223 5133.

The address of the principal administration office is: Building 42, Adelaide University Research Precinct, 12 Queen Street, Thebarton SA 5031 Telephone (08) 8186 2936. Website www.papyrus.australia.com.au

The address of the register of securities is: Computershare Investor Services Pty Ltd Level 5, 15 Grenfell Street Adelaide SA 5000. Telephone (08) 8236 2300.

Papyrus Australia Ltd is not listed on any other stock exchanges other than ASX.

ASX code: PPY


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papyrus australia limited...responsibilities include the sale and distribution of papyrus products...

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