Virotec International Ld28 February 2005 Half year report for...

Virotec International Ld
28 February 2005


Half year report
for the period ended 31 December 2004
(previous corresponding period is the period ended 31 December 2003)

VIROTEC INTERNATIONAL LTD
ABN 81 004 801 398

This report is prepared in accordance with ASX listing rule 4.2A, and is based
on accounts which have been subject to an audit review.

Results for announcement to the market % change A$'000

Revenue from ordinary activities 1938% 21,181
Profit from ordinary activities before tax attributable to
members up to# 8,705
Profit from ordinary activities after tax attributable to
members up to# 7,774
Profit for the period attributable to members up to# 7,774
Dividend per share - Nil

# no percentage change is provided as the group recorded a loss in the prior
corressponding period

Refer to the attached half year financial report for the following information
required by Appendix 4D:
o Statement of Financial Performance for the period ended 31 December 2004.
o Statement of Financial Position as at 31 December 2004.
o Statement of Cash Flows for the period ended 31 December 2004.
o Notes to the Financial Statements
o Details of entities over which control has been lost during the period
- refer to Note 3
o Details of associates and joint venture entities - refer to Note 4
o Report from Directors on the results

Significant Matters

As previously announced, during the period the Company sold its HydroDecTM
Technology generating revenue for Virotec of A$19.9 million. Refer to the
attached financial reports for further information. At this time the Company
believes that it will meet its forecast net profit before tax as announced on
1 December 2004 of between A$4-6 million for the year ended 30 June 2005.

Other information required by Appendix 4D is as follows:

No dividend is proposed.

Net tangible assets per security -
The net tangible asset backing per security as at 31 December 2004 was 7.9 cents
per share compared with 3.8 cents per share in the previous corresponding
period.

Basis of preparation -
These financial reports have been compiled in accordance with Australian
Accounting Standards. There has been no changes in accounting policies, and
these reports are prepared on a consistent basis with the 2004 annual financial
reports. The financial reports have been subject to an audit review and a copy
of the review opinion is attached. The figures presented are for the
consolidated entity, namely the consolidation of Virotec International Ltd and
its wholly owned subsidiaries.

Signed:.......................................... Date: 28 February 2005
Angus Craig
Company Secretary



VIROTEC INTERNATIONAL LTD AND ITS CONTROLLED ENTITIES

HALF-YEAR FINANCIAL REPORT

31 December 2004



Index to Financial Report

Directors' Report
Lead Auditor's Independence Declaration
Statement of Financial Performance for the half year ended 31 December
2004
Statement of Financial Position as at 31 December 2004
Statement of Cash Flows for the half year ended 31 December 2004
Notes to and forming part of the Financial Statements
Directors' Declaration
Independent Review Report

All amounts are expressed in Australian dollars unless otherwise stated.

DIRECTORS' REPORT
The directors present their report and the consolidated financial report of the
consolidated entity, being Virotec International Ltd (the "Company") and its
controlled entities for the six months ended 31 December 2004 and the
independent review report thereon.

DIRECTORS
The directors of the Company in office at the date of this report or who held
office during or since the financial period are:

Name Position Period of directorship
Brian Sheeran Chairman and Chief Executive Director since July
Officer 1997,
appointed Chairman July
1999
Bruno Bamonte Director and Chief Financial Director since December
Officer 1997
John Glynn Non executive director Director since March
2000
Prof. David Non executive director Director since July 2000
McConchie
Neil Bardach Non executive director Director since December
2003

PRINCIPAL ACTIVITIES
The principal activities of the consolidated entity during the financial period
were the research, development and commercialisation of environmental
technologies, and the provision of environmental remediation and consultancy
services. The consolidated entity also owns certain mining and mineral
exploration tenements.

REVIEW OF OPERATIONS
Significant achievements of the consolidated entity during the financial period
were as follows:

Research and development

The consolidated entity continued its commitment to further research, develop
and commercialise its technologies.

During the half year, Virotec:-

a. continued research on developing and refining products and procedures
related to the range of BauxsolTM products, aimed at improving their
effectiveness when used in existing applications.
b. expanded its existing patents to include ViroConcrete - a specialist
Concrete and Composite Material developed utilising our BauxsolTM Technology.
These new materials are very strong, have a high resistance to attack by
sulphuric acid, a good resistance to corrosion by other acids, caustic
liquids and salt water, and an ability to trap and bind a wide range of
trace elements.
c. sold its interest in the HydroDec Technology to HydroDec Group plc
(formerly Vert-eco Group plc) a company based in the United Kingdom and
listed on the Alternative Investment Market of the London Stock Exchange. The
HydroDecTM technology is able to efficiently re-refine used transformer oil,
including PCB contaminated oils, to produce new oil at a similar quality as
traditional hydrotreatment refining processes.

Consideration received for the sale was 60,000,000 shares in HydroDec Group
plc (representing 38% of its capital and the payment of A$1.24 million in
cash). In addition, HydroDec Group repaid loans owing to the Company of
A$1.24 million in cash for the monies invested to commercialise the
technology. The Company also retains a 5% royalty of revenue generated by
the technology. This transaction has generated revenue of A$19.9 million and
the ongoing investment is recorded at approximately A$10.97 million in the
balance sheet. The market value of the investment in HydroDec Group plc at
31 December 2004 was approximately A$22 million, and has further increased to
a value of approximately A$39 million as of 21 February 2005.

This sale allows Virotec to participate in the upside of the Technology,
through its equity stake and the ongoing royalty stream, whilst eliminating
the risks associated with providing the capital required to expand the
commercialisation of the technology internationally.

This transaction signifies the first major demonstration of Virotec's corporate
objectives as outlined to shareholders in 2002. It is a practical application of
Virotec's business strategy to sell selected technologies.

d. In addition a significant investment was made in developing and
improving production techniques, including the building of a small production
plant, for Virotec's range of products.

Research, development and commercialisation of the consolidated entity's
technologies will be ongoing. The total expenditure incurred for research and
development (including commercialisation activities) during the period was
$586,276, which was expensed in accordance with the consolidated entity's
accounting policy. In addition to this, $345,276 was expended on the
construction of the plant and this amount was capitalised and is included in
plant and equipment.

Environmental services

Environmental services are provided broadly in accordance with the following
product range and/or services:-

a. ViroMine Products - product range developed for the mining industry. This
range of products have been successfully trialled by the US EPA and in Tasmania,
over the past four year. There are many submissions being considered by
potential clients throughout the world.

b. ViroFlow Products - product range developed for the treatment of wastewater
from industrial sites. In Australia the products and services are currently
being provided to a number of clients in the tannery, electroplating, timber
preservation and trade waste industries.

c. ViroSoils Products - product range developed for the agricultural, fertiliser
and aquaculture industries. In Australia the products are currently being
provided to a number of prawn farms, a fertiliser producer and successful trials
have been completed in other agricultural applications. In Europe trials are
also underway with a number of companies in these industries.

d. ViroSewage Products - product range developed for the sewage industry. In
Australia product and services are provided to a municipal council and a number
of other facilities are trialling the technology.

e. Laboratory and Analytical Services - analytical service provided to industry
testing organic contaminants. The laboratory is outside the main focus of the
consolidated entity and it is anticipated that it will be sold subsequent to the
end of the period.

f. Alumina Services - service to the alumina industry relating to the treatment
of their refinery residue.

The strategic plan provides for each of the products to be trialled to
demonstrate the capacity and viability of the Technologies on a commercial
basis. These trials are important steps in the commercialisation process. Once
the trials are completed the products are then rolled out to industry to
demonstrate their customer acceptance. The consolidated entity's strategy is to
use the results of these trials to attract the appropriate strategic partners in
the relevant industries to market the Technologies throughout the world.

During the period the consolidated entity achieved regulatory classification of
our BauxsolTM range of reagents, as approved commercial chemicals from the UK
Environment Agency (this classification has application for all countries within
European Union) and from the United States Environment Protection Agency. These
approvals are significant as they recognise that Virotec's Basecon process
converts an alumina refinery waste into certified BauxsolTM products, , which
then forms the basis of our patent protected reagents. In addition these product
classifications meet important regulatory criteria that facilitates Virotec's
expansion of its business operations throughout the Northern Hemisphere. The
company also believes that the approvals may have widespread implications for
the alumina industry and the reuse of the world's largest industrial waste.
During the half year total revenue earned by the Environmental services segment
was $703,062 and the net result for this segment was a loss of $183,821.

Mining and exploration

During the 2004 financial year the consolidated entity provided to Cazaly
Resources Ltd an option to acquire all of the consolidated entity's mining
tenements in the Drake region of Northern New South Wales. This option has been
assigned to Drake Resources NL. The option is subject to a number of conditions
with any exercise of the option required by September 2005.

In addition to these mining tenements, the consolidated entity also holds a
number of mining leases on tenements in North Queensland. These areas are at
different stages of evaluation and planning. Work on these areas has been, and
is planned to remain at the minimum required to protect the Company's interest
in the leases whilst the tenements are sold and or relinquished where they are
considered to have little or no value.

During the financial period the mining and exploration division recorded a loss
of $67,387.

Looking forward

The consolidated entity will continue its research and development of further
applications of its BauxsolTM Technology, BaseconTM Technology and other
technologies related to environmental management and remediation.

The consolidated entity plans to expand its network of strategic alliances
throughout the world to allow for the marketing of its Technologies in the most
efficient and cost effective manner.

The consolidated entity will seek to retain a passive interest in its mining
assets by finding joint venture partners to assist in the exploitation of the
assets or by selling the assets and retaining an interest by way of royalty
income.

SUBSEQUENT EVENTS

Since the end of the half year, there has not arisen in the interval between the
end of the financial year and the date of this report any item, transaction or
event of a material or unusual nature likely, in the opinion of the directors,
to effect significantly the operations of the consolidated entity, the results
of those operations, or the state of affairs of the group

LEAD AUDITOR'S INDEPENDENCE DECLARATION UNDER SECTION 307C OF THE CORPORATIONS
ACT 2001

The lead auditor's independence declaration is set out on page 5 and forms part
of the director's report for the half year ended 31 December 2004

Dated at the Gold Coast this 28th day of February 2005.
Signed in accordance with a resolution of the directors:


Bruno Bamonte
Director


Lead Auditor's Independence Declaration
under Section 307C of the Corporation Act 2001

To the directors of Virotec International Ltd:

I declare that, to the best of my knowledge and belief, during the half-year
ended 31 December 2004 there have been:

(i) no contraventions of the auditor independence requirements as set out in the
Corporations Act 2001 in relation to the review; and

(ii) no contraventions of any applicable code of professional conduct in
relation to the review.


KPMG


Stephen J Board
Partner
Bundall
28 February 2005


STATEMENT OF FINANCIAL PERFORMANCE
FOR THE HALF YEAR ENDED 31 DECEMBER 2004

Consolidated
Note 31 December 31 December
2004 2003
$ $
Revenue from rendering of services and
supply of technologies 703,062 698,849
Other revenues from operating activities 584,729 340,580
Revenue from sale of controlled entity 3 19,893,520 -
---------- ---------
Total Revenue 21,181,311 1,039,429
---------- ---------
Depreciation and amortisation expenses (155,510) (164,405)
Research and development expenses (586,276) (816,334)
Mining interests expenses (67,387) (163,634)
Directors remuneration 2 (1,501,531) (5,686,743)
Cost of rendering services and supply of
technologies (886,883) (947,588)
Professional, consulting and advisors fees (149,840) (174,841)
Book value of net liabilities of controlled
entity disposed of 3 742,272 -
Administration and corporate expenses (1,982,726) (756,848)
Share of associates net loss for period 4 (7,888,110) -
---------- ---------
Profit / (loss) from ordinary activities
before income tax 8,705,320 (7,670,964)
Income tax related to operating
profit/(loss) (931,245) -
---------- ---------
Net profit/(loss) 7,774,075 (7,670,964)
---------- ---------
Basic profit/(loss) per share (cents) 3.8 (4.2)
Diluted profit/(loss) per share (cents) 3.8 (4.2)

The statement of financial performance is to be read in conjunction with the
notes to and forming part of the financial statements, as set out on pages 9 to
14.

STATEMENT OF FINANCIAL POSITION
AS AT 31 DECEMBER 2004
Consolidated
Note 31 December 2004 30 June 2004
Current Assets $ $
Cash 6,378,604 7,666,699
Receivables 231,683 281,364
Other 216,539 278,666
---------- ---------
Total Current Assets 6,826,826 8,226,729
---------- ---------
Non-Current Assets
Receivables 466,606 507,371
Other financial assets 70,000 70,000
Investments accounted for using the
equity 4 10,973,740 -
method of accounting
Property, plant and equipment 1,665,858 1,849,563
---------- ---------
Total Non-Current Assets 13,176,204 2,426,934
---------- ---------
Total Assets 20,003,030 10,653,663
---------- ---------
Current Liabilities
Payables 716,900 1,030,157
Interest Bearing Liabilities 5,478 -
Provisions 1,415,450 2,609,975
Current Tax Liabilities 931,245 -
---------- ---------
Total Current Liabilities 3,069,072 3,640,132
---------- ---------
Non-Current Liabilities
Interest Bearing Liabilities 33,274 -
Provisions 790,000 790,000
---------- ---------
Total Non-Current Liabilities 823,274 790,000
---------- ---------
Total Liabilities 3,892,347 4,430,132
---------- ---------
Net Assets 16,110,683 6,223,531
---------- ---------
Equity
Share capital 5 77,993,900 75,880,823
Accumulated losses 6 (61,883,217) (69,657,292)
---------- ---------
Total Equity 16,110,683 6,223,531
---------- ---------

This statement of financial position is to be read in conjunction with the notes
to and forming part of the financial statements, as set on pages 9 to 14.

STATEMENT OF CASH FLOWS
FOR THE HALF YEAR ENDED 31 DECEMBER 2004
Consolidated
31 December 31 December
2004 2003
Cash Flows From Operating Activities $ $
Cash receipts in the course of
operations 1,117,744 447,203
Cash payments in the course of
operations (3,873,148) (2,570,412)
Interest received 152,299 239,727
--------- ---------
Net cash provided by/(used in)operating activities (2,603,105) (1,883,482)
--------- ---------
Cash Flows From Investing Activities
Proceeds from sale of property, plant
and equipment - 825
Payments for property, plant and
equipment (669,829) (273,967)
Proceeds received from sale of controlled entity 1,243,345 -
Repayment of loans 1,243,345 -
Payment for acquisition of a controlled entity - (241)
Payment for acquisition of a business - (110,641)
Payments for research & development (586,276) (816,334)
Payments for mining interest expenses (67,387) (163,634)
Security deposits refunded 42,560 7,677
--------- ---------
Net cash provided by/(used in) investing activities 1,205,758 (1,356,315)
--------- ---------

Cash Flows From Financing Activities
Proceeds from issues of shares 70,500 8,506,906
Proceeds from borrowings 38,752 -
Share issue costs - (287,844)
--------- ---------
Net cash provided by/(used in) financing activities 109,252 8,219,062
--------- ---------

Net increase/(decrease) in cash held (1,288,095) 4,979,265
Cash at the beginning of the financial period 7,666,699 6,453,845
--------- ---------
Cash at the end of the financial period 6,378,604 11,433,110
--------- ---------

The statement of cash flows is to be read in conjunction with the notes to and
forming part of the financial statements, as set out on pages 9 to 14.

NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS
FOR THE HALF YEAR ENDED 31 DECEMBER 2004

1. STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES
The significant policies, which have been adopted in the preparation of these
financial statements, are:

Basis of preparation

The half year consolidated financial report is a general-purpose financial
report, which has been prepared in accordance with the Corporations Act 2001,
Accounting Standard AASB1029 "Interim Financial Reporting", the recognition and
measurement requirements of applicable AASB standards, other authoritative
pronouncements of the Australian Accounting Standards Board and Urgent Issues
Group Consensus Views. This half-year financial report is to be read in
conjunction with the 30 June 2004 Annual Financial Report and any public
announcements by the Company during the half-year in accordance with continuous
disclosure obligations arising under the Corporations Act 2001.

It has been prepared on the basis of historical costs and does not take into
account changing money values nor, except where stated, current valuations of
non-current assets. These accounting policies have been consistently applied by
each entity in the consolidated entity and, except where there is a change in
accounting policy, are consistent with those applied in the 30 June 2004 Annual
Financial Report.

The half-year report does not include full note disclosures of the type normally
included in an annual financial report.

2. INDIVIDUALLY SIGNIFICANT ITEMS

Individually significant items included in the profit/ 31 31
(loss) from ordinary activities before income tax December December
expense:
2004 2003
$ $
Gain on sale of controlled entity 20,635,792 -
--------- ---------
Share of associates net loss for period (7,888,110) -
--------- ---------
Directors remuneration -
Base remuneration (791,107) (563,269)
Amounts payable under executive incentive
agreements:
In relation to the period ended 31 December
2004 2(a) (1,276,800) -
Reduction in prior period accrual for early
termination benefits 2(b) 566,376 -
In relation to the year ended 30 June 2003 - (3,789,474)
In relation to the period ended 30 June 2004 - (1,334,000)
--------- ---------
(1,501,531) (5,686,743)
--------- ---------
2(a). At the Annual General Meeting of the Company held on 28 November 2003,
shareholders approved short term and long term incentive arrangements for Mr
Brian Sheeran and Mr Bruno Bamonte in respect of the financial years ending 30
June 2004 to 30 June 2008. The agreements provide that the incentive awards may
be paid as a mixture of equity and cash or as equity only on satisfaction of
various performance criteria. The above amount represents the expected amount
payable pursuant to these agreements in relation to the six months ended 31
December 2004. It is envisaged that this liability will be settled by the issue
of shares in the Company.

2(b). In December 2004, the parties to the agreements agreed to vary the
agreements such that no early termination benefits in the form of matching
shares are payable under the terms of the agreements. The effect of this
variation is that amounts previous accrued for early termination benefits in the
form of matching shares which may have been issued on a prorata basis have been
written back, totalling A$566,376. Matching shares may be issued if the
executive continues to provide services to the company in the years ending 30
June 2006, 2007 and 2008, and such shares will relate to services performed in
that particular financial year.

3. CONTROLLED ENTITIES

The following controlled entity was disposed of during the period:

Name Date 31 December Consideration Contribution to
Disposed 2004 Consolidated Net Loss
% held
directly
$ 2004 2003
HydroDec
Development 20 December Nil 19,893,520 (329,390) (57,402)
Corporation 2004
Pty Limited
("HDC")

HDC is incorporated in Queensland and had an issued capital of $1 representing
the issued capital of the company at the time of incorporation. It was a
non-trading entity at the time of acquisition. The entity was sold to HydroDec
Group plc (formerly Vert-eco plc) a company incorporated in England and listed
on the Alternative Investment Market of the London Stock Exchange.

2004 2003
$ $
Consideration - cash 1,243,345 -
Consideration - shares in HydroDec Group plc (at fair 18,650,175 -
value) ---------- ----------
Revenue received on disposal of controlled entity 19,893,520 -

Net liabilities of controlled entity 742,272 -
---------- ----------
Profit on disposal of controlled entity 20,635,792 -
---------- ----------

Net assets of entity disposed of:
Cash 3,302 -
Receivables 34,164 -
Property, plant and equipment 724,251 -
Trade creditors (123,042) -
Other payables (1,380,947) -
---------- ----------
(742,272) -
---------- ----------

The consolidated entity was issued with 60,000,000 ordinary shares in HydroDec
Group plc which equates to approximately 38% of the issued capital of HydroDec
Group plc. The fair value of these shares in HydroDec Group plc was assessed by
the directors at the date of acquisition as being 12.5p based on the market
value at that time and after allowing for a discount to reflect the notional
price that the shares could have placed at in the market.

HydroDec Group plc repaid loans advanced by the consolidated entity to HDC
totalling $1,243,345. The consolidated entity retains its ongoing royalty from
HDC of 5 per cent of its gross revenue.

4. INVESTMENTS IN ASSOCIATES

Name Principal Date Ownership Investment carrying Share of net
activities Acquired Interest amount profits
% 2004 2003 2004 2003
$ $ $ $
HydroDec
Group Investment 20 38 10,973,740 - 23,445 -
plc December
2004


Movement in carrying value 2004 2003
$ $
Carrying value of investment at beginning of period - -
Investments in associates during the period 18,650,175 -
Acquisition costs 211,675 -
Elimination of unrealised portion of profit on sale of
controlled entity to associate (7,911,555) -
Share of associate's net profit 23,445 -
---------- ---------
Carrying value of investment in associate at end of 10,973,740 -
period ---------- ---------

5. SHARE CAPITAL
(a) Issued And Paid Up Capital 31 December 30 June
2004 2004
$ $
Opening balance 200,209,630 ordinary shares (1 July
2003: 168,193,841 ordinary shares) 75,880,823 63,678,284
Add the following share issues: -
150,000 ordinary shares issued as a result of the
exercise of options at $0.47 70,500 -
3,242,375 ordinary shares issued at $0.58 per share
pursuant to executive incentive schemes as approved
by shareholders 1,880,577 -
300,000 shares issued at $0.54 to non-executive
directors as approved at the Annual General Meeting
on 1 December 2004 162,000 -
25,000,000 ordinary shares issued in at GBP0.14
($0.3378) per share - 8,443,908
300,000 ordinary shares issued as a result of the
exercise of options at $0.21 - 63,000
200,000 shares issued at $0.50 to non-executive
directors as approved at the Annual General Meeting
on 28 November 2003 - 100,000
6,315,789 ordinary shares issued at $0.60 per share
pursuant to executive incentive schemes as approved
by shareholders - 3,789,474
Options exercised at $0.47 per share resulting in
the issue of 200,000 ordinary shares - 94,000
Less share issue costs - (287,843)
--------- ---------
Closing balance 203,902,005 ordinary shares (30 June
2004: 200,209,630 ordinary shares) 77,993,900 75,880,823
--------- ---------


(b) Options 31 December 30 June
2004 2004
Number Number
The following share options were on issue at 31 December
2004:
Exercisable on or before 31 March 2005 at $0.30 each 100,000 100,000
Exercisable on or before 30 July 2005 at $1.00 each 1,100,000 1,100,000
Exercisable on or before 30 July 2005 at $0.47 each - 150,000
Exercisable on or before 31 October 2005 at $0.61 each 400,000 400,000
Exercisable on or before 31 October 2005 at $0.21 each 300,000 300,000
Exercisable on or before 31 March 2006 at $0.50 each 750,000 750,000
Exercisable on or before 30 September 2006 at $0.50 each 970,000 995,000
Exercisable on or before 31 March 2007 at $0.50 each 92,500 -
Exercisable on or before 30 September 2007 at $0.50 each 1,115,000 -
--------- ---------
4,827,500 3,795,000
--------- ---------

6. RETAINED PROFITS
31 December 2004 31 December 2003
$ $
Accumulated losses at beginning of half
year (69,657,292) (56,105,750)
Net profit/(loss) after income tax 7,774,075 (7,670,964)
--------- ---------
Accumulated losses at end of year (61,883,217) (63,776,714)
--------- ---------

7. SEGMENTS

INDUSTRY SEGMENTS
31 December Environmental Mining Research and Unallocated Consolidated
2004 Consulting Interests Development
$ $ $ $ $
External
customer
revenue 703,062 - - - 703,062
Interest
income - - - 152,299 152,299
Other income - - 19,909,520 416,430 20,325,950
--------- -------- -------- -------- --------
Total 703,062 - 19,909,520 568,729 21,181,311
revenue --------- -------- -------- -------- --------
Depreciation
and
amortisation 88,199 7,150 - 60,161 155,510
--------- -------- -------- -------- --------
Segment
operating
results (183,821) (67,387) 12,161,406 (3,204,878) 8,705,320
--------- -------- -------- -------- --------
Acquisitions
of non-current
assets 125,178 - 345,276 - 470,454
--------- -------- -------- -------- --------
Segment assets 1,321,456 36,898 345,276 18,299,400 20,003,030
--------- -------- -------- -------- --------
Segment
liabilities 277,050 840,000 - 2,775,297 3,892,347
--------- -------- -------- -------- --------



31 December Environmental Mining Research and Unallocated Consolidated
2003 Consulting Interests Development
$ $ $ $ $
External
customer
revenue 698,849 - - - 698,849
Interest
income - - - 239,727 239,727
Other income - 70,000 - 30,853 100,853
--------- -------- -------- -------- --------
Total 698,849 70,000 - 270,580 1,039,429
revenue --------- -------- -------- -------- --------
Depreciation
and
amortisation 93,243 7,562 - 63,600 164,405
--------- -------- -------- -------- --------
Segment
operating
results (299,838) (93,634) (816,334) (6,461,158) (7,670,964)
--------- -------- -------- -------- --------
Acquisitions
of non-current
assets 331,380 - - - 331,380
--------- -------- -------- -------- --------
Segment assets 2,477,839 46,716 - 12,338,088 14,862,643
--------- -------- -------- -------- --------
Segment
liabilities 349,089 840,000 - 5,452,921 6,642,010
--------- -------- -------- -------- --------

GEOGRAPHIC SEGMENTS

31 December 2004 Australia and Asia North America Europe Consolidated

$ $ $ $
External customer
revenue 435,828 45,939 221,295 703,062
Interest income 152,299 - - 152,299
Other income 20,325,950 - - 20,325,950
---------- -------- -------- --------
Total revenue 20,914,077 45,939 221,295 21,181,311
---------- -------- -------- --------
Depreciation and
amortisation 117,269 6,551 31,690 155,510
---------- -------- -------- --------
Segment operating
results 9,662,909 (273,253) (684,336) 8,705,320
---------- -------- -------- --------
Acquisitions of
non-current
assets 369,358 94,045 7,051 470,454
---------- -------- -------- --------
Segment assets 18,966,384 132,617 904,029 20,003,030
---------- -------- -------- --------
Segment
liabilities 3,408,160 67,659 416,528 3,892,347
---------- -------- -------- --------

31 December 2003 Australia and Asia North America Europe Consolidated

$ $ $ $
External customer
revenue 521,999 - 176,850 698,849
Interest income 239,727 - - 239,727
Other income 100,853 - - 100,853
---------- -------- -------- --------
Total revenue 862,579 - 176,850 1,039,429
---------- -------- -------- --------
Depreciation and
amortisation 157,446 298 6,661 164,405
---------- -------- -------- --------
Segment operating
results (7,123,185) (216,303) (331,476) (7,670,964)
---------- -------- -------- --------
Acquisitions of
non-current
assets 194,708 - 136,672 331,380
---------- -------- -------- --------
Segment assets 14,292,523 10,457 559,662 14,862,642
---------- -------- -------- --------
Segment
liabilities 6,480,801 11,089 150,120 6,642,010
---------- -------- -------- --------

8. CONTINGENT LIABILITIES

There were no changes in contingent liabilities since 30 June 2004.

9. SUBSEQUENT EVENTS

There has not arisen in the interval between the end of the financial year and
the date of this report any item, transaction or event of a material or unusual
nature likely, in the opinion of the directors of the company, to effect
significantly the operations of the consolidated entity, the results of those
operations, or the state of affairs of the consolidated entity.

10. ADOPTION OF INTERNATIONAL FINANCIAL REPORTING STANDARDS

For reporting periods beginning on or after 1 January 2005, the consolidated
entity must comply with International Financial Reporting Standards (IFRS) as
issued by the Australian Accounting Standards Board.

This financial report has been prepared in accordance with Australian accounting
standards and other financial reporting requirements (Australian GAAP). The
differences between Australian GAAP and IFRS identified to date as potentially
having a significant effect on the consolidated entity's financial performance
and financial position are summarised below. The summary should not be taken as
an exhaustive list of all the differences between Australian GAAP and IFRS. No
attempt has been made to identify all disclosure, presentation or classification
differences that would affect the manner in which transactions or events are
presented.

The consolidated entity has not quantified the effects of the differences
discussed below. Accordingly, there can be no assurances that the performance
and financial position as disclosed in this financial report would not be
significantly different if determined in accordance with IFRS.

Regulatory bodies that promulgate Australian GAAP and IFRS have significant
ongoing projects that could affect the differences between Australian GAAP and
IFRS described below and the impact of these differences relative to the
consolidated entity's financial performance and financial position of the
adoption of IFRS, including system upgrades and other implementation costs which
may be incurred, have not been quantified as the actual impacts will depend on
the particular circumstances prevailing on adoption in the half-year commencing
1 July 2005.

The Board has conducted a preliminary analysis of the implications of IFRS to
determine the impact on the consolidated entity. The consolidated entity
considers this analysis will be complete by 30 June 2005.

The consolidated entity has not implemented any formal plans to manage the
transition to IFRS, including changes to business processes and systems. This is
expected to be completed by 30 June 2005.

The key potential implications of the conversion to IFRS on the consolidated
entity are as follows:

* equity-based compensation in the form of options will be recognised as
expenses in the periods during which the employee provides related services
* income tax will be calculated based on the "balance sheet" approach,
which will result in more deferred tax assets and liabilities and, as tax
effects follow the underlying transaction, some tax effects will be
recognised in equity
* goodwill and intangible assets with indefinite useful lives will be
tested for impairment annually and will not be amortised
* changes in accounting polices will be recognised by restating
comparatives.



DIRECTORS' DECLARATION

In the opinion of the directors of Virotec International Ltd: -

(a) The financial statements and notes, set out on pages 6 to 14, are in
accordance with the Corporations Act 2001, including

(i) giving a true and fair view of the financial position of the consolidated
entity as at 31 December 2004 and of its performance, as represented by
the results of its operations and its cash flows, for the half-year ended
on that date; and
(ii)complying with Australian Accounting Standard AASB 1029 "Interim
Financial Reporting" and the Corporations Regulations 2001; and

(b) There are reasonable grounds to believe that the Company will be able to pay
its debts as and when they become due and payable.

Dated at the Gold Coast this 28th day of February 2005.
Signed in accordance with a resolution of the directors:



Bruno Bamonte
Director



INDEPENDENT REVIEW REPORT
TO THE MEMBERS OF VIROTEC INTERNATIONAL LTD

Scope

The financial report and directors' responsibility
The financial report comprises the statement of financial performance, statement
of financial position, statement of cash flows, accompanying notes to the
financial statements and the directors' declaration set out on pages 6 to 15,
for the Virotec International Ltd consolidated entity ("the consolidated
entity"), for the half-year ended 31 December 2004. The consolidated entity
comprises Virotec International Ltd ("the company") and the entities it
controlled during that half-year.

The company's directors are responsible for the preparation and true and fair
presentation of the financial report in accordance with the Corporations Act
2001. This includes responsibility for the maintenance of adequate accounting
records and internal controls that are designed to prevent and detect fraud and
error, and for the accounting policies and accounting estimates inherent in the
financial report.

Review approach

We conducted an independent review in order for the company to lodge the
financial report with the Australian Securities and Investments Commission. Our
review was conducted in accordance with Australian Auditing Standards applicable
to review engagements.

We performed procedures in order to state whether on the basis of the procedures
described anything has come to our attention that would indicate the financial
report does not present fairly, in accordance with the Corporations Act 2001,
Australian Accounting Standard AASB 1029 "Interim Financial Reporting" and other
mandatory financial reporting requirements in Australia, a view which is
consistent with our understanding of the consolidated entity's financial
position, and of its performance as represented by the results of its operations
and its cash flows.

We formed our statement on the basis of the review procedures performed, which
were limited primarily to:

* enquiries of company personnel; and
* analytical procedures applied to the financial data.

While we considered the effectiveness of management's internal controls over
financial reporting when determining the nature and extent of our procedures,
our review was not designed to provide assurance on internal controls.

The procedures do not provide all the evidence that would be required in an
audit, thus the level of assurance is less than given in an audit. We have not
performed an audit and, accordingly, we do not express an audit opinion.

A review cannot guarantee that all material misstatements have been detected.

Independence

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

Statement

Based on our review, which is not an audit, we have not become aware of any
matter that makes us believe that the half-year financial report of Virotec
International Ltd is not in accordance with:

(a) the Corporations Act 2001, including:
(i) giving a true and fair view of the consolidated entity's financial
position as at 31 December 2004 and of its performance for the half-year
ended on that date; and
(ii)complying with Accounting Standard AASB 1029 "Interim Financial
Reporting" and the Corporations Regulations 2001; and

(b) other mandatory financial reporting requirements in Australia.


KPMG

Stephen J Board
Partner

Bundall
28 February 2005




10/06/04 10:40 AFXF Virotec says US EPA confirms long term efficacy of ViroMine reagent


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