|SECURITIES AND EXCHANGE
COMMISSION Washington D.C. 20549
|--------------------------------------------------------



|FORM 20-F
|---------



||_| | REGISTRATION
STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------------

|or
|--

||X| | ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------------

|or
|--

||_| | TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ----------------------------------------------------------------------------------------





|Commission file number: 000-49843
|---------------------------------



|PRANA BIOTECHNOLOGY LIMITED
|---------------------------

|(Exact name of Registrant as
specified in its charter and translation of Registrants Name into English)
|--------------------------------------------------------------------------------------------------------



|Australia
|---------

|(Jurisdiction of incorporation
or organization)
|-----------------------------------------------



|Level 1, 100 Dorcas Street,
South Melbourne, Victoria 3205 Australia
|--------------------------------------------------------------------

|(Address of principal executive
offices)
|----------------------------------------



|Securities registered or to be
registered pursuant to Section 12(b) of the Act:
|-------------------------------------------------------------------------------



|Title of Each Class
      None |  | Name of Each Exchange on Which Registered
      None
|------------------------------ |  | ----------------------------------------------------





|Securities registered or to be
registered pursuant to Section 12(g) of the Act: American Depositary Shares, each
representing one Ordinary Share
|------------------------------------------------------------------------------------------------------------------------------------------------



|Securities for which there is a
reporting obligation pursuant to Section 15(d) of the Act: None
|-----------------------------------------------------------------------------------------------



|Indicate the number of outstanding
shares of each of the issuers classes of capital or common stock as of the close of the
period covered by the annual report:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------



|Ordinary Shares, as of June 30, 2002
                                                      58,612,750
      shares
|------------------------------------------------------------------------------------------------------------------



|Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Yes |X|   No |_|
|----------------



|Indicate by check mark which financial statement
item the registrant has elected to follow:
|-------------------------------------------------------------------------------------------



|Item 17 |X|   Item 18 |_|
|-------------------------





---





|TABLE OF CONTENTS
|-----------------



|       | Page    
|------ | --------
|PART I | 1       
|       | Item 1. 
|       | Item 2. 
|       | Item 3. 
|       |         
|       |         
|       |         
|       |         
|       | Item 4. 
|       |         
|       |         
|       |         
|       |         
|       | Item 5. 
|       |         
|       |         
|       |         
|       |         
|       | Item 6. 
|       |         
|       |         
|       |         
|       |         
|       |         
|       | Item 7. 
|       |         
|       |         
|       |         
|       | Item 8. 
|       |         
|       |         
|       | Item 9. 
|       |         
|       |         
|       |         
|       |         
|       |         
|       |         
|       | Item 10.
|       |         
|       |         
|       |         
|       |         



| | i | 
| | - | 



---





|         |                     | E.                                                                                                | Taxation                   | 61
|-------- | ------------------- | ------------------------------------------------------------------------------------------------- | -------------------------- | --
|         |                     | F.                                                                                                | Dividend and Paying Agents | 65
|         |                     | G.                                                                                                | Statement by Experts       | 65
|         |                     | H.                                                                                                | Documents on Display       | 65
|         |                     | I.                                                                                                | Subsidiary Information     | 66
|         | Item 11.            | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET
          RISKS                              | 66                        
|         | Item 12.            | DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES                                            | 66                        
|PART II  | 67                 
|         | Item 13.            | DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES                                                   | 67                        
|         | Item 14.            | MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS
          AND USE 
          OF PROCEEDS | 67                        
|         | Item 15.            | CONTROLS AND PROCEDURES                                                                           | 67                        
|         | Item 16.            | RESERVED                                                                                          | 67                        
|PART III | 68                 
|         | Item 17.            | FINANCIAL STATEMENTS                                                                              | 68                        
|         | Item 18.            | FINANCIAL STATEMENTS                                                                              | 68                        
|         | Item 19.            | EXHIBITS                                                                                          | 68                        
|         | S I G N A T U R E S | 75                                                                                               



| | ii | 
| | -- | 



---





|The statements
contained in this annual report that are not purely historical are forward-looking
statements. Such forward-looking statements also include statements in Item 4 -
Information on the Company and Item 5 - Operating and Financial Review and Prospects.
In addition, statements that use the terms believe, expect, plan, may, intend,
estimate, anticipate, and similar expressions are intended to identify
forward-looking statements. Neither our independent auditors, nor any other independent
accountants, have compiled, examined, or performed any procedures, with respect to the
prospective financial information contained herein nor have they expressed any opinion or
any other form of assurance on such information or its achievability, and assume no
responsibility for, and disclaim any association with, the prospective financial
information. These statements involve risks and uncertainties and actual results could
differ materially from such results discussed in these statements as a result of the risk
factors set forth in this annual report. All forward-looking statements included in this
annual report are based on information available to us on the date hereof, and we assume
no obligation to update any such forward-looking statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|PART I
|------



|ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND
      ADVISORS
|-------------------------------------------------------------------



|Not applicable.
|---------------



|ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
|-----------------------------------------------



|Not applicable.
|---------------



|ITEM 3. KEY INFORMATION
|-----------------------



|A. SELECTED FINANCIAL DATA
|--------------------------



|The following
table presents our selected financial data as of the dates and for each of the periods
indicated. You should read the selected financial data set forth below together with Item
5. - Operating and Financial Review and Prospects as well as our financial statements
and notes thereto appearing elsewhere in this annual report.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The selected
financial data as of June 30, 2002 and 2001 and for each of the three years in the period
ended June 30, 2002 have been derived from our audited financial statements and notes
thereto included elsewhere in this annual report. The selected financial data as of June
30, 2000, 1999 and 1998, for the year ended June 30, 1999 and for the period from
inception November 11, 1997) to June 30, 1998 have been derived from our audited
financial statements and notes thereto which are not included in this annual report.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We prepare our
financial statements in accordance with accounting principles generally accepted in
Australia, or A-GAAP, which differ in certain significant respects from accounting
principles generally accepted in the United States of America, or U.S. GAAP. Please refer
to Note 26 to the financial statements for a description of the principal differences
between A-
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 1 | 
| | - | 



---





|GAAP and U.S. GAAP as they relate to us, and a
reconciliation of net loss and total equity for the periods and as of the dates therein
indicated.
|-------------------------------------------------------------------------------------------------------------------------------------------------



| | 2 | 
| | - | 



---





|Statements of Financial Performance
      Data:                                               
|----------------------------------------------------------------------------------------------
|                                                                                              
|                                                                                              
|                                                                                              
|AGAAP:                                                                                       
|Revenue from ordinary activities                                                              
|Depreciation and amortization expense                                                         
|Research and development expense                                                              
|Consulting fee expense                                                                        
|Legal fee expense                                                                             
|Employee benefits expense                                                                     
|Corporate compliance expense                                                                  
|Other expenses from ordinary activities                                                       
|Net loss                                                                                      
|Loss per share  basic and diluted (2)                                                        
|Weighted average number of 
         ordinary shares outstanding  basic 
         and diluted
|                                                                                              
|U.S. GAAP(3):                                                                                 
|Net loss                                                                                      
|Loss per share  basic and diluted(2)                                                         
|Weighted average number of 
         ordinary shares outstanding  basic 
         and diluted

|
|

|(1) |  | The
1998 fiscal year includes the period from inception (November 11, 1997) to June 30, 1998.
|--- |  | ---------------------------------------------------------------------------------------------

|(2) |  | Per
share amounts have been restated to reflect the share splits during the year ended June
30, 2000. See Item 10B - Memorandum and Articles of Association and Note 11(b) to our
financial statements.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | The
selected financial data as of and for the year ended June 30, 1999 and as of June 30,
1998 and for the period from inception (November 11, 1997) to June 30, 1998 is not
required to be reconciled to U.S. GAAP.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 3 | 
| | - | 



---





|Statements of Financial Position Data:                     
|-----------------------------------------------------------
|                                                           
|                                                           
|                                                           
|                                                           
|AGAAP:                                                    
|Cash assets                                                
|Working capital                                            
|Total assets                                               
|Contributed equity                                         
|Accumulated deficit during    
           development stage
|Total equity                                               
|                                                           
|U.S. GAAP(3):                                              
|Total assets                                               
|Accumulated deficit during    
           development stage
|Total equity                                               



| | 4 | 
| | - | 



---





|Our company, Prana
Biotechnology Limited, or Prana, publishes its financial statements in Australian
dollars. In this annual report, references to U.S. dollars or U.S.$ or $ are to the
currency of the United States of America (U.S.) and references to Australian dollars
or A$ are to the currency of Australia.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
tables set forth for the periods and dates indicated certain information concerning the
rates of exchange of A$1.00 into the U.S.$ based on the noon market buying rate in New
York City for cable transfers in Australian dollars as certified for customs purposes by
the Federal Reserve Bank of New York, or the noon buying rate.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Month          | High   | Low
|-------------- | ------ | ---
|June 2002      | 0.5748 |    
|July 2002      | 0.5676 |    
|August2002     | 0.5538 |    
|September 2002 | 0.5525 |    
|October 2002   | 0.5592 |    
|November 2002  | 0.5668 |    



|The noon buying rate on November 30, 2002 was U.S.$0.5609
      = A$1.00
|------------------------------------------------------------------------

|Year
        Ended June 30, | At Period End | Average Rate | High   | Low   
|--------------------------- | ------------- | ------------ | ------ | ------
|                            |               |              |        |       
|1998                        | 0.6208        | 0.6805       | 0.7550 | 0.5867
|1999                        | 0.6650        | 0.6246       | 0.6745 | 0.6123
|2000                        | 0.5971        | 0.6237       | 0.6560 | 0.5708
|2001                        | 0.5100        | 0.5320       | 0.5996 | 0.4828
|2002                        | 0.5614        | 0.5682       | 0.5747 | 0.4858



|B. CAPITALIZATION AND INDEBTEDNESS
|----------------------------------



|Not applicable.
|---------------



|C. REASONS FOR THE OFFER AND USE OF PROCEEDS
|--------------------------------------------



|Not applicable.
|---------------



|D. RISK FACTORS
|---------------



|Investing in our
American depositary shares involves a high degree of risk and uncertainty. You should
carefully consider the risks and uncertainties described below before investing in our
depositary shares. Additional risks and uncertainties not presently known to us or that
we believe to be immaterial may also adversely affect our business. If any of the
following risks actually occurs, our business, prospects, financial condition and results
of operations could be harmed. In that case, the daily price of our depositary shares
could decline, and you could lose all or part of your investment.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 5 | 
| | - | 



---





|Risks Related To Our Business
|-----------------------------



|We are a development stage company at an
early stage in the development of pharmaceutical products and our success is uncertain.
|--------------------------------------------------------------------------------------------------------------------------------



|We are a
development stage company at an early stage in the development of our pharmaceutical
products that are designed to treat the underlying causes of degeneration of the brain
and the eye as the aging process progresses. We have not sufficiently advanced the
development of our lead product candidate, PBT-1, to market or generate revenues from its
commercial application. PBT-1 is the code name for clioquinol, an antibiotic drug that
was previously used to treat other illnesses until its withdrawal in the 1970s. In the
1960s clioquinol (Iodochlorohyroxyquinoline) was used in the treatment of intestinal
amebiasis in doses of 250mg three to four times daily for up to 10 days. It was also used
for the prevention and treatment of travelers diarrhea. Overuse of clioquinol,
particularly in Japan was associated with the development of subacute myelo-optic
neuropathy. Symptoms included numbness in legs, progressing to paralysis in a small
number of patients, loss of visual acuity sometimes leading to blindness, sensory
disturbances and a characteristic green pigmentation of the tongue, feces and urine. Most
patients improved when clioquinol was withdrawn, however some had residual disablement.
It was also suggested that the incidence in Japan was caused by concomitant viral
infection, dietary or genetic susceptibility. Clioquinol may rarely cause iodism in
sensitive patients. Clioquinol for oral use was withdrawn from the market in early
1970s, but it continues to be available in some countries for topical use for treatment
of skin infections.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|PBT-1 acts as
metal chelator that prevents the formation of hydrogen peroxide and therefore free
radical formation by removal of excess copper and dissolving plaques by removing the
metals from existing plaques. In the early 1990s Professor Ashley Bush, now a member of
our Scientific Advisory Board observed the A Beta protein (the primary constituent of
plaque) binds to zinc and copper in the brains of Alzheimers patients that contained
three to four times as much zinc, copper and iron as normal, and that the metals were
largely concentrated in the plaque. Prana is developing new chemical entities through
rational drug design techniques which may result in the formation of new compounds that
provide more effective therapies than PBT-1. PBT-1 and any future pharmaceutical product
candidates will require significant additional investment in research and development,
pre-clinical testing and clinical trials, regulatory and sales and marketing activities,
and regulatory approval prior to any commercial sales. We cannot make any assurances that
PBT-1 or any other product candidates, if successfully developed, will generate
sufficient or sustainable revenues to enable us to be profitable.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|There is a high risk that we may not be able
to complete the development of PBT-1 or develop other pharmaceutical products.
|---------------------------------------------------------------------------------------------------------------------------



|We cannot make any
assurances that we will be able to develop PBT-1 or any future pharmaceutical product
candidates adequately to attract a suitable collaborative partner, or that our research
will lead to the discovery of additional product candidates, or that any of our current
and future product candidates will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards and receive
regulatory approval, be capable of being produced in commercial quantities at reasonable
costs, or be successfully or profitably marketed, either by us or a collaborative
partner. We also cannot make any assurances that the
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6 | 
| | - | 



---





|products we develop will be able to penetrate
the potential market for a particular therapy or indication or gain market acceptance
among health care providers, patients and third-party payors. We cannot predict if or
when PBT-1 or any of our other pharmaceutical products under development will be
commercialized.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The results of clinical trials of PBT-1 are
uncertain and we will not be able to commercialize PBT-1 or any of our other product
candidates if we fail to adequately demonstrate their safety, efficacy and superiority
over existing therapies.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Before obtaining
regulatory approvals for the commercial sale of any of our pharmaceutical products, we
must demonstrate through pre-clinical testing and clinical studies that our product
candidates are safe and effective for use in humans for each target indication.
Conducting pre-clinical testing and clinical studies is an expensive, protracted and
time-consuming process. Likewise, results from early clinical trials may not be
predictive of results obtained in large-scale, later-stage clinical testing. In addition,
even though a potential drug product shows promising results in clinical trials,
regulatory authorities may not grant the necessary approvals without sufficient safety
and efficacy data.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have completed
initial phase II human clinical trials of PBT-1 at our sponsored facilities at the Royal
Melbourne Hospital and the Mental Health Research Institute, both based in Melbourne. We
have utilized the services of Kendle Pty Ltd, or Kendle, the Australian subsidiary of the
U.S. based clinical development organization Kendle International, to assist us in
coordinating, planning, managing and monitoring these trials and with planning and advice
in relation to the structure and commencement of additional clinical trials. Under the
terms of our strategic alliance agreement with Kendle, they are paid a daily fee of
A$1,200 for such services. We cannot make any assurances that we will be able to commence
additional clinical trials of PBT-1 as planned, or at all, or to demonstrate the safety
and efficacy or superiority of PBT-1 over existing therapies, or other therapies under
development, or enter into any collaborative arrangement to commercialize PBT-1 on terms
acceptable to us, or at all. Clinical trial results that show insufficient safety and
efficacy could have a material adverse effect on our business, financial condition and
results of operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We may experience delays in our clinical
trials that could adversely affect our business and operations.
|--------------------------------------------------------------------------------------------------------



|We do not know
whether planned clinical trials will begin on time or whether we will complete any of our
clinical trials on schedule or at all. Our ability to commence and complete clinical
trials may be delayed by many factors, including:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Government
or regulatory delays, including delays in obtaining approvals from applicable hospital
ethics committees and internal review boards;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Slower
than expected patient recruitment;
| | - |  | -----------------------------------------

| |  |  | Our
inability to manufacture sufficient quantities of PBT-1 or our other product candidates;
| | - |  | --------------------------------------------------------------------------------------------

| |  |  | Unforeseen
safety issues; and
| | - |  | -----------------------------



| | 7 | 
| | - | 



---





| |  |  | Lack
of efficacy or unacceptable toxicity during the clinical trials.
| | - |  | ---------------------------------------------------------------------



|Patient enrollment
is a function of, among other things, the nature of the clinical trial protocol, the
existence of competing protocols, the size and longevity of the target patient
population, and the availability of patients who comply with the eligibility criteria for
the clinical trial. Delays in planned patient enrollment may result in increased costs,
delays or termination of clinical trials. Moreover, we rely on third parties to assist us
in managing and monitoring clinical trials. Any failure by these third parties to perform
under their agreements with us may cause the trials to be delayed or result in a failure
to complete the trials.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Product
development costs to our collaborators and us will increase if we have delays in testing
or approvals or if we need to perform more or larger clinical trials than planned.
Significant delays could have a material adverse effect on the commercial prospects of
our product candidates and our business, financial condition and results of operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have limited manufacturing experience, and
delays in manufacturing sufficient quantities of PBT-1 for pre-clinical and clinical
trials may negatively impact our business and operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We cannot make any
assurances that we will be able to manufacture sufficient quantities of PBT-1 or any of
our other product candidates in a cost-effective or timely manner. Any delays in
production would delay our pre-clinical and phase II human clinical trials which could
have a material adverse effect on our business, financial condition and results of
operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We may be required
to enter into contracting arrangements with third parties to manufacture PBT-1 and our
other product candidates for large-scale, later-stage clinical trials. We cannot make any
assurances that we will be able to make the transition to commercial production. We may
need to develop additional manufacturing resources, enter into collaborative arrangements
with other parties who have established manufacturing capabilities, or have third parties
manufacture our products on a contract basis. We cannot make any assurances that we will
have access on acceptable terms to the necessary and substantial financing that would be
required to scale-up production and develop effective commercial manufacturing processes
and technologies. We also cannot make any assurances that we will be able to enter into
collaborative or contracting arrangements on acceptable terms with parties that will meet
our requirements for quality, quantity and timeliness.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We will require substantial additional
financing in the future to sufficiently fund our operations and research.
|----------------------------------------------------------------------------------------------------------------



|We have been
unprofitable to date and expect to incur losses over the next several years as we expand
our drug discovery and development programs and pre-clinical testing and as we conduct
clinical trials of PBT-1 and our other product candidates. Although our future capital
requirements will depend on many factors, we believe that our existing cash and cash
equivalents, potential financing and revenue resources will be adequate to satisfy the
requirements of our current and planned operations for the foreseeable future. We cannot,
however, make any assurances that such funds will be sufficient to meet our actual
operating expenses and capital requirements during such period. Our actual cash
requirements may vary materially from those now planned and will depend upon numerous
factors, including:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
continued progress of our research and development programs;
| | - |  | ----------------------------------------------------------------



| | 8 | 
| | - | 



---





| |  |  | The
timing, scope, results and costs of pre-clinical studies and clinical trials;
| | - |  | ---------------------------------------------------------------------------------

| |  |  | The
cost, timing and outcome of regulatory submissions and approvals;
| | - |  | ---------------------------------------------------------------------

| |  |  | Determinations
as to the commercial potential of our product candidates;
| | - |  | ------------------------------------------------------------------------

| |  |  | Our
ability to successfully expand our contract manufacturing services;
| | - |  | -----------------------------------------------------------------------

| |  |  | Our
ability to establish and maintain collaborative arrangements;
| | - |  | -----------------------------------------------------------------

| |  |  | The
status and timing of competitive developments; and
| | - |  | ------------------------------------------------------

| |  |  | Other
factors.
| | - |  | --------------



|We anticipate that
we will require substantial additional funds in order to achieve our long-term goals and
complete the research and development of our pharmaceutical product candidates. In
addition, we will require additional funds to pursue regulatory clearances, and defend
our intellectual property rights, establish commercial scale manufacturing facilities,
develop marketing and sales capabilities and fund operating expenses. We have no
established bank financing arrangements, and we cannot be certain that we will be able to
establish such arrangements on satisfactory terms, or at all. We intend to seek such
additional funding through public or private financings and/or through strategic
alliances or other arrangements with corporate partners. We cannot, however, be certain
that such additional financing will be available from any sources on acceptable terms, or
at all, or that we will be able to establish strategic alliances or other arrangements
with corporate partners on acceptable terms, or at all. Any shortfall in funding could
result in our having to curtail our operations, including our research and development
activities, which could have a material adverse effect on our business, financial
condition and results of operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have a history of operating losses and may
not achieve or maintain profitability in the future.
|--------------------------------------------------------------------------------------------------



|We have incurred
losses in every period since we began operations in 1997. We expect to continue to incur
additional operating losses over at least the next several years and to increase our
cumulative losses substantially as we expand our research and development and
pre-clinical activities and commence additional phase II human clinical trials of PBT-1.
We reported a net loss of A$5,448,467, A$4,138,979 and A$1,326,288 during the fiscal
years ended June 30, 2002, 2001 and 2000, respectively. As of June 30, 2002, our
accumulated deficit was A$10,994,424. We cannot assure you that we will achieve or
maintain profitability.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our success depends upon our ability to
protect our intellectual property and our proprietary technology.
|---------------------------------------------------------------------------------------------------------



|Our success will
depend in large part on whether we can:
|--------------------------------------------------------

| |  |  | Obtain
and maintain patents to protect our own products;
| | - |  | --------------------------------------------------------

| |  |  | Obtain
licenses to the patented technologies of third parties;
| | - |  | --------------------------------------------------------------



| | 9 | 
| | - | 



---





| |  |  | Operate
without infringing on the proprietary rights of third parties; and
| | - |  | --------------------------------------------------------------------------

| |  |  | Protect
our trade secrets and know-how.
| | - |  | ---------------------------------------



|Patent matters in
biotechnology are highly uncertain and involve complex legal and factual questions.
Accordingly, the availability and breadth of claims allowed in biotechnology and
pharmaceutical patents cannot be predicted. While we intend to seek patent protection for
our therapeutic products and technologies, we cannot be certain that any of the pending
or future patent applications filed by us or on our behalf will be approved, or that we
will develop additional proprietary products or processes that are patentable or that we
will be able to license any other patentable products or processes.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our commercial
success will also depend, in part, on our ability to avoid infringement of patents issued
to others. If a court determines that we were infringing any third party patents, we
could be required to pay damages, alter our products or processes, obtain licenses or
cease certain activities. We cannot be certain that the licenses required under patents
held by third parties would be made available on terms acceptable to us or at all. To the
extent that we are unable to obtain such licenses, we could be foreclosed from the
development, manufacture or commercialization of the product requiring such license or
encounter delays in product introductions while we attempt to design around such patents,
and any of these circumstances could have a material adverse effect on our business,
financial condition and results of operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We may have to
resort to litigation to enforce any patents issued or licensed to us or to determine the
scope and validity of third party proprietary rights. Any such litigation, regardless of
outcome, could be expensive and time consuming, and adverse determinations in any such
proceedings could prevent us from developing, manufacturing or commercializing our
products and could have a material adverse effect on our business, financial condition
and results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our products may infringe on the intellectual
property rights of others, which could increase our costs and negatively affect our
profitability.
|------------------------------------------------------------------------------------------------------------------------------------------------



|Third parties may
assert against us infringement claims or claims that we have infringed a patent,
copyright, trademark or other proprietary right belonging to them. Any infringement
claim, even if not meritorious, could result in the expenditure of significant financial
and managerial resources and could negatively affect our profitability.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are currently
in litigation in the United States District Court for the District of Columbia concerning
the inventorship of our lead compound, PBT-1. If we are not successful in this
litigation, our future prospects may be materially impacted. In such a situation we may
be required to license certain rights from P.N. Gerolymatos S.A., or be required to
develop a molecule with similar metal binding characteristics that will act as an
inhibitor in the oxidation process. We cannot provide any assurance that we will be able
to obtain such a license, if required, or that we will be successful in developing such a
molecule.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 10 | 
| | -- | 



---





|If we do not obtain the necessary
governmental approvals we will be unable to commercialize our pharmaceutical products.
|------------------------------------------------------------------------------------------------------------------------



|Our ongoing
research and development activities are, the production and marketing of our
pharmaceutical product candidates derived therefrom will be, subject to regulation by
numerous governmental authorities in Australia, principally the Therapeutics Goods
Administration, or TGA, and by the Food and Drug Administration, or FDA, in the United
States, the Medicines Control Agency in the United Kingdom and the European Medicines
Evaluation Authority. Prior to marketing, any therapeutic product developed must undergo
rigorous pre-clinical testing and clinical trials, as well as an extensive regulatory
approval process mandated by the TGA and, to the extent that any of our pharmaceutical
products under development are marketed abroad, by foreign regulatory agencies including
the FDA in the United States and the Medicines Control Agency in the United Kingdom.
These processes can take many years and require the expenditure of substantial resources.
Delays in obtaining regulatory approvals would adversely affect the development and
commercialization of our pharmaceutical product candidates. Although we intend to make
use of fast-track and abbreviated regulatory approval programs when possible, we cannot
be certain that we will be able to obtain the clearances and approvals necessary for
clinical testing or for manufacturing and marketing our pharmaceutical products
candidates.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our research and development efforts will be
seriously jeopardized if we are unable to retain key personnel and cultivate key academic
and scientific collaborations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our future success
depends to a large extent on the continued services of our senior management and key
personnel, especially Professors Colin Masters and Ashley Bush. We have entered into
consulting agreements with both of these individuals and have obtained key man life
insurance policies in the amounts of A$1 million and A$2 million with respect to
Professors Masters and Bush, respectively. The loss of their services or other key
personnel, could negatively affect our business. Our success is highly dependent on the
continued contributions of Professors Masters and Bush and our other scientific personnel
and on our ability to develop and maintain important relationships with leading academic
institutions and scientists. Our dependence on their services has been mitigated to some
extent because our company is now at the stage of developing therapeutic drugs which are
based on the targets identified by these scientists. Competition among biotechnology and
pharmaceutical companies for qualified employees is intense, and we cannot be certain
that we will be able to continue to attract and retain qualified scientific and
management personnel critical to our success. We also have relationships with leading
academic and scientific collaborators who conduct research at our request or assist us in
formulating our research and development strategies. These academic and scientific
collaborators are not our employees and may have commitments to, or consulting or
advisory contracts with, other entities that may limit their availability to us. In
addition, these collaborators may have arrangements with other companies to assist such
companies in developing technologies that may prove competitive to ours.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If we are unable to successfully keep pace
with technological change or with the advances of our competitors, our technology and
products may become obsolete or non-competitive.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The biotechnology
and pharmaceutical industries are subject to rapid and significant technological change.
Our competitors in Australia and elsewhere are numerous and include
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11 | 
| | -- | 



---





|major pharmaceutical companies, biotechnology
firms, universities and other research institutions. These competitors may develop
technologies and products that are more effective than any that we are developing, or
which would render our technology and products obsolete or non-competitive. Many of these
competitors have greater financial and technical resources and manufacturing and
marketing capabilities than we do. In addition, many of our competitors have much more
experience than we do in pre-clinical testing and human clinical trials of new or
improved drugs, as well as in obtaining FDA, TGA and other regulatory approvals.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We know that
competitors are developing or manufacturing various technologies or products for the
treatment of diseases that we have targeted for product development. Some of these
competitive products use therapeutic approaches that compete directly with certain of our
product candidates. Our ability to further develop our products may be adversely affected
if any of our competitors were to succeed in obtaining regulatory approval for their
competitive products sooner than us.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Acceptance of our products in the marketplace
is uncertain, and failure to achieve market acceptance will negatively impact our
business and operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------



|We cannot make any
assurances that our products will achieve market acceptance even if they are approved by
the TGA and the FDA. The degree of market acceptance of our products will depend on a
number of factors, including:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
receipt and timing of regulatory approvals for the uses that we are studying;
| | - |  | ---------------------------------------------------------------------------------

| |  |  | The
establishment and demonstration to the medical community of the safety, clinical efficacy
and cost-effectiveness of our product candidates and their potential advantages over
existing therapeutics and technologies; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
pricing and reimbursement policies of governments and third-party payors.
| | - |  | -----------------------------------------------------------------------------



|Physicians,
patients, payors or the medical community in general may be unwilling to accept, use or
recommend any of our products.
|----------------------------------------------------------------------------------------------------------------------------------



|The failure to establish a sales, marketing
and distribution capability would materially impair our ability to successfully market
and sell our pharmaceutical products.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We currently have
no experience in marketing, sales or distribution of pharmaceutical products. If we
develop any commercially marketable pharmaceutical products and decide to perform our own
sales and marketing activities, we will require additional management, will need to hire
sales and marketing personnel, and will require additional capital. We cannot make any
assurances that qualified personnel will be available in adequate numbers or at a
reasonable cost, that additional financing will be available on acceptable terms, or at
all, or that our sales staff will achieve success in their marketing efforts.
Alternatively, we may be required to enter into marketing arrangements with other parties
who have established appropriate marketing, sales and distribution capabilities. We
cannot make any assurances that we will be able to enter into marketing arrangements with
any marketing partner or that if such arrangements are established, our marketing
partners will be able to commercialize our products successfully.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 12 | 
| | -- | 



---





|Other companies offering similar or substitute
products may have well-established and well-funded marketing and sales operations in
place that will allow them to market their products more successfully. Failure to
establish sufficient marketing capabilities would materially impair our ability to
successfully market and sell our pharmaceutical products.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If healthcare insurers and other
organizations do not pay for our products, or impose limits on reimbursement, our
business may suffer.
|---------------------------------------------------------------------------------------------------------------------------------------



|The drugs we hope
to develop may be rejected by the marketplace due to many factors, including cost. The
continuing efforts of governments, insurance companies, health maintenance organizations
and other payors of healthcare costs to contain or reduce healthcare costs may affect our
future revenues and profitability and those of our potential customers, suppliers and
collaborative partners, as well as the availability of capital. In Australia and certain
foreign markets, the pricing or profitability of prescription pharmaceuticals is already
subject to government control. We expect initiatives for similar government control at
both the state and federal level to continue in the United States. The adoption of any
such legislative or regulatory proposals could have a material adverse effect on our
business and prospects.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our ability to
commercially exploit our products successfully will depend in part on the extent to which
reimbursement for the cost of our products and related treatment will be available from
government health administration authorities, private health coverage insurers and other
organizations. Third-party payors, such as government and private health insurers, are
increasingly challenging the price of medical products and services. Uncertainty exists
as to the reimbursement status of newly approved health care products thereafter and in
foreign markets, including the United States. If third-party coverage is not available to
patients for any of the products we develop, alone or with collaborators, the market
acceptance of these products may be reduced which may adversely affect our future
revenues and profitability. In addition, cost containment legislation and reductions in
government insurance programs may result in lower prices for our products and could
materially adversely affect our ability to operate profitably.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We may be exposed to product liability
claims, which could harm our business.
|-----------------------------------------------------------------------------



|The testing,
marketing and sale of human health care products also entails an inherent risk of product
liability. We may incur substantial liabilities or be required to limit development or
commercialization of our products if we cannot successfully defend ourselves against
product liability claims. Although we maintain A$10 million of no fault compensation
insurance with respect to our clinical trial, an amount we believe to be sufficient under
the circumstances, we cannot be certain that such coverage will adequately protect us in
the event of a successful claim. No assurance can be given that we will be able to obtain
product liability insurance in the event of the commercialization of a product or that it
will be available on commercially reasonable terms. Even if we have adequate insurance
coverage, product liability claims or recalls could result in negative publicity or force
us to devote significant time, attention and financial resources to those matters.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Changes in government legislation and policy
may adversely affect us.
|---------------------------------------------------------------------



|While we do not
anticipate in the near future any specific material changes in government legislation
that may adversely affect us, any material changes in interest rate,
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 13 | 
| | -- | 



---





|exchange rate, relevant taxation and other legal
regimes and government policies may adversely affect us and the market price of our
securities.
|------------------------------------------------------------------------------------------------------------------------------------------------



|We are dependent upon a sole supplier of our
key component and could incur significant costs if we are unable to promptly find a
replacement.
|---------------------------------------------------------------------------------------------------------------------------------------------



|Our lead compound,
PBT-1 is manufactured by one manufacturer, the Institute of Drug Technology Limited, from
whom we have sourced PBT-1 for two years. We have not had any prior manufacturer of PBT-1
cease its relationship with our company. Although we believe that PBT-1 can be obtained
from other contract manufacturers since the active ingredient is available as
pharmaceutical grade material from other sources, we cannot assure you that we will be
able to promptly find a replacement manufacturer without incurring material additional
costs.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Risks Relating to Our Location in Australia
|-------------------------------------------



|It may be difficult to enforce a judgment in
the United States against us and most of our officers and directors or to assert U.S.
securities laws claims in Australia or serve process on most of our officers and
directors.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are
incorporated in Australia. All of our executive officers and directors are nonresidents
of the United States. Therefore, it may be difficult for an investor, or any other person
or entity, to enforce a U.S. court judgment based upon the civil liability provisions of
the U.S. federal securities laws in an Australian court against us or any of those
persons or to effect service of process upon these persons in the United States.
Additionally, it may be difficult for an investor, or any other person or entity, to
enforce civil liabilities under U.S. federal securities laws in original actions
instituted in Australia.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Risks Relating to Our Ordinary Shares
|-------------------------------------



|Our stock price may be volatile and the U.S.
trading market for our American depositary shares is limited.
|----------------------------------------------------------------------------------------------------------



|The market price
for our securities, like that of the securities of other pharmaceutical and biotechnology
companies, has fluctuated substantially and may continue to be highly volatile in the
future. The market price for our ordinary shares has ranged from as low as A$0.32 to a
high to A$2.60 during the last two years. The market price for our ordinary shares has
been affected by both broad market developments and announcements relating to actual or
potential developments concerning products under development. We believe that the
following factors, in addition to other risk factors described above and elsewhere in
this annual report, will continue to significantly affect the market price of our
ordinary shares:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
results of pre-clinical testing and clinical trials by us and our competitors;
| | - |  | ----------------------------------------------------------------------------------

| |  |  | Developments
concerning research and development, manufacturing, and marketing alliances or
collaborations by us and our competitors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Announcements
of technological innovations or new commercial products by us and our competitors;
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | Determinations
regarding our patent applications and those of others;
| | - |  | ---------------------------------------------------------------------



| | 14 | 
| | -- | 



---





| |  |  | Publicity
regarding actual or potential results relating to medicinal products under development by
us and our competitors;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------

| |  |  | Proposed
governmental regulations and developments in Australia, the U.S. and elsewhere;
| | - |  | ----------------------------------------------------------------------------------------

| |  |  | Litigation;
| | - |  | -----------

| |  |  | Economic
and other external factors; and
| | - |  | ----------------------------------------

| |  |  | Period-to-period
fluctuations in our operating results.
| | - |  | -------------------------------------------------------



|In addition, stock
markets have experienced extreme price and volume fluctuations. These fluctuations have
especially affected the stock market price of many high technology and healthcare related
companies, including pharmaceutical and biotechnology companies, and, in many cases, are
unrelated to the operating performance of the particular companies.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Holders of our ordinary shares or American
Depositary Shares who are United States residents face adverse income tax consequences.
|----------------------------------------------------------------------------------------------------------------------------------



|There is a risk
that we will be classified as a passive foreign investment company, or PFIC. Our
treatment as a PFIC could result in a reduction in the after-tax return to the holders of
our ordinary shares or American Depositary Shares and would likely cause a reduction in
the value of such shares. For U.S. federal income tax purposes, we will be classified as
a PFIC for any taxable year in which either (i) 75% or more of our gross income is
passive income, or (ii) at least 50% of the average value of all of our assets for the
taxable year produce or are held for the production of passive income. For this purpose,
passive income includes dividends, interest, royalties, rents, annuities and the excess
of gains over losses from the disposition of assets which produce passive income. As a
result of our cash position, which may increase if a substantial portion of our
outstanding options are exercised, there is a risk under the asset test described above
that we will be declared a PFIC in the event the price of our ordinary shares declines
substantially. If we were determined to be a PFIC for U.S. federal income tax purposes,
highly complex rules would apply to U.S. Holders owning ordinary shares. Accordingly, you
are urged to consult your tax advisors regarding the application of such rules. However,
because the determination of whether we are a PFIC is based upon the composition of our
income and assets from time to time, this determination can not be made with certainty
until the end of the calendar year.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|United States
residents should carefully read Item 10E. - Additional Information - Taxation, United
States Federal Income Tax Consequences for a more complete discussion of the U.S.
federal income tax risks related to owning and disposing of our ordinary shares or
American Depositary Shares.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We do not intend to pay dividends.
|----------------------------------



|We have never
declared or paid any cash dividends on our ordinary shares. We currently intend to retain
any future earnings to finance operations and expand our business and, therefore, do not
expect to pay any dividends in the foreseeable future.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 15 | 
| | -- | 



---





|ITEM 4. INFORMATION ON THE COMPANY
|----------------------------------



|A. HISTORY AND DEVELOPMENT OF THE COMPANY
|-----------------------------------------



|Our legal and
commercial name is Prana Biotechnology Limited. We were incorporated under the laws of
the Commonwealth of Australia on November 11, 1997 for an indefinite term and began
limited operations shortly thereafter. Our registered office is located at Suite 2, 1233
High Street, Armadale, Victoria, 3143, Australia and our telephone number is
011-61-3-9824-8166. Our principal executive office is located at Level 1, 100 Dorcas
Street, South Melbourne, Victoria 3205, Australia and our telephone number is
011-61-3-9690-8537.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|From our inception
until our initial public offering registering our shares on the Australian Stock
Exchange, or ASX, on March 28, 2000, we financed our operations with loans from two of
our directors, totaling A$2,038,748. On March 28, 2000, we sold 16,000,000 of our
ordinary shares and 8,000,000 options to purchase our ordinary shares in an initial
public offering. We received net proceeds of A$7,473,363 from the sale of shares and
exercise of options. On February 15, 2001 we completed a private placement of 6,666,666
ordinary shares to institutional investors at a price per share of A$0.75 and received
net proceeds of A$4,745,599 from the private placement. As of September 30, 2002 we had
A$2,409,561 in cash and cash equivalents and our working capital was A$1,450,197.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our mission is to
develop therapeutic drugs designed to treat the underlying causes of degeneration of the
brain and the eye as the aging process progresses. We are developing therapies for a
broad spectrum of age-related diseases initially focused on Alzheimers Disease. Other
potential applications for our therapies include age-related cataracts, Creutzfeldt-Jakob
Disease - the human variant of Mad Cow Disease, Motor Neuron Disease and Parkinsons
Disease. Our technology is the outcome of 15 years of intense research from some of the
leading scientists in the world in the area of age-related degenerative diseases.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Since completing
our initial public offering and listing process on the ASX on March 28, 2000, we have
concentrated our resources toward the pursuit of our diseases targets and in particular
the progress of our clinical trial for PBT-1, as a successful therapeutic for the
treatment of Alzheimers Disease. We commenced our planned phase II human clinical trial
for PBT-1 in August, 2000 at the Mental Health Research Institute and the Royal Melbourne
Hospital. The trials were completed in January 2002 and in April 2002, Professor Colin
Masters, Chairman of our Scientific Advisory Board, reported at the Seventh International
Geneva/Springfield Symposium on Advances in Alzheimer Therapy in Geneva that the trials
had achieved their targeted benchmarks and were encouraging as a proof of concept of our
aAmyloid theory of Alzheimers Disease.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Since inception,
we have not been required to invest material amounts for capital expenditures since our
development efforts have taken place at research facilities operated by institutions with
whom we have relationships. From July 1, 1999 through September 30, 2002 our capital
expenditures have totaled A$101,283 . We have not made any material capital expenditures
since June 30, 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 16 | 
| | -- | 



---





|B. BUSINESS OVERVIEW
|--------------------



|Pranas Background
|------------------



|Medical science
has made a significant number of breakthroughs over the past century. The average life
span in western cultures has substantially increased. The diseases associated with aging
have, however, yet to be fully understood or effectively treated. It is now believed that
a number of age-related diseases may be capable of being treated.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our platform
technology was developed over a period of many years with the financial support of
various institutions and from various grants. The majority of these funds were directed
at research into Alzheimers Disease, however the outcomes demonstrated by this research
have created strong implications for other age-related degenerative disorders where the
pathology of the disease is based on the inter-relationship between metals and proteins.
There is currently no cure or prevention for Alzheimers Disease nor any successful cure
for any of the principal forms of neuron-generating diseases which comprise our disease
targets.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The protein
believed to be involved in Alzheimers Disease is aAmyloid. Very little was known about
aAmyloid protein until 1984 when Professors Colin Masters, Korad Beyreuther and the late
Dr. Glenner sequenced the chemistry of the protein which has since become the dominant
focus world-wide of Alzheimers Disease research.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In 1987, Masters,
Beyreuther and Professor Rudolph Tanzi of Harvard Medical School discovered how aAmyloid
was produced and in 1994 Professor Ashley Bush of Harvard Medical School discovered the
interaction between metals and aAmyloid, causing toxicity in from Alzheimers Disease,
hopefully paving the way for the development of therapeutic drugs to treat the disease.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our intellectual
property has been developed over an extended period through the collaborative efforts of
highly regarded scientists and research institutions in this field.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research Institutions
|---------------------



|The intellectual
property owned by our company has been developed at several internationally recognized
institutional research facilities:
|------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Massachusetts General Hospital, Genetics and Aging Unit in Boston - Massachusetts General
Hospital is the largest teaching hospital for Harvard Medical School;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
University of Melbourne, Department of Pathology; and
| | - |  | ---------------------------------------------------------

| |  |  | The
Biomolecular Research Institute in Melbourne.
| | - |  | -------------------------------------------------



|Work conducted at
the first two of these institutions identified an initial preferred compound codenamed
PBT-1 which was used in our phase II human clinical trials. Our research program also
aims to find further and potentially more effective preferred compounds for the treatment
of Alzheimers Disease as well as for our other major disease targets. For this purpose,
we established a relationship with Professor Peter Colman, who at that time was Director
of the Biomolecular Research Institute and is now affiliated with the Walter and Eliza
Hall Institute in
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 17 | 
| | -- | 



---





|Melbourne. Professor Colman is recognized as an
authority on the creation of new chemical entities through rational drug design
techniques and has been a member of our Scientific Advisory Board since its inception.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Platform Technology
|-------------------



|We regard our
intellectual property as a platform technology since we believe that it addresses the
causes of a broad spectrum of age related diseases based on the interrelationship of
metals and proteins. The most advanced research aimed at our disease targets is its
potential therapeutics for the treatment of Alzheimers Disease. However, we believe that
the platform technology may also be applicable for:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Age-related
cataracts;
| | - |  | ----------------------

| |  |  | Creutzfeldt-Jakob
Disease (CJD or Mad Cow Disease);
| | - |  | ---------------------------------------------------

| |  |  | Motor
Neuron Disease;
| | - |  | ---------------------

| |  |  | Parkinsons
Disease; and
| | - |  | ------------------------

| |  |  | Huntingtons
Disease.
| | - |  | ---------------------



|Clinical Trials
|---------------



|Having
demonstrated the effectiveness of PBT-1 in the laboratory, we received official Ethics
Committee approval from the Royal Melbourne Hospital, Victoria, Australia, to test PBT-1
in human subjects. Phase II human clinical trials for PBT-1 commenced during August 2000
and were completed in January 2002 and an academic paper is currently being prepared for
publication in a peer reviewed journal. The clinical trials were conducted principally at
our sponsored facilities at the Royal Melbourne Hospital and the Mental Health Research
Institute, both based in Melbourne. Prescribed dosages of our preferred compound PBT-1
were administered to 50% of the study candidates, the other 50% received a placebo. The
trial is a double blind trial so neither the administrating medical personnel nor the
patients involved in the trial process were aware of who received PBT-1 and who received
the placebo. All subjects were asked to perform various prescribed cognitive tests to
determine if the introduction of PBT-1 had a demonstrable effect as compared to those
subjects receiving the placebo.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The trial was
performed to contemporary best practice clinical trial standards. Prana contracted
Kendle to manage the clinical trials, ensuring compliance to the required international
standards of Good Clinical Practice as set out by the International Conference on
Harmonisation. These protocols provide strict guidelines for the performance of clinical
trials in an ethical and scientifically sound manner, and are mandatory for applications
to international regulatory authorities for market access.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Institutional
Ethics Committee overseeing the trial carefully addressed safety concerns as follows:
|-------------------------------------------------------------------------------------------------------

| |  |  | The
dose of clioquinol to be used in the clinical trial is below the dose previously
recommended for use as a short term antidiarria agent. All patients commenced on 250mg
per day, increasing to a maximum of 750mg per day.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 18 | 
| | -- | 



---





| |  |  | The
underlying biochemical mechanism associated with clioquinol toxicity is not fully
understood. Recent work suggests that clioquinol may alter renal excretion of Vitamin
B12. All patients in the study received supplementary Vitamin B12.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
trial protocol required close monitoring of all patients by a safety committee of
clinical experts. This committee independently monitored all patient data including
laboratory results and neurological test results on a regular basis
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In April 2002,
Professor Masters reported that the trial achieved its targeted benchmarks and that the
two major initial findings of the study were:
|----------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
aAmyloid protein, which was the target of the activity of PBT-1, was significantly
reduced in the blood of patients in the treatment group compared to an increase in the
placebo group; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
progression of Alzheimers Disease was slowed down in the more severely affected patients
in the treatment group compared to the placebo group. The initial findings of the study
indicate the rate of cognitive deterioration was slowed in these patients.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Based on these
initial safety and efficacy findings of this study, we intend to structure additional
clinical trials to move PBT-1 toward commercialization. It is expected that Prana will be
in a position to initiate further clinical trials in 2003. No assurance can be given that
such future studies will commence, or if initiated will be completed and prove to be
successful, or that we will be able to commercialize drugs based on our aAmyloid theory
of Alzheimers Disease.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Acuity Technology
Management Pty Ltd, or Acuity, has estimated that a successful drug for the treatment of
Alzheimers Disease could command annual global sales in excess of A$5 billion. We and
our scientific advisory board believes that our technology, if proven successful, will
place our company among the leaders in the world in terms of developing a therapeutic
means to treat Alzheimers Disease.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Rational Drug Design
|--------------------



|The initial
relationship between us and Professor Colman was of critical value in designing new
chemical entities through rational drug design techniques, which may become effective
therapeutics for our disease targets.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Colman
employed rational drug design techniques in the discovery of Relenza(R) which has proven
successful in the treatment of influenza. Rational drug design employs computer-generated
models, which target the molecular composition of various substances (in the case of
Alzheimers Disease the aAmyloid Protein) and design new chemical entities with the
propensity to influence the targeted substances (proteins).
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 19 | 
| | -- | 



---





|To date, our
scientists have developed a pipeline of compounds that target the aAmyloid protein. These
compounds are now undergoing the required early phase screening test before they are
available for human testing. Based on the results of initial screening our medicinal
chemists continue to develop new chemical entities with novel design features.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Although we
believe that we have demonstrated proof of principle in our phase II trials utilizing
PBT-1, we believe that rational drug design will provide new and specifically designed
drugs which will display greater efficacy in disaggregating aggregation-prone proteins
such as aAmyloid, paving the way for future therapeutics.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Creutzfeldt Jakob Disease
|-------------------------



|In 2001, British
studies revealed a much greater potential for the spread of fatal brain diseases such as
Creutzfeldt-Jakob Disease, or CJD, the human variant of Mad Cow Disease. In August 2000,
the London-based Medical Research Council warned that the disease could be more
widespread than previously thought and that healthy appearing animals can be carriers of
the disease. In the UK the incidence of these diseases is increasing at a rate of 20% to
30% annually. Mad Cow Disease entered the human food chain in 1980s leading to a
collapse of the entire UK beef trade at the time. There is currently no cure for this
fatal disease.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Age-Related Cataracts
|---------------------



|Basic research in
this area is being conducted with studies in Boston and Melbourne. Preliminary animal
data is becoming available.
|-----------------------------------------------------------------------------------------------------------------------------------



|Motor Neuron Disease (or Amyotrophic Lateral
Sclerosis)
|-------------------------------------------------------



|Amyotrophic
Lateral Sclerosis, or ALS, is a fatal disease, manifested by progressive paralysis over
five to ten years. There is currently no effective therapy for this tragic illness. The
disease involves degeneration of the nerve cells in the spinal column, which has now been
related to mutations of a protein that interacts with metal ions.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Collaborative
studies with other internationally recognized research groups are progressing, and
preliminary animal experiments are in development. The mechanisms underlying this disease
have not been fully discounted, but the oxidative changes associated with the aggregation
of critical proteins in the spinal cord and brain stem continue to be at the center of a
world-wide research effort. A drug target is expected to emerge in the near future.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Parkinsons Disease
|-------------------



|Parkinsons
Disease is another crippling disease of the aging population. It causes a progressive
slowing of movement, tremor and the loss of fine motor control. Increasing dementia is
being recognized as a significant component of Parkinsons Disease. Existing therapies
may provide some short term symptomatic relief but do not address the underlying cause of
the disease. We believe that our platform technology may affect the aggregation of the
proteins concerned and may provide a pathway for reversing the disease. Parkinsons
Disease is believed to affect 150 people per 100,000 or 2.5% of persons over the age of
85. Acuity has estimated that a successful therapeutic drug will command global annual
sales of A$1.5 billion.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 20 | 
| | -- | 



---





|The Melbourne
research team is working on the key protein which aggregates to form the diagnostic
marker of this disease. The aggregated form of this protein is susceptible to the same
therapeutic strategy that is being used for Alzheimers disease, and tests are about to
be conducted on test-tube samples to confirm this approach. Experimental animal models
are becoming available for this debilitating disorder, and the targets for drug
development are expected to be available within the next 12 months.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Patent Portfolio
|----------------



|Our patent
portfolio is based on intellectual property developed at several internationally
recognized institutional research facilities. The portfolio consists of the following
patents and patent applications which have been assigned or licensed to us:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|1.  Patent Family A method for assaying and
treating Alzheimers Disease
|--------------------------------------------------------------------------



|Based on International Patent Application No
PCT/AU92/00610
|-----------------------------------------------------------



|Applicant: | The
University of Melbourne - Assigned to Prana
|---------- | -----------------------------------------------





|Inventors: | Masters,
Bush and Beyreuther
|---------- | ----------------------------

|             
|-------------
|COUNTRY      
|             
|Australia    
|             
|Australia    
|             
|Europe       
|             
|Japan        
|             
|United States
|             
|United States
|             
|United States
|             
|Canada       
|             





| | 21 | 
| | -- | 



---





|2.  Patent Family Beta-amyloid peptide
inhibitors
|---------------------------------------------------



|Based on International patent application No.
PCT/AU00/00886
|------------------------------------------------------------



|Filed: | July
21, 2000
|------ | -------------





|Applicant: | Biomolecular
Research Institute (BRI) and University of Melbourne (Uni. Melb.) - Deed of Assignment
from BRI to Prana completed, Deed of Assignment from Uni Melb. under way.
|---------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------





|Inventors: | Barnham,
McCarthy, Pallich, Matthews and Cherny
|---------- | -----------------------------------------------

|               
|---------------
|PCT application
|               
|Australia      
|               
|Europe         
|               
|Japan          
|               
|Canada         
|               
|United States  
|               





|3.   Patent Family Neurotoxic Oligomers
|-----------------------------------------



|Based on International patent application No.
PCT/AU01/00786
|------------------------------------------------------------



|Filed: | June
28, 2000
|------ | -------------





|Applicant: | Prana
and the General Hospital Corporation
|---------- | ------------------------------------------





|Inventors: | Bush
and Cherny
|---------- | ---------------

|               
|---------------
|COUNTRY        
|               
|PCT application
|               





| | 22 | 
| | -- | 



---





|4. Patent Family Method of screening for
inhibitors of Alzheimers disease
|----------------------------------------------------------------------------



|Based on International patent application No
PCT/AU01/01603
|-----------------------------------------------------------



|Filed: | December
12, 2000
|------ | -----------------





|Applicant: | Prana
|---------- | -----





|Inventors: | Barnham,
Parker and Cappai
|---------- | --------------------------

|               
|---------------
|COUNTRY        
|               
|PCT application
|               





|5.   Patent Family An In Vitro system for
determining formation of A(beta) Amyloid
|------------------------------------------------------------------------------------



|Based on International patent application No
PCT/US94/11928
|-----------------------------------------------------------



|Filed: | October
19 ,1994
|------ | ----------------





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Tanzi
and Bush
|---------- | --------------

|             
|-------------
|COUNTRY      
|             
|United States
|             
|United States
|             
|Canada       
|             
|Japan        
|             





|6.   Patent Family A diagnostic assay for
Alzheimers Disease
|---------------------------------------------------------------



|Based on International patent application No
PCT/US94/11895
|-----------------------------------------------------------



|Filed: | October
19, 1994
|------ | ----------------





| | 23 | 
| | -- | 



---





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Tanzi,
Bush and Moir
|---------- | --------------------

|             
|-------------
|COUNTRY      
|             
|United States
|             
|United States
|             
|Canada       
|             





|7.Patent Family Identification of agents
for use in the treatment of Alzheimers Disease
|------------------------------------------------------------------------------------------



|Based on International patent application No
PCT/US98/04683
|-----------------------------------------------------------



|Filed: | March
11, 1998
|------ | --------------





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Bush,
Huang, Atwood and Tanzi
|---------- | -----------------------------

|               
|---------------
|COUNTRY        
|               
|PCT application
|               
|PCT application
|               
|Australia      
|               
|Australia      
|               
|United States  
|               
|Canada         
|               
|Japan          
|               
|Europe         
|               





| | 24 | 
| | -- | 



---





|8. Patent Family Methods for screening
drugs to predict Tardive Dyskinesia
|----------------------------------------------------------------------------



|Based on International patent application No.
PCT/US98/20994
|------------------------------------------------------------



|Filed: | October
6, 1998
|------ | ---------------





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Tsai,
Huang and Bush
|---------- | --------------------

|             
|-------------
|COUNTRY      
|             
|Australia    
|             
|United States
|             
|United States
|             
|Japan        
|             
|Canada       
|             
|Europe       
|             





|9. Patent Family Use of Clioquinol for
the therapy of Alzheimers Disease
|---------------------------------------------------------------------------



|Based on US patent application No. 09/032,777
|---------------------------------------------



|Filed: | March
6, 1998
|------ | -------------





|Applicant: | General
Hospital Corporation and University of Melbourne - Assignment to Prana from University of
Melbourne, licensed from the General Hospital Corporation to Prana
|---------- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------





|Inventors: | Bush,
Tanzi, Cherny and Xilinas
|---------- | -------------------------------

|             
|-------------
|COUNTRY      
|
|             
|United States
|             
|United States
|             
|United States
|             





| | 25 | 
| | -- | 



---





|10.   Patent Family Agents for use in the
treatment of Alzheimers Disease
|----------------------------------------------------------------------------



|Base on International patent application No
PCT/US99/05291
|----------------------------------------------------------



|Filed: | March
11, 1999
|------ | --------------





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Bush,
Huang, Atwood and Tanzi
|---------- | -----------------------------

|             
|-------------
|COUNTRY      
|             
|United States
|             
|United States
|             
|Europe       
|             
|Japan        
|             
|Australia    
|             
|Canada       
|             





|11.   Patent Family Method of screening for
drugs useful in treating Alzheimers Disease
|------------------------------------------------------------------------------------------



|Based on International patent application
PCT/US00/11715
|--------------------------------------------------------



|Filed: | April
29, 1999
|------ | --------------





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Bush
|---------- | ----

|                                                                                                                                                                                                                  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|COUNTRY                                                                                                                                                                                                           
|                                                                                                                                                                                                                  
|PCT application                                                                                                                                                                                                   
|                                                                                                                                                                                                                  
|United States                                                                                                                                                                                                     
|                                                                                                                                                                                                                  
|Australian, European, Japanese and 
        Canadian cases pursued under the 
        (above) Patent Family entitled, 
        Identification of agents for use in 
        the treatment of Alzheimers Disease
|                                                                                                                                                                                                                  





| | 26 | 
| | -- | 



---





|12.   Patent Family Methods for the
Identification of Agents that Inhibit or Promote Cataracts and Uses thereof
|-----------------------------------------------------------------------------------------------------------------



|Based on International patent application No.
PCT/US00/25975
|------------------------------------------------------------



|Filed: | August
18, 2000
|------ | ---------------





|Applicant: | General
Hospital Corporation - Licensed to Prana
|---------- | ------------------------------------------------





|Inventors: | Bush
and Goldstein
|---------- | ------------------

|               
|---------------
|COUNTRY        
|               
|PCT application
|               





|13.   Patent Family Treatment of
Neurodegenerative Conditions
|---------------------------------------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 16
July 2002
|------ | ------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





| | 27 | 
| | -- | 



---





|14.   Patent Family 8-Hydroxy Quinoline
Derivatives
|-----------------------------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 16
July 2002
|------ | ------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





|15.   Patent Family Compound I
|--------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 4
October 2002
|------ | --------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





|16.   Patent Family Compound II
|---------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 4
October 2002
|------ | --------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





| | 28 | 
| | -- | 



---





|17.   Patent Family Compound III
|----------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 4
October 2002
|------ | --------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





|18.   Patent Family Compound IV
|---------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 4
October 2002
|------ | --------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





|19.   Patent Family Compound V
|--------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 4
October 2002
|------ | --------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





| | 29 | 
| | -- | 



---





|20.   Patent Family Compound VI
|---------------------------------



|Australian provisional patent application.
|------------------------------------------



|Filed: | 4
October 2002
|------ | --------------





|Applicant: | Prana
Biotechnology Ltd
|---------- | -----------------------





|Inventors: | TBA
|---------- | ---

|         
|---------
|COUNTRY  
|         
|Australia
|         





|Patent Matters
|--------------



|Patent matters in
biotechnology are highly uncertain and involve complex legal and factual questions.
Accordingly, the availability and breadth of claims allowed in biotechnology and
pharmaceutical patents cannot be predicted. Statutory differences in patentable subject
matter may limit the protection we can obtain on some or all of our inventions outside
Australia or prevent us from obtaining patent protection outside Australia, either of
which could have a material adverse effect on our business, financial condition and
results of operations. For example, methods of treating humans are not patentable in many
countries outside Australia and the United States. Moreover, since patent applications in
Australia and the United States are maintained in secrecy until patents issue, and since
publication of discoveries in the scientific or patent literature often lags behind
actual discoveries, we cannot be certain that we or any of our licensors were the first
creator of inventions covered by pending patent applications or that we or our licensors
were the first to file patent applications for such inventions. Additionally, the
enforceability of a patent is dependent on a number of factors that may vary between
jurisdictions. These factors may include the novelty of the invention, the requirement
that the invention not be obvious in the light of prior art (including prior use or
publication of the invention), the utility of the invention, and the extent to which the
patent clearly describes the best method of working the invention.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|While we intend to
seek patent protection for our therapeutic products and technologies, we cannot be
certain that any of the pending or future patent applications filed by us or on our
behalf will be approved, or that we will develop additional proprietary products or
processes that are patentable or that we will be able to license any other patentable
products or processes. We also cannot be certain that others will not independently
develop similar products or processes, duplicate any of the products or processes
developed or being developed by us or licensed to us, or design around the patents owned
or licensed by us, or that any patents owned or licensed by us will provide us with
competitive advantages. Furthermore, we cannot be certain that patents held by third
parties will not prevent the commercialization of products incorporating the technology
developed by us or licensed to us, or that third parties will not challenge or seek to
narrow, invalidate or circumvent any of the issued, pending or future patents owned or
licensed by us.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 30 | 
| | -- | 



---





|Our commercial
success will also depend, in part, on our ability to avoid infringement of patents issued
to others. If a court determines that we were infringing any third party patents, we
could be required to pay damages, alter our products or processes, obtain licenses or
cease certain activities. We cannot be certain that the licenses required under patents
held by third parties would be made available on terms acceptable to us or at all. To the
extent that we are unable to obtain such licenses, we could be foreclosed from the
development, manufacture or commercialization of the product requiring such license or
encounter delays in product introductions while we attempt to design around such patents,
and any of these circumstances could have a material adverse effect on our business,
financial condition and results of operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We may have to
resort to litigation to enforce any patents issued or licensed to us or to determine the
scope and validity of third party proprietary rights. Such litigation could result in
substantial costs and diversion of effort by us. We may have to participate in opposition
proceedings before the Australian Patent and Trademark Office or another foreign patent
office, or in interference proceedings declared by the United States Patent and Trademark
Office, to determine the priority of invention for patent applications filed by
competitors. Any such litigation, interference or opposition proceeding, regardless of
outcome, could be expensive and time consuming, and adverse determinations in any such
proceedings could prevent us from developing, manufacturing or commercializing our
products and could have a material adverse effect on our business, financial condition
and results of operations.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In addition to
patent protection, we rely on unpatented trade secrets and know-how and proprietary
technological innovation and expertise that are protected in part by confidentiality and
invention assignment agreements with our employees, advisors and consultants.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Competition
|-----------



|We believe that we
will face competition in differing levels of intensity in all of the areas in which we
are conducting research. Our competitors in Australia and elsewhere are numerous and
include, among others, major pharmaceutical companies, biotechnology firms, universities
and other research institutions. These competitors may develop technologies and products
that are more effective than any that we are developing, or which would render our
technology and products obsolete or non-competitive. Many of these competitors have
greater financial and technical resources and manufacturing and marketing capabilities
than we do. In addition, many of our competitors have much more experience than we do in
pre-clinical testing and human clinical trials of new or improved drugs, as well as in
obtaining FDA, TGA and other regulatory approvals.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Regulatory Considerations
|-------------------------



|Our ongoing
research and development activities are, and the production and marketing of our
pharmaceutical product candidates derived therefrom will be, subject to regulation by
numerous governmental authorities in Australia, principally the Therapeutic Goods
Administration of Australia, or TGA, and by the U.S. Food &Drug Administration or
FDA, in the United States, the Medicines Control Agency in the United Kingdom and the
European Medicines Evaluation Authority. Prior to marketing, any therapeutic product
developed must undergo rigorous pre-clinical testing and clinical trials, as well as an
extensive regulatory approval process mandated by the TGA and, to the extent that any of
our pharmaceutical
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 31 | 
| | -- | 



---





|products under development are marketed abroad,
by foreign regulatory agencies including the FDA in the United States and the Medicines
Control Agency in the United Kingdom. Clinical trials are conducted in three sequential
phases but the phases may overlap.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pre-clinical
studies involve laboratory evaluation of product characteristics and animal studies to
assess the initial efficacy and safety of the product. Clinical trials involve the
administration of the investigational product to humans under the supervision of a
qualified principal investigator Phase I clinical trials may be performed in healthy
human subjects or, depending on the disease, in patients. The goal of phase I clinical
trials is to establish initial data about the safety and tolerance of the product in
humans. In phase II clinical trials, in addition to safety, the efficacy of the product
is evaluated in limited patients with the target disease. Phase III trials typically
involve additional testing for safety and clinical efficacy in expanded, large-scale,
multi-center studies of patients with the target disease.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Clinical trials
can take many years to complete and require the expenditure of substantial resources. The
length of time varies substantially according to the type, complexity, novelty and
intended use of the product candidate. Delays in obtaining regulatory approvals could
adversely affect the development and commercialization of our pharmaceutical product
candidates and could have a material adverse impact on our business, financial condition
and results of operations.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have recently
completed the Phase II human clinical trials of PBT-1 and will need to complete further
and more detailed trials before we will be able to make any application to any of the
governmental authorities. We are currently undertaking a detailed review of requirements
and preparation of plans to progress the development of PBT-1 to enable application to
regulatory agencies. Initially the focus is on FDA requirements for registration in the
U.S. Harmonization of regulatory requirements through the ICH (International Conference
on Harmonization) and the CTD (Common Technical Document) will enable the regulatory
application for the U.S. to be utilized for applications in Europe and other countries
including Australia, providing some limited country specific requirements are addressed.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We cannot make any
assurances that we will be able to enter into a collaborative arrangement with a large
pharmaceutical or biotechnology company to commercialize PBT-1. Nor can we make any
assurances that once clinical trials are completed by us or a collaborative partner, we
will be able to submit as scheduled a marketing approval request to the applicable
governmental regulatory authority, or that such request and application will be reviewed
and cleared by such governmental authority in a timely manner, or at all. Although we
intend to make use of fast-track and abbreviated regulatory approval programs when
possible, we cannot be certain that we will be able to obtain the clearances and
approvals necessary for clinical testing or for manufacturing and marketing our
pharmaceutical products candidates.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During the course
of clinical trials and toxicology studies, PBT-1 and our other product candidates may
exhibit unforeseen and unacceptable drug-related toxicities or side effects. If any
unacceptable toxicities or side effects were to occur, we may, or regulatory authorities
may require us to, interrupt, limit, delay or abort the development of our potential
products. In addition, unacceptable toxicities could ultimately prevent the clearance of
our product candidates by the TGA or the FDA for any or all targeted indications. Even
after being cleared by the TGA or the FDA, any of our products may later be shown to be
unsafe or not to have its purported
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 32 | 
| | -- | 



---





|effect, thereby preventing widespread use or
requiring withdrawal from the market. We cannot make any assurances that PBT-1 or any of
our other product candidates will be safe or effective when administered to patients.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Manufacturing and Raw Materials
|-------------------------------



|We use a third
party manufacturer to produce our clinical supplies of PBT-1. We have not faced any
difficulty in obtaining raw materials for our research and development activities or our
clinical studies. No assurance can be given that we would be able to replace this
supplier on a timely basis, if we were required to find another source of PBT-1.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Government Grants
|-----------------



|We announced on
July 26, 2001 that we were granted a START grant from the Australian Industry Research
and Development Board to expand our core intellectual property for drug treatment of
neuro-degenerative diseases. Under the terms of the grant we will receive a grant of up
to 50% of the project costs, which we project to be A$3,477,000, related to our
development of a treatment for Alzheimers Disease. Pursuant to the terms of the grant we
will receive up to A$1,738,300 during the three year period commencing on January 1,
2001, payable on the achievement of each of six milestones. We have received A$793,970
under this grant through June 30, 2002. We received an additional $367,730 payment under
the START grant in September 2002.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Business Plan
|-------------



|To date, the
majority of our research efforts have been directed at research into the Alzheimers
Disease. Our initial findings have provided strong indications that the pathology for
other certain age-related and degenerative disorders may also be based on the
inter-relationship between certain metals and proteins. These diseases include:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Age-related
cataracts
| | - |  | ---------------------

| |  |  | Creutzfeldt-Jakob
Disease
| | - |  | -------------------------

| |  |  | Motor
Neuron Disease/Amyotrophic Sclerosis (ALS)
| | - |  | ------------------------------------------------

| |  |  | Parkinsons
Disease
| | - |  | -------------------



|We believe that
our Phase II human clinical trial of PBT-1 has demonstrated proof of principle of our
theory of Alzheimers Disease and that rational drug design will provide new and
specifically designed drugs which will display greater efficacy in disaggregating
aggregation prone proteins such as a-amyloid, paving the way for the development of new
therapeutic agents. To that end, we have established a drug discovery and development
program at the School of Chemistry, and Department of Pathology at the University of
Melbourne and The Mental Health Research Institute of Victoria.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Rational Drug
Design
|--------------------



|Our medicinal
chemistry program began under Professor Peter Colman at the Biomolecular Research
Institute in Melbourne and is now based at the University of Melbourne. Rational drug
design employs computer-generated models, which target the molecular
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 33 | 
| | -- | 



---





|composition of various substances, in the case
of Alzheimers Disease the a-amyloid protein, and designs new chemical entities with the
propensity to influence the targeted proteins and metal-mediated oxyradical formation
which leads to neurodegenerative changes.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A series of in
vitro assays have been established to screen compounds developed by the medicinal
chemistry group. During 2002 a program to undertake preliminary in vivo pharmacology and
kinetic studies of the new compounds demonstrating activity in the in vitro screens has
been established. The transgenic mouse model that demonstrated efficacy of PBT-1 will be
used to evaluate in vivo efficacy and confirm lead compounds to take to formal pre
clinical studies.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Data generated by
in vitro and in vivo screens will also be incorporated into the medicinal chemistry
program to further refine development strategies for new compounds.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research
programs
|-----------------



|Alzheimers
Disease. Research is ongoing to increase our understanding of the neuropathology of
Alzheimers Disease. In the next 12 months, our research will focus on the structure and
function of a-amyloid and its precursor, and protein structural studies. We plan to
structure additional clinical trials in order to advance PBT-1 toward commercialization,
but we can give no assurance that such trials will be initiated, or if initiated that
they will be completed or prove to be successful.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Creutzfedt-Jakob
Disease. In early 2001, the scientific journal Biochemistry published research results by
our sponsored scientist, Dr. Roberto Cappai, and his colleagues confirming the role of
metals in the aggregation and neurotoxicity of the abnormal form of the prion protein
(PrP), believed to be responsible for the transmissible spongiform encephalopathies.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Age-Related
Cataracts. Basic research in this area is continuing with ongoing studies. We believe
that preliminary animal data will be available in late 2003.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------



|Motor Neuron
Disease/Amyotrophic Lateral Sclerosis. Collaborative studies with other internationally
recognized research groups are progressing, and preliminary animal experiments are in
progress to identify the role of SOD1 (superoxide dismutase) aggregation in Motor Neuron
Disease. The mechanisms underlying this disease have not been fully elucidated, but the
oxidative changes associated with the aggregation of critical proteins in the spinal cord
and brain stem continue to be at the center of a world-wide research effort. A drug
target is expected to emerge in the near future.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Parkinsons
Disease. Our Melbourne research team is working on the key protein (alfa-synuclein) that
aggregates to form the diagnostic marker of this disease. We believe that the aggregated
form of this protein s susceptible to the same therapeutic strategy that is being used
for Alzheimers Disease, and laboratory tests are in progress to confirm this approach.
Experimental animal models are being developed, and the targets for drug development are
expected to be available within the next twelve months.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We expect that our
patents, research and development expenses during the fiscal year ending June 30, 2003
will total approximately A$2,233,000.
|-----------------------------------------------------------------------------------------------------------------------------------------------



| | 34 | 
| | -- | 



---





|C. ORGANIZATIONAL STRUCTURE
|---------------------------



|Not applicable
|--------------



|D. PROPERTY, PLANTS AND EQUIPMENT
|---------------------------------



|We do not own any
material tangible fixed assets other than a mass spectrometer that is being used at the
University of Melbourne, nor are we a party to any material property leases. We are
provided with office space under our administrative services agreement with Aroma Science
Pty Ltd.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
|----------------------------------------------------



|A. OPERATING RESULTS
|--------------------



|You should read
the following discussion and analysis in conjunction with Item 3A. - Selected Financial
Data as well as our financial statements and related notes which appear elsewhere in
this annual report. The following discussion contains forward-looking statements that
reflect our current plans, estimates and beliefs and involve risks and uncertainties. Our
actual results may differ materially from those discussed in the forward-looking
statements. Factors that could cause or contribute to such differences include those
discussed below and elsewhere in this annual report.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All of our
revenues are generated in Australian dollars and a majority of our expenses are incurred
in Australian dollars.
|--------------------------------------------------------------------------------------------------------------------------



|Overview
|--------



|We are a
development stage enterprise at an early stage in the development of our pharmaceutical
products that are designed to treat the underlying causes of degeneration of the brain
and the eye as the aging process progresses. We have incurred net losses since inception
and expect to incur substantial and increasing losses for the next several years as we
expand our research and development activities and move our product candidates into later
stages of development. All of our product candidates are in early stages of development
and we face the risks of failure inherent in developing drugs based on new technologies.
The process of carrying out the development of our products to later stages of
development may require significant additional research and development expenditures,
including pre-clinical testing and clinical trials, as well as for obtaining regulatory
approval. To date, we have funded our operations primarily through the sale of equity
securities, government grants and interest income.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 35 | 
| | -- | 



---





|Recent Accounting Pronouncements Applicable
to Us
|-------------------------------------------------



|Australian Pronouncements
|-------------------------



|In December 1999,
the Australian Accounting and Standards Board issued a revised version of AASB 1020
Income Taxes, or Revised AASB 1020. Revised AASB 1020 adopts the comprehensive balance
sheet method of accounting for income taxes, which is a significant change from the
profit and loss or income statement method required by the superseded standard. We
are required to adopt Revised AASB 1020 on July 1, 2005 and have not yet assessed the
impact of the adoption of such standard on our financial position or results of
operations.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|United States Pronouncements
|----------------------------



|In July 2001, the
Financial Accounting Standards Board, or FASB, issued Statement of Financial Accounting
Standards, or SFAS, No. 141 Business Combinations, or SFAS 141, and SFAS No. 142,
Goodwill and Other Intangible Assets, or SFAS 142. SFAS 141 requires all business
combinations initiated after June 30, 2001 to be accounted for using the purchase method
of accounting. Under SFAS 142, goodwill and intangible assets with indefinite lives are
no longer amortized but are reviewed for impairment annually, or more frequently if
impairment indicators arise. All other intangible assets will continue to be amortized
over their estimated useful lives. The amortization provisions of SFAS 142 apply to
goodwill and intangible assets acquired after June 30, 2001. With respect to goodwill and
intangible assets acquired prior to July 1, 2001, we are required to adopt SFAS 142
effective July 1, 2002. The adoption of SFAS 141 and SFAS 142 did not have a material
impact on our financial position or results of operations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In August 2001,
the FASB issued SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets, or SFAS 144. Although SFAS 144 supersedes SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of, or SFAS 121,
it retains the requirements of SFAS 121 regarding recognition of impairment loss for
long-lived assets to be held and used (based on undiscounted cash flows) and resolves
certain implementation issues. Under SFAS 144 companies will (1) recognize an impairment
loss only if the carrying amount of a long-lived asset is not recoverable based on its
undiscounted future cash flows and (2) measure an impairment loss as the difference
between the carrying amount and fair value of the asset. SFAS 144 also provides guidance
on accounting and disclosure issues surrounding long-lived assets to be disposed of by
sale. The adoption of SFAS 144 on July 1, 2002 did not have a material impact on our
financial position or results of operations.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Differences Between Australian Accounting
Standards and U.S. Accounting Standards
|---------------------------------------------------------------------------------



|U.S. GAAP
Reconciliation
|------------------------



|We prepare our
financial statements in accordance with A-GAAP, which differ in certain significant
respects from U.S. GAAP. The following table sets forth a comparison of our net loss and
total equity in accordance with A-GAAP and U.S. GAAP as of the dates and for the periods
indicated:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 36 | 
| | -- | 



---





|                                 | As of and for the years 
        ended June 30,
|-------------------------------- | -----------------------------------------------
|                                 | 2002                                           
|Net loss in accordance with:     |                                                
|A-GAAP                           | (5,448,467                                     
|U.S. GAAP                        | (4,728,019                                     
|                                 |                                                
|Total equity in accordance with: |                                                
|A-GAAP                           | 16,668,986                                     
|U.S. GAAP                        | 6,715,803                                      



|See Note 26 to our
financial statements for a description of the principal differences between A-GAAP and
U.S. GAAP as they relate to us, and a reconciliation of net loss and total equity for the
dates and periods indicated therein. Differences between A-GAAP and U.S. GAAP that have a
material effect on net loss and total equity relate to share-based compensation and
intangible assets.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Critical Accounting Policies
|----------------------------



|We prepare our
financial statements in accordance with A-GAAP. As such, we are required to make certain
estimates, judgments, and assumptions that management believes are reasonable based upon
the information available. These estimates, judgments and assumptions affect the reported
amounts of assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the periods presented. The significant
accounting policies listed in Note 1 of the financial statements that management believes
are the most critical to aid in fully understanding and evaluating our financial
condition and results of operations under A-GAAP are discussed below.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Recoverable amount
of non-current assets. Each reporting period, our Board assesses the recoverable amount
of all non-current assets. Where the carrying amount of a non-current asset is greater
than its recoverable amount, the asset is revalued down to its recoverable amount. The
recoverable amount is estimated based on expected net cash flows discounted to their
present values using a market-determined, risk-adjusted discounted rate.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Property, plant
and equipment. Property, plant and equipment are recorded at cost. Depreciation is
provided on a straight-line basis over the estimated useful lives of three to five years.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Intangible assets
and patents, research and development expense. Until December 1999, costs associated with
the acquisition and development of our core intellectual property were capitalized as
intangible assets. After considering an independent valuation of our core intellectual
property at December 1999, our Board revalued the assets upwards by A$14,661,942 to
A$16,500,000. The revaluation was recorded in the asset revaluation reserve in equity.
Subsequent to the revaluation, all costs associated with the acquisition and development
of core intellectual property are charged to research and development expense. On July 1,
2000 our Board deemed the revalued carrying amount of core intellectual property to be
cost for financial reporting purposes.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 37 | 
| | -- | 



---





|Our core
intellectual property is being amortized on a straight-line basis over a period of 15
years, the period in which the future benefits are expected to arise. Our Board regularly
reviews the carrying value of core intellectual property to ensure its carrying value
does not exceed its recoverable amount.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Revenue
recognition. We recognize revenue to the extent that it is probable that the economic
benefits will flow to us and the revenue can be reliably measured. Interest income is
recognized as earned and collectibility is reasonably assured. Government grants are
recorded as income when key milestones set within each agreement are achieved and
accepted by all parties to the grant. The agreements provide for payments at different
phases based on product development. Milestones are based on the phases of each product
development, for example Phase 1, Phase 2 and Phase 3. Revenue is not recognized prior to
acceptance that the milestones have been achieved, as collectibility is not assured until
this point is reached. Once each milestone is reached and approved, the grantor is
obligated to pay and there are no further significant obligations as to that part of the
milestone. Grant income for achievement of such milestones is agreed between the parties
in legally binding contracts. Revenue for each milestone achieved is fixed up front.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Significant Costs and Expenses
|------------------------------



|Depreciation and
amortization expense. Depreciation of property, plant and equipment is provided on a
straight-line basis over the estimated useful lives of three to five years. Amortization
of our core intellectual property is provided on a straight-line basis over the estimated
useful lives of 15 years. See Notes 1(c) and 1(d) to the financial statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research and
development expenses. Our research and development expenses consist primarily of
compensation and related costs for research and development personnel, expenses for
testing facilities and payments under our research agreements. Such costs are charged to
operations as incurred. Research and development expenses also include costs associated
with the acquisition and development of patents, which have been expensed subsequent to
December 1999. See Note 1(d) to the financial statements.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Consulting fee
expenses. Our consulting fee expenses consist primarily of directors fees and other
consultancy fees paid to members of our Scientific Advisory Board.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Legal fee
expenses. Our legal fee expenses consist primarily of fees paid to our outside counsel
for the defense of patents as well as other legal expenses incurred in the ordinary
course of business.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Employee benefits
expenses. Employee benefit expenses consist primarily of payments to employees for their
services as employees.
|---------------------------------------------------------------------------------------------------------------------------------



|Corporate
compliance expenses - Corporate compliance expenses consist primarily of costs incurred
by Company to satisfy the requirements under Australian and US accounting standards.
Costs include items such as share register fees, listing fees, audit fees, and accounting
and administration attributed to corporate compliance.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 38 | 
| | -- | 



---





|Other expenses
from ordinary activities. Other expenses from ordinary activities consist primarily of
accounting and administrative services, travel, insurance, marketing and overhead
expenses.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Results of Operations
|---------------------



|Year ended June
30, 2002 compared to year ended June 30, 2001
|-------------------------------------------------------------



|Revenues from ordinary activities
|---------------------------------



|Revenues from
ordinary activities increased to A$793,970 for the year ended June 30, 2002 from
A$516,182 for the year ended June 30, 2001, an increase of A$277,788, or 53.8 %. Revenues
in the 2002 period consisted of A$567,250 of government research grants and A$226,000 in
interest income, compared to A$226,000 of government research grants and A$290,182 in
interest income in the 2001 periodRevenue from government grants increased from prior
years as the Company reached more milestones in the current financial year. Interest
income was comparable between 2001 and 2002.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Depreciation and amortization expenses
|--------------------------------------



|Depreciation and
amortization expenses increased to A$1,160,595 for the year ended June 30, 2002 from
A$1,140,658 for the year ended June 30, 2001, an increase of A$19,937or 1.7%. The
increase in expenses in the 2002 period is attributable to the depreciation of the
purchase of additional property, plant and equipment during year ended June 30, 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research and development expenses
|---------------------------------



|Research and
development expenses increased to A$2,479,945 for the year ended June 30, 2002 from
A$2,362,917 for the year ended June 30, 2001, an increase of A$117,028, or 4.9%. The
increase in expenses in the 2002 period was primarily due to costs associated with our
phase II human clinical trials of PBT-1 as well as the acquisition of additional patents
that were charged to expense.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Consulting fee expenses
|-----------------------



|Consulting fee
expenses increased to A$604,873 for the year ended June 30, 2002 from A$306,530 for the
year ended June 30, 2002, an increase of A$298,343, or 102.7%. The increase in expenses
in the 2002 period was primarily due to the increased activity during the year and use of
more scientific and marketing consultants, particularly in the US.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Legal fee expenses
|------------------



|Legal fee expenses
increased to A$823,201 for the year ended June 30, 2002 from A$252,675 for the year ended
June 30, 2001, an increase of A$570,526 or 225.8%. The increase in expenses in the 2002
period was primarily due to costs associated with patent litigation and in prosecuting
additional patent claims.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 39 | 
| | -- | 



---





|Employee benefits expenses
|--------------------------



|Employee benefits
expenses increased to A$378,853 for the year ended June 30, 2002 from A$122,199 for the
year ended June 30, 2001, an increase of A$256,654or 210%. The increase in expenses in
the 2002 period was primarily due to full year of operations for the employee expenses
(in 2001 the Company only commenced laboratory activities part way through the year, and
thus only incurred employee expenses for part of the year) , and an additional employee
for the year ended June 30, 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Corporate compliance expenses
|-----------------------------



|Corporate
compliance expenses increased to A$339,383 for the year ended June 30, 2002 from
A$196,629 for the year ended June 30, 2001, an increase of A$142,754 or 72.6%. The
increase in expenses in the 2002 period is primarily attributable to costs incurred in
connection with our listing on the Nasdaq Small Cap Market which was finalized in
September 2002.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other expenses from ordinary activities
|---------------------------------------



|Other expenses
from ordinary activities increased to A$ 455,587 for the year ended June 30, 2002 from
A$273,553 for the year ended June 30, 2001, an increase of A$182,034or 66.5%. The
increase in expenses in the 2002 period was primarily due to the increase in operations,
which has resulted in increased rental expense (resulting from use of the laboratory for
a full year), and increased office overhead costs.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Year ended June
30, 2001 compared to year ended June 30, 2000
|-------------------------------------------------------------



|Revenues from ordinary activities
|---------------------------------



|Revenues from
ordinary activities increased to A$516,182 for the year ended June 30, 2001 from A$78,758
for the year ended June 30, 2000, an increase of A$437,424, or 555%. Revenues in the 2001
period consisted of A$226,000 of government research grants and A$290,182 in interest
income, compared to A$78,758 of interest income in the 2000 period.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Depreciation and amortization expenses
|--------------------------------------



|Depreciation and
amortization expenses increased to A$1,140,658 for the year ended June 30, 2001 from
A$654,977 for the year ended June 30, 2000, an increase of A$485,681 or 74%. The increase
in such costs in the 2001 period reflects the increased amortization expense arising from
the upward revaluation of the intangible assets relating to our core intellectual
property by A$14,661,942 in December 1999.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Research and development expenses
|---------------------------------



|Research and
development expenses increased to A$2,362,917 for the year ended June 30, 2001 from
A$421,933 for the year ended June 30, 2000, an increase of A$1,940,984, or 460%. The
increase in expenses in the 2001 period was primarily due to costs associated with our
phase II human clinical trials of PBT-1 and to a lesser extent due to a change in our
accounting policy in December 1999 whereby costs associated with the development of
patents
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 40 | 
| | -- | 



---





|are now expensed as incurred and are no longer
capitalized. See Note 1(e) to the financial statements.
|------------------------------------------------------------------------------------------------------



|Consulting fee expenses
|-----------------------



|Consulting fee
expenses increased to A$306,530 for the year ended June 30, 2001 from A$179,998 for the
year ended June 30, 2000, an increase of A$126,532, or 70%. The increase in expenses in
the 2001 period was primarily due to the increased costs associated with our conducting
phase II human clinical trials of PBT-1.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Legal fee expenses
|------------------



|Legal fee expenses
increased to A$252,675 for the year ended June 30, 2001 from A$13,082 for the year ended
June 30, 2000, an increase of A$239,593 or 831%. The increase in expenses in the 2001
period was primarily due to costs associated with patent litigation and in prosecuting
additional patent claims.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Employee benefits expenses
|--------------------------



|Employee benefits
expenses for the year ended June 30, 2001 were A$122,199. We did not incur such costs in
the year ended June 30, 2000 when we engaged consultants and did not have any employees.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Corporate compliance expenses
|-----------------------------



|Corporate
compliance expenses increased to A$196,629 for the year ended June 30, 2001 from A$75,999
for the year ended June 30, 2000, an increase of A$120,630 or 159%. The increase in
expenses in the 2001 period is primarily attributable to increased accounting,
administrative and market costs incurred in preparing our company for a listing on the
Nasdaq Smallcap Market.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Other expenses from ordinary activities
|---------------------------------------



|Other expenses from ordinary activities
increased to A$273,553 for the year ended June 30, 2001 from A$59,057 for the year ended
June 30, 2000, an increase of A$214,496 or 363%. The increase in expenses in the 2001
period was primarily due to increased marketing, insurance, and travel costs (which is
consistent with the increase in operations for the year ended June 30, 2001).Inflation
and Seasonality
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Management
believes inflation has not had a material impact on our companys operations or financial
condition and that our operations are not currently subject to seasonal influences.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|B. LIQUIDITY AND CAPITAL RESOURCES
|----------------------------------



|Cash and cash
equivalents totaled A$3,585,014 at June 30, 2002 compared to A$6,854,873 million at June
30, 2001 and A$4,469,589 at June 30, 2000.. We financed our operations from inception
until our initial public offering in March 2000 primarily through borrowings from two of
our directors, which were repaid from the proceeds of such offering.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 41 | 
| | -- | 



---





|Since our initial public offering we have
financed our operations primarily through sales of equity securities, government grants
and interest earned on investments. As of June 30, 2002, we had raised A$12.8 million,
net of issuance costs, from the sale of equity securities.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net cash used in
operating activities was A$3,765,973, A$2,360,315 and A$966,006 during the years ended
June 30, 2002, 2001 and 2000, respectively. Our payments to suppliers and employees
during the years ended June 30, 2002, 2001 and 2000 were A$4,851,902, A$2,651,685 and
A$1,006,571, respectively. The increase in payments from the year ended June 30, 2001 to
the year ended June 30, 2002 consisted primarily of increased expenses related to
conducting clinical trials and other research, development and administrative activities
and the timing of cash payments related to these activities . During the years ended June
30, 2002, 2001 and 2000, our payments to suppliers and employees were offset by
government grants of A$843,714, A$0 and A$0, respectively, interest income of A$242,215
and A$253,177 and A$78,758, respectively. During the year ended June 30, 2001 we received
an income tax refund of A$38,193 in connection with an income tax payment of the same
amount made during the year ended June 30, 2000. No income tax was paid or refunded in
the year ended June 30, 2000 or 2002.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net cash used in
investing activities was A$84,232during the year ended June 30, 2002 principally for the
purchase of laboratory and computer equipment. We did not have cash flows from investing
activities during the year ended June 30, 2001 or 2000.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Net cash provided
by financing activities was A$580,345, A$4,745,599 and A$5,435,575 during the years ended
June 30, 2002, 2001 and 2000. Cash flows from financing activities during the year ended
June 30, 2002 reflected the exercise of options into ordinary share capital. Cash flows
from financing activities during the year ended June 30, 2001 reflected net proceeds from
a private placement of our ordinary shares to institutional investors. Cash flows from
financing activities during the year ended June 30, 2000 primarily reflected net proceeds
from our initial public offering on the ASX on March 28, 2000, partially offset by the
repayment of loans totaling A$2,038,748 to two of our directors.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of June 30,
2002, our capital expenditures totaled A$284,232 consisting of computer equipment and
laboratory equipment that is being used in connection with our research at the University
of Melbourne. We currently do not have significant capital spending requirements, but we
expect to continue to engage in capital spending consistent with anticipated growth in
our operations and personnel.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of June 30,
2002, our principal commitments consisted of obligations under our research funding
agreement with the University of Melbourne and under a license agreement with the General
Hospital Corporation, or GHC. Under our agreement with the University of Melbourne, we
are required to pay the University A$297,000 per year during each of the three years
beginning December 1, 2000. We are required to pay GHC a total of U.S.$166,590
(A$310,108) for a period of 30 months beginning January 1, 2001, and U.S.$182,000 for a
period of 30 months from August 1, 2001. See Item 5C. - Research and Development,
Patents and Licenses, Item 10C. - Material Contracts and Note 14 to our financial
statements.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 42 | 
| | -- | 



---





|Under our
agreement with Kendle, we are required to pay A$1,200 per day for their services in
connection with the commercialization of our technology. Under an ongoing agreement, we
pay Aroma Science Pty Ltd, or Aroma Science, A$2,500 per month for computer,
administration and meeting facilities. We also pay Malvern Administrative Services Pty
Ltd, or Malvern, A$10,000 per month under an ongoing agreement for administrative,
accounting, company secretarial services and corporate advice.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We believe our
existing cash and cash equivalents as well as anticipated cash flow from government
grants and potential option exercises, will be sufficient to support our current
operating plan for the foreseeable future; however, we have based this estimate on
assumptions that may prove to be incorrect. Our future funding requirements will depend
on many factors, including, but not limited to:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | costs
and timing of obtaining regulatory approvals;
| | - |  | ---------------------------------------------------

| |  |  | the
costs and timing of obtaining, enforcing and defending our patent and intellectual
property the progress and success of pre-clinical and clinical trials of our product
candidates; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | the
progress and number of our research programs in development;
| | - |  | ----------------------------------------------------------------



|Conditions in Australia
|-----------------------



|We are
incorporated under the laws of, and our principal offices and research and development
facilities are located in, the Commonwealth of Australia. Therefore, we are directly
affected by political and economic conditions in Australia.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|C. RESEARCH AND DEVELOPMENT, PATENTS AND
LICENSES
|-------------------------------------------------



|Our primary
activity since incorporation in 1997 has been the acquisition and development of patents
as well as research and development of our core technology. Research and development
expenses amounted to A$1,708,380, A$1,610,054 and A$26,923 during the years ended June
30, 2002, 2001 and 2000, respectively.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our research and
development expenses consist primarily of compensation and related costs for research and
development personnel, expenses for testing facilities and payments under our research
agreements. Such costs are charged to operations as incurred. Research and development
expenses also include costs associated with the acquisition and development of patents
subsequent to December 1999. See Note 1(d) to the financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We announced on
July 26, 2001 that we were granted a START grant from the Australian Industry Research
and Development Board in the amount of A$1.74 million to expand our core intellectual
property for drug treatment of neuro-degenerative diseases. Under the terms of the grant,
we estimate spending A$3,477,000 on the development project over a period of three years
commencing January 1, 2001. The grant will reimburse us for 50% of the project costs to a
maximum of A$1,738,500. Payments are due on the achievement of each of six major
milestones. During the years ended June 30, 2002 and 2001, we recognized A$567,250 and
A$226,000, respectively, of income under this grant. We received an additional A$367,730.
payment under the START grant in September 2002.On May 7, 1999, we entered into a patent
assignment and license agreement with the University of Melbourne. The agreement provided
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 43 | 
| | -- | 



---





|for the assignment of various patents and patent
rights to us. In consideration of the assignment of the patents, we were required to make
certain payments to the University of Melbourne and to pay a royalty of 1.5% on the net
price of products sold utilizing such patents. In addition we must also pay the lesser of
1.5% of the net invoice price of products sold or 10% of royalties received from any
license or sub-licensee we appoint to utilize the patents.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the terms of
a research funding agreement between us and the University of Melbourne, we are required
to pay the University a minimum of A$297,000 (inclusive of goods and services tax), each
year for a period of three years from December 1, 2000 for research projects.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On February 8,
2000, we entered into a patent assignment agreement with The Biomolecular Research
Institute, or BRI. The agreement provides for the assignment of various patent
applications and patent rights from BRI to us. In consideration of the assignment of the
patents, we are required to pay BRI a royalty of 1.5% on the net invoiced price of
products sold utilizing such patents.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the terms of
a license agreement between us and the GHC, we are required to pay GHC a total of
U.S.$166,590 (A$310,108) for the 30 month period beginning January 1, 2001 and
U.S.$182,000 for a period of 30 months from August 1, 2001 for the right to use the
results of research under a license for certain patent rights.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On January 1,
2001, we entered into another license agreement with GHC whereby we obtained an exclusive
license with respect to certain patents and permits us to sublicense the patent rights to
others. In consideration of the license we are required to pay GHC royalties of 1.5% of
the net sales price of products sold utilizing patents exclusively licensed to us.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the terms of
our strategic alliance agreement with Kendle Pty Ltd, or Kendle, they provide us with
consultancy services in relation to the co-ordination, planning and management of
intellectual property, research and development, planning, management and
commercialization strategy. Kendle provides its services to us at a rate of A$1,200 per
day. For the years ended June 30, 2002 and 2001 and 2000, fees earned by Kendle amounted
to A$607,245, A$279,896 and A$64,785, respectively These fees are included in our
statements of financial performance as consulting fees.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have entered
into a consulting agreement with Professor Ashley Bush for the provision of research and
development services relating to inventions and treatments for diseases caused by
metal-mediated oxidative stress. The agreement provides for our payment of A$6,000
monthly consultancy fee during a three year term commencing on February 1, 2000.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|D. TREND INFORMATION
|--------------------



|We are a
development stage company and it is not possible for us to predict with any degree of
accuracy the outcome of our research or commercialization efforts.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 44 | 
| | -- | 



---





|ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND
EMPLOYEES
|--------------------------------------------------



|A. DIRECTORS AND SENIOR MANAGEMENT
|----------------------------------



|Our directors and
executive officers are as follows:
|----------------------------------------------------

|Name                | Age |  | Position               
|------------------- | --- |  | -----------------------
|Geoffrey P. Kempler | 47  |  | Executive Chairman     
|                    |     |  |                        
|Colin L. Masters    | 55  |  | Executive Director     
|                    |     |  |                        
|Brian D. Meltzer    | 48  |  | Non-Executive Director 
|                    |     |  |                        
|George W. Mihaly    | 49  |  | Non-Executive Director 
|                    |     |  |                        
|Ross Thomas Murdoch | 37  |  | Chief Operating Officer
|                    |     |  |                        
|Richard Revelins    | 40  |  | Company Secretary      



|Geoffrey Paul
Kempler has served as our executive chairman since November 1997. Mr. Kempler is one of
the founders of our company and has been primarily responsible for the successful
negotiation of our companys existing contractual relationships with Massachusetts
General Hospital, the University of Melbourne and the Biomolecular Research Institute.
Mr. Kempler is a qualified psychologist and the Managing Director and major shareholder
of Aroma Science Pty Ltd., which holds the Australian distribution and marketing rights
to the Aveda range of cosmetic products. Mr. Kempler, who has extensive experience in
investment and business development, has managed our operations to date and has been
responsible for the implementation of our strategic plan and the commercialization of our
technology. As Chairman, Mr. Kempler has overall management responsibility and will
continue to be primarily responsible for ongoing negotiations with respect to the
technology. He is also a member of the Audit Committee. Mr. Kempler may be deemed as our
Chief Executive Officer under the Federal Securities Laws. Mr. Kempler has a B.Sc degree
in science from Monash University and Grad. Dip. App. Soc. Psych. degree from Swinburne
University.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Colin
Louis Masters has served as the Chief Executive Officer and as a director of our company
since December 1999. Professor Masters graduated with a degree in Medicine from the
University of Western Australia in 1970. Since this time Professor Masters has held many
senior scientific research positions predominantly in the area of Alzheimers disease
research and is currently a Professor of Pathology at the University of Melbourne. He is
Chief of Neuropathology and Director of Research Laboratories at the Mental Health
Research Institute of Victoria and Consultant in Pathology at the Royal Melbourne
Hospital. Professor Masters chairs our Scientific Advisory Board and is primarily
responsible for the implementation of the research strategy of our company. Professor
Masters has a B.Med.Sci. degree with Honours, an M.B., B.S., M.D., F.R.C. Path (U.K.)
degree and F.R.C. Path (Aust), F.A.A. degree, all from the University of Western
Australia.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 45 | 
| | -- | 



---





|Brian Derek
Meltzer has served as a non-executive director of our company since December 1999. Mr.
Meltzer is a merchant banker with the international investment bank Babcock &Brown.
He has 20 years experience in finance, including 12 years at AIDC Ltd where he was
Director of Non-Executive Director Investment Advisory Services. He is a director of
Momentum Ventures Limited, licensed by the government as an Innovation Investment Fund
with venture capital investments including biotechnology. Mr. Meltzer is a non-executive
director on the boards of a number of private companies. He is also a director on the
boards of the Australia-Israel Chamber of Commerce and the Paraplegic and Quadriplegic
Association of Victoria (Paraquad). He is also a member of the Audit Committee. Mr.
Meltzer has a B. Com., and MEc. degrees from the University of Auckland and Monash
University, respectively.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dr. George William
Mihaly has served as a non-executive director of our company since December 1999. Dr.
Mihaly has had an extensive and successful career spanning the research and commercial
facets of the pharmaceutical industry. During the period from mid 1994 to early 2000, Dr.
Mihaly was the founding Executive Chairman and Managing Director of Synermedica Pty Ltd -
one of Australias leading independent consultant research organizations (CRO) to the
pharmaceutical industry. Synermedica merged with the Global CRO, Kendle International
Inc., in April 2000 and Dr. Mihaly continues as Managing Director of the merged entity in
Australia (now called Kendle Pty Ltd). Over the course of the last 21 years in academia
and industry, Dr. Mihaly has amassed extensive experience in both the science and
logistics of setting up, monitoring, managing and evaluating results from Phase I, II,
III and IV clinical trials. Dr. Mihaly has B.Pharm., M.Sc. and Ph.D. degrees and is a
graduate of the Australian Institute of Company Directors.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dr. Ross Thomas
Murdoch has served as chief operating officer of our company since July 2002. Dr Murdoch
has almost 15 years of experience in the local and international pharmaceutical industry
and has accumulated extensive experience in all the scientific, operational and
commercial aspects of drug research and development. Prior to joining our company and
since February 2001, he served as chief executive officer and chief scientific officer of
Kinacia Pty Ltd, an Australian based pharmaceutical company. Previously and since June
1998 he was employed by Astra Merck and after its merger with Zeneca he served as global
head of clinical project management for AstraZeneca. From 1990 to May 1998 Dr. Murdoch
was employed by SmithKline Beecham where he managed its Australian research program until
his transfer to SmithKline Beecham in the U.S. in 1995 where he became a director in
global project management leading drug development in the cardiovascular, pulmonary and
metabolism therapeutic areas. Dr. Murdoch has a B.Sc degree with honors from Monash
University, a PhD in Pharmacology from the University of Melbourne, and a postgraduate
certificate in health economics from the Monash University Business School.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Mr. Richard
Revelins has served as our company secretary since December 1999. Mr. Revelins is an
executive director and principal of Peregrine Corporate Limited an Australian based
investment bank. He has held senior positions in international merchant banks and is
currently a director of a number of companies listed on the Australian Stock Exchange
including Prima Biomed Limited, Integra Medical Imaging Limited, Select-Tel Limited,
Trans-Global Interactive Limited, Yamarna Goldfields Limited and First Au Strategies
Inc., a company listed on the Canadian Venture Exchange.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 46 | 
| | -- | 



---





|Term of Directors
|-----------------



|Our Board has the
power to appoint any person to be a director, either to fill a vacancy or as an
additional director. Any director so appointed may hold office only until the next annual
general meeting when he or she shall be eligible for election. The term for each
director, excluding a Managing Director is three years at which time that director
retires from office and offers himself/herself for re-election at the next annual general
meeting. The terms of Messrs. Meltzer and Mihaly expire on November 2003 and the terms of
Messrs. Kempler and Masters expire on November 2004. Under Australian law, directors who
have reached the age of 72 must stand for reelection annually. The term of office of our
directors are staggered, such that in any given year at least one-third or the nearest
lower whole number, of the directors, excluding a Managing Director, must retire and
stand for re-election at each years annual general meeting.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|A Managing
Directors appointment as a director of our company is not subject to the rotation
provisions of our Constitution. Mr. Kempler would cease to be a managing director if he
ceased to be eligible to be a director of a company under the relevant provisions of the
Australian Corporations Law.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|B. COMPENSATION
|---------------



|Compensation of
directors and officers is determined by the Board and reviewed by our Audit Committee.
|------------------------------------------------------------------------------------------------------



|The Committee
assesses the appropriateness of the nature and amount of emoluments on a periodic basis
by reference to relevant employment market conditions with the overall objective of
ensuring maximum stockholder benefit from the retention of a high quality Board and
executive officers.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Remuneration for
the services of the Executive Directors are formalized in a service agreement. Details of
the nature and amount of each element of the emoluments of each Director of our company
for the financial year are shown in the following table.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following
table presents all compensation we paid to all of our directors and to all of our
directors and executive officers as a group for the year ended June 30, 2002:
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                                                                              | Salaries, fees,
        commissions and
        bonuses | Pension, retirement 
        and other similar
        benefits
|----------------------------------------------------------------------------- | ------------------------------------------------------- | ---------------------------------------------------------------
|Geoffrey P. Kempler                                                           | A$231,818                                               | A$16,386                                                       
|Colin L. Masters                                                              | 50,000                                                  |                                                               
|Brian D. Meltzer                                                              | 25,000                                                  |                                                               
|George W. Mihaly                                                              | 23,148                                                  | 1,852                                                          
|All directors and officers as a group, consisting 
           of five persons | A$329,966                                               | A$18,238                                                       



|As of November 30,
2002, our directors and executive officers as a group, consisting of five persons, held
options to purchase an aggregate of 11,107,500 ordinary shares.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 47 | 
| | -- | 



---





|C. BOARD PRACTICES
|------------------



|Our Board is
elected by and accountable to our shareholders. Board responsibilities are divided into
operating activities, financial and capital markets activities and scientific activities.
Our Executive Chairman, Geoffrey Kempler, is predominantly responsible for overall
management of our company, negotiating agreements and negotiations with research
institutions and supervision of our intellectual property portfolio. Mr. Meltzer is
predominantly responsible for our companys financial and treasury operations and advises
the Board with respect to capital markets and corporate activities. Scientific activities
are undertaken under the direct responsibility of Professor Colin Masters who chairs our
Scientific Advisory Board.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our Board
currently has four directors of whom two are non-executive directors. The two executive
directors are our Managing Director, Mr. Kempler and Professor Colin Masters. In addition
our Board has established an audit committee.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are seeking to
obtain an insurance policy to indemnify our directors and officers against certain
liabilities incurred as a director or officer, including costs and expenses associated in
successfully defending legal proceedings. Our company has not otherwise, during or since
the financial year, indemnified or agreed to indemnify an officer or auditor of our
company or of any related body corporate against a liability incurred as such an officer
or auditor.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Audit Committee
|---------------



|Our Audit
Committee consists of Messrs Kempler, Meltzer and Richard Revelins. The Audit Committee
provides the Board with assurances as to the reliability of financial information for
inclusion in the financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The
responsibilities of the audit committee include: (i) examining the manner in which
management ensures and monitors the adequacy of the nature, extent and effectiveness of
accounting and internal control systems; (ii) reviewing prior to publication the
statutory accounts and other published financial statements and information; (iii)
monitoring relationships with our independent auditors, ensuring that there are no
restrictions on the scope of the statutory audit, making recommendations on the auditors
appointment and dismissal, and reviewing the activities, findings, conclusions and
recommendations of the independent auditors; (iv) reviewing arrangements established by
management for compliance with regulatory and financial reporting requirements; and (v)
reviewing the scope and nature of the work of the internal auditing unit.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our Audit
Committee is authorized generally to investigate any matter within the scope of its
responsibilities and has the power to obtain from the internal auditing unit, our
independent auditors or any other officer or employee any information that is relevant to
such investigations.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Scientific Advisory Board
|-------------------------



|Our companys
Scientific Advisory Board is comprised of a number of the leading scientists in the field
of age related degenerative disorders. Our Scientific Advisory Board oversees and
administers our research activities. Professor Colin Masters chairs our Scientific
Advisory Board. The members of our Scientific Advisory Board are as follows:
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 48 | 
| | -- | 



---





|Professor Colin
Louis Masters has served as an executive director of our company since December 1999.
Professor Masters graduated with a degree in Medicine from the University of Western
Australia in 1970. Since this time Professor Masters has held many senior scientific
research positions predominantly in the area of Alzheimers disease research and is
Professor and Head of the Department of Pathology at the University of Melbourne. He is
Chief of Neuropathology and Director of Research Laboratories at the Mental Health
Research Institute of Victoria and Consultant in Pathology at the Royal Melbourne
Hospital. Professor Masters chairs our Scientific Advisory Board and is primarily
responsible for the implementation of the research strategy of our company. Professor
Masters has a B.Med.Sci. degree with Honors, an M.B., B.S., M.D., F.R.C. Path (U.K.)
degree and F.R.C. Path (Aust), F.A.A. degree, all from the University of Western
Australia.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Ashley
Ian Bush is the Director of the Laboratory for Oxidation Biology within the Genetics and
Aging Unit at the Massachusetts General Hospital and Associate Professor in the
Department of Psychiatry of Harvard Medical School. He is also Principal Fellow/Associate
Professor, Departments of Pathology and Psychiatry, University of Melbourne. Professor
Bush, born and educated in Melbourne, established his laboratory at the Massachusetts
General Hospital after receiving the distinguished Harness Fellowship in 1992. His
discovery of the role of metals and oxidative stress in Neurological disorders has formed
the basis of our platform technology.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Peter
Colmanis the Founding Director of the Biomedical Research Institute and a Professorial
Fellow at the University of Melbourne. He is the former Chief of the CSIRO Division of
Bimolecular Engineering and a founding member of the Board of Directors of Biota Holdings
Limited. Professor Colman has been highly honored for his role in developing the Drug
Relenza, which has proven successful in the treatment of influenza. Professor Colman is
now taking an active interest in the Amyloid protein as the target for the Alzheimers
Disease therapy. His team of scientists working in the Bimolecular Research Institute in
collaboration with us have developed compounds which attack the aAmyloid protein, and a
patent application has been field on the basis of this work. This application has been
assigned to our company. Professor Colman and his team is responsible for pursuing our
research objectives in the areas of structural biology and rational drug design.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Rudolph
Emile Tanzi is Professor of Neurology at the Harvard Medical School and Associate
Geneticist, Neurology Services, the Director of Genetics and the Aging Unit, at the
Massachusetts General Hospital. He played a lead role in the discovery of genes and the
mechanisms that underlie the cause of Alzheimers Disease, particularly as they relate to
the molecular genetics of this disorder. His laboratory at the Massachusetts General
Hospital is one of the leaders in the field. Over the last ten years he has helped guide
the development of our platform technology.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Konrad
Beyreuther is the Director of Institute for Molecular Biology at the University of
Heidelberg. An expert in protein chemistry and molecular biology, he has worked on
Alzheimers Disease since 1984. He is regarded as one of Europes leading scientists in
Alzheimers research. He is a well known consultant to the pharmaceutical industry and
his contributions have been internationally recognized by awards and prizes. He has
collaborated with our scientists for many years.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 49 | 
| | -- | 



---





|D. EMPLOYEES
|------------



|At June 30, 2002,
we had four employees including two directors. Of such employees, three persons were
employed in research and development, one person in management and administration and one
person in operations. We have standard employment agreements with our employees, all of
whom are located in Australia.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Australian labor
laws and regulations are applicable to all of our employees. The laws concern various
matters, including severance pay rights at termination, retirement or death, length of
work day and work week, minimum wage, overtime payments and insurance for work-related
accidents. We currently fund our ongoing legal severance pay obligations by paying
monthly premiums for our employees insurance policies.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Employment Agreements
|---------------------



|We have not
entered into any employment agreements with any of our executive officers or directors
except with respect to our consulting agreement with Professors Masters, and Bush.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|E. SHARE OWNERSHIP
|------------------



|Beneficial Ownership of Executive Officers
and Directors
|--------------------------------------------------------



|The following
table sets forth certain information as of October 31, 2002 regarding the beneficial
ownership by each of our directors and executive officers:
|-------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                                                                 | Number of Ordinary 
        Shares Beneficially Owned (1) | Percentage of 
        Ownership (2)
|-------------------------------------------------------------------- | --------------------------------------------------------- | ------------------------------------
|Geoffrey P. Kempler                                                  | 26,222,500                                                | (3)(4)                              
|Colin L. Masters                                                     | 1,018,000                                                 | (5)                                 
|Brian D. Meltzer                                                     | 460,000                                                   | (6)(7)                              
|George W. Mihaly                                                     | 360,000                                                   | (8) (9)                             
|Richard Revelins                                                     | 473,800                                                   | (10)(11)                            
|All directors and executive 
        officers as a group (5 persons) | 28,267,909                                                | (12)                                

|
|

|* |  | Less
than 1%
|- |  | ------------

|(1) |  | Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange
Commission, or SEC, and generally includes voting or investment power with respect to
securities. Ordinary shares relating to options currently exercisable or exercisable
within 60 days of the date of this annual report are deemed outstanding for computing the
percentage of the person holding such securities but are not deemed outstanding for
computing the percentage of any other person. Except as indicated by footnote, and
subject to community property laws where applicable, the persons named in the table above
have sole voting and investment power with respect to all shares shown as beneficially
owned by them.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The
percentages shown are based on 58,626,300 ordinary shares issued and outstanding as of
October 31, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------



| | 50 | 
| | -- | 



---





|(3) |  | Of
such shares, 20,000ordinary shares are held directly by Mr. Kempler, 13,765,000 ordinary
shares are held of record by Baywick Pty Ltd, an Australian corporation owned by Mr.
Kempler, 60,000 ordinary shares are held of record by Crystal Triangle Pty Ltd, an
Australian corporation owned by Mr. Kempler and 2,970,000 ordinary shares are held of
record by NRB Developments Pty Ltd, an Australian corporation in which Mr. Kempler holds
a 50% interest. Mr. Kempler may be deemed to be the beneficial owner of the ordinary
shares held directly by Baywick Pty Ltd, Crystal Triangle Pty Ltd and NRB Developments
Pty Ltd.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes
1,240,000 ordinary shares issuable upon the exercise of currently exercisable options
that expire in March 2003 (of which 1,010,000 options are held by Mr. Kempler directly,
30,000 options are held by Crystal Triangle Pty Ltd, and 200,000 options are held by
Baywick Pty Ltd). Also includes 8,167,500 ordinary shares issuable upon the exercise of
options expiring in December 2004 (of which 6,682,500 options are held by Baywick Pty Ltd
and 1,485,000 options held by NRB Developments Pty Ltd). All of such options have an
exercise price of A$0.50 per share.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Of
such shares, 16,000 ordinary shares are held by Helen Masters, Mr. Masters wife, and
1,000 ordinary shares are held by Seth Masters, Mr. Masters son. Also includes 1,006,000
ordinary shares issuable upon the exercise of options expiring in December 2004. All of
such options have an exercise price of A$0.50 per share.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(6) |  | Includes
60,000 ordinary shares issuable upon the exercise of currently exercisable options that
expire in March 2003. Also includes 300,000 ordinary shares issuable upon the exercise of
options expiring in December 2004. All of such options have an exercise price of A$0.50
per share.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(7) |  | Of
such shares, 160,000 ordinary shares are held by Navon Pty Ltd., an Australian
corporation owned by Mr. Meltzer.
|--- |  | -------------------------------------------------------------------------------------------------------------------

|(8) |  | Of
such shares,4,000 ordinary shares are held by each of Kieren Mihaly and Warwick Mihaly,
Dr. Mihalys sons. An additional 20,000 ordinary shares are held of record by Waide Pty
Ltd. an Australian corporation owned by Mr. Mihaly and 32,000 options are held of record
by an entity related to Waide Pty Ltd.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(9) |  | Includes
300,000 ordinary shares issuable upon the exercise of options expiring in December 2004.
All of such options have an exercise price of A$0.50 per share.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

|(10) |  | 220,800
of such shares, are held of record by Darontack Pty Ltd. an Australian corporation owned
by Mr. Revelins.
|---- |  | -----------------------------------------------------------------------------------------------------------------

|(11) |  | Includes
250,000 ordinary shares issuable upon the exercise of options expiring in December 2004
that have an exercise price of A$0.50 per share. Also includes 3,000 ordinary shares
issuable upon the exercise of currently exercisable options that expire in March 2003.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 51 | 
| | -- | 



---





|(12) |  | Includes
28,534,300 ordinary shares issuable upon the exercise of 18,516,800 options expiring in
March 2003 and 10,017,500 options expiring in December 2004 that have an exercise price
of A$0.50 per share.
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Stock Option Plan
|-----------------



|In November 2000,
we adopted our Employee and Consultants Option Plan, or the Plan. The Plan was designed
to reward executives, employees and consultants for their contributions to our company
and to provide a method of retaining key personnel for the growth and development of our
intellectual property rights. Options granted under this plan are exercisable until
October 31, 2004. The options cannot be transferred and will not be quoted on the ASX.
The following table presents option grant information for this plan as of October 31,
2002:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Ordinary shares reserved 
        for option grants | Options 
        granted | Weighted average 
        exercise price
|--------------------------------------------------- | ------------------------ | ----------------------------------------
|3,000,000                                           | 323,274                  | A$ 0.50                                 



|Plan Administration
|-------------------



|The Employee and
Consultants Option Plan is administered by our Board.
|----------------------------------------------------------------------



|Exercise of Options During Fiscal 2002
|--------------------------------------



|As of November 30,
2002, no options issued under our Plan had been exercised.
|-----------------------------------------------------------------------------



|ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY
TRANSACTIONS
|---------------------------------------------------------



|A. MAJOR SHAREHOLDERS
|---------------------



|The following
table sets forth certain information, as of November 30, 2002, regarding the beneficial
ownership by all shareholders known to us to own beneficially more than 5% of our
ordinary shares. The voting rights of our major shareholders do not differ from the
voting rights of other holders of our ordinary shares.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|Name                           | Number of ordinary shares
      
      beneficially owned (1) | Percentage of 
      outstanding ordinary 
      shares (2)
|------------------------------ | ------------------------------------------------------------- | -----------------------------------------------------------
|Geoffrey P. Kempler            | 26,222,500                                                    | (3)(4)                                                     
|Jagen Nominees Pty Ltd         | 21,081,500                                                    | (5)                                                        
|NRB Developments
      Pty Ltd | 4,455,000                                                     | (6)                                                        

|
|

|(1) |  | Beneficial
ownership is determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect to securities.
Ordinary shares relating to options currently exercisable or exercisable within 60 days
of the date of this annual report are deemed outstanding for computing the
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 52 | 
| | -- | 



---



| |  | percentage
of the person holding such securities but are not deemed outstanding for computing the
percentage of any other person. Except as indicated by footnote, and subject to community
property laws where applicable, the persons named in the table above have sole voting and
investment power with respect to all shares shown as beneficially owned by them.
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | The
percentages shown are based on 58,626,300 ordinary shares issued and outstanding as of
November 30, 2002. Of such shares, 20,000 ordinary shares are held directly by Mr.
Kempler, 13,765,000 ordinary shares are held of record by Baywick Pty Ltd, an Australian
corporation owned by Mr. Kempler, 60,000 ordinary shares are held of record by Crystal
Triangle Pty Ltd, an Australian corporation owned by Mr. Kempler and 2,970,000 ordinary
shares are held of record by NRB Developments Pty Ltd, an Australian corporation in which
Mr. Kempler holds a 50% interest. Mr. Kempler may be deemed to be the beneficial owner of
the ordinary shares held directly by Baywick Pty Ltd, Crystal Triangle Pty Ltd and NRB
Developments Pty Ltd.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Includes
1,240,000 ordinary shares issuable upon the exercise of currently exercisable options
that expire in March 2003 (of which 1,010,000 options are held by Mr. Kempler directly,
30,000 options are held by Crystal Triangle Pty Ltd, and 200,000 options are held by
Baywick Pty Ltd). Also includes 8,167,500 ordinary shares issuable upon the exercise of
options expiring in December 2004 (of which 6,682,500 options are held by Baywick Pty Ltd
and 1,485,000 options held by NRB Developments Pty Ltd). All of such options have an
exercise price of A$0.50 per share.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Includes
7,030,000 shares issuable upon exercise of options that expire on March 1, 2003. Mr.
Boris Liberman may be deemed to hold the voting and investment powers for the ordinary
shares held by Jagen Nominees Pty Ltd.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | Includes
1,485,000 ordinary shares issuable upon exercise of currently exercisable options that
expire on March 1, 2003. Mr. Kempler holds a controlling interest in this corporation and
is entitled to 50% of the securities issued by our company that are held by such
corporation.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|To our knowledge,
we are not directly or indirectly owned or controlled by any another corporations or by
any governmental entity, and there are no arrangements that might result in a change in
our control.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As of November 30,
2002, there were 1,529 holders of record of our ordinary shares, of which four record
holders, holding approximately 3.0% of our ordinary shares, have registered addresses in
the United States.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|B. RELATED PARTY TRANSACTIONS
|-----------------------------



|Dr. Mihaly serves
as a director of Kendle, formerly known as Synermedica Pty Ltd. Kendle provides analysis
and review of the commercialization of our technology, intellectual property management
and clinical trial management and monitoring. We paid Kendle A$537,327, A$279,896 and
A$91,406 during the years ended June 30, 2002, June 30, 2001 and
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 53 | 
| | -- | 



---





|2000, respectively for their services. An
ongoing agreement at normal commercial rates that is terminable at will exists between us
and Kendle with costs incurred on a daily basis.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Aroma Science, a
company owned by Mr. Kempler, provides us with computer, administration and meeting
facilities. We paid Aroma Science A$30,000, A$30,000 and A$12,500 during the year ended
June 30, 2002, June 30, 2001 and 2000, respectively. An ongoing agreement that is
terminable at will provides for monthly payments of A$2,500 to Aroma Science for these
services.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We paid Malvern, a
company for which Mr. Revelins served as a director for one day in August 2001,
A$120,000, A$108,000 and A$60,000 during the year ended June 30, 2002, June 30, 2001 and
2000, respectively, in respect of providing administration, accounting, company
secretarial services and corporate advice. Under an ongoing agreement that is terminable
at will we pay Malvern A$10,000 per month for such services.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Darontack Pty Ltd,
a company owned by Mr. Revelins, received 500,000 ordinary shares and 250,000 options in
consideration of providing us with corporate advice and management in connection with our
initial public offering and listing on the ASX in the year ended June 30, 2000. Mr.
Revelins is a 40% shareholder and a director of Peregrine Corporate Ltd., an investment
bank that received A$30,000 in respect of underwriting and sub-underwriting fees during
the years ended June 30, 2001 and 2000 in connection with underwriting share issues for
our company at normal arms-length commercial rates.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During the year
ended June 30, 2002 and June 30, 2001 we paid the University of Melbourne, an entity to
which Mr. Masters is en employee, A$994,506 and A$862,350, respectively for research and
development services. Through to November 30, 2002, we have paid the University of
Melbourne a total of A$2,335,014. We are subject to an agreement to pay the University of
Melbourne a minimum of A$297,000 annually during the three year period beginning December
1, 2000 for research projects.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During the year
ended June 30, 2002, June 30, 2001 and 30 June 2000 we paid A$72,000, A$72,000 and
A$24,000, respectively to Professor Ashley Bush in consulting fees for the provision of
research and development services relating to inventions and treatments for diseases
caused by metal-mediated oxidative stress. The agreement provides for our payment of
A$6,000 monthly consultancy fee during a three year term commencing on February 1, 2000.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|See Note 22 to the
financial statements.
|----------------------------------------



|Share and option transactions with Directors
and their Director-related entities:
|---------------------------------------------------------------------------------



|There were no
share or option transactions with directors or director-related entities since June 30,
2002.
|-----------------------------------------------------------------------------------------------------------



|C. INTERESTS OF EXPERTS AND COUNSEL
|-----------------------------------



|Not applicable.
|---------------



| | 54 | 
| | -- | 



---





|ITEM 8. FINANCIAL INFORMATION
|-----------------------------



|A. FINANCIAL STATEMENTS AND OTHER FINANCIAL
INFORMATION
|-------------------------------------------------------



|See our financial
statements, including the notes thereto in Item 17.
|---------------------------------------------------------------------



|Legal Proceedings
|-----------------



|We are currently
in litigation with P.N. Gerolymatos S.A. concerning the inventorship of our lead
compound, PBT-1. The dispute dates back to 1997 when Professors Ashley Bush and Rudolph
Bush and Rudolph Tanzi of the Harvard Medical School and the Massachusetts General
Hospital Corporation, or GHC, along with Dr. M. Xilinas, filed a patent for use of
Clioquinol in treating Alzheimers Disease. It appears a patent for the compound was
filed in 1997 by a Greece-based company called PN Gerolymatos S.A. using information from
Xilinas which patent was subsequently approved. Professors Bush and Tanzi through GHC
filed a patent application in the U.S. in 1998. We have obtained a generic patent that
was granted in Europe and Australia covering the use of chelators in treating Alzheimers
Disease which predates the Clioquinol patent although this patent is being disputed by PN
Gerolymatos.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On September 27,
2001, our company, GHC, and Drs. Ashley I. Bush, Robert Cherny and Rudolph E. Tanzi filed
suit in the United States District Court for the District of Columbia against
Greece-based company P.N. Gerolymatos S.A. and Mr. Panayotis N. Gerolymatos. The
complaint seeks correction of inventorship under 35 U.S.C. ss. 256, and a declaratory
judgment that Drs. Bush, Cherny and Tanzi are the inventors of U.S. Patent No. 6,001,852
(entitled Clioquinol for the treatment of Alzheimers disease) and 5,994,323 (entitled
Pharmaceutical compositions comprising Clioquinol in combination with vitamin B-12 and
therapeutic and prophylactic uses thereof). The complaint also contains claims alleging
conversion and unjust enrichment, and seeks both unspecified damages and equitable relief.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On November 28,
2001, the defendants responded with a counterclaim for a declaratory judgment that Drs.
Bush, Cherny and Tanzi are not inventors of the aforementioned patents, along with
counterclaims alleging tortuous interference with contractual and prospective business
relations and unfair competition. The counterclaims seek both unspecified damages and
equitable relief. Discovery in this case has just recently commenced, therefore it would
be premature to express an opinion as to the outcome of the litigation.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We are not
involved in any other legal proceedings. See Note 16 to the financial statements.
|--------------------------------------------------------------------------------------------



|Dividend Distribution
|---------------------



|We have never paid
cash dividends to our shareholders. We intend to retain future earnings for use in our
business and do not anticipate paying cash dividends on our ordinary shares in the
foreseeable future. Any future dividend policy will be determined by the Board of
Directors and will be based upon conditions then existing, including our results of
operations, financial condition, current and anticipated cash needs, contractual
restrictions and other conditions as the Board of Directors may deem relevant.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 55 | 
| | -- | 



---





|B. SIGNIFICANT CHANGES
|----------------------



|Since June 30,
2002, there has not been any significant changes in the operations or financial condition
of the company, other than as referred to elsewhere in this annual report.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 9. THE OFFER AND LISTING
|-----------------------------



|A. OFFER AND LISTING DETAILS
|----------------------------



|The following
table sets forth, for the fiscal periods indicated, the high and low market quotations
for our ordinary shares, as quoted on the ASX. Our shares have traded on the ASX since
our initial public offering on March 29, 2000.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 56 | 
| | -- | 



---





|                                   | Per Ordinary Share (A$)
|---------------------------------- | -----------------------
|Fiscal Year Ended                  | High                   
|                                   |                        
|June 30, 2000:                     |                        
|Third Quarter (beginning March 29) | 1.30                   
|Fourth Quarter                     | .88                    
|                                   |                        
|June 30, 2001:                     |                        
|First Quarter                      | .69                    
|Second Quarter                     | .82                    
|Third Quarter                      | 1.01                   
|Fourth Quarter                     | 1.29                   
|                                   |                        
|June 30, 2002:                     |                        
|First Quarter                      | 1.34                   
|Second Quarter                     | 1.12                   
|Third Quarter                      | 2.60                   
|Fourth Quarter                     | 2.42                   
|                                   |                        
|June 30, 2003:                     |                        
|First Quarter                      | 2.16                   
|Second Quarter (thru November 30)  | 2.35                   
|                                   |                        
|Month Ended:                       |                        
|June 2002                          | 2.41                   
|July 2002                          | 2.15                   
|August 2002                        | 1.93                   
|September 2002                     | 2.35                   
|October 2002                       | 2.07                   
|November 2002                      | 1.80                   

|Nasdaq Smallcap Market, Monthly Stock
Information:
|--------------------------------------------------



|Since September 5,
2002 our Level II ADRs have traded on the Nasdaq SmallCap Market under the symbol
PRNAY. The following table sets forth, for each month since September 5, 2002, the
range of high ask and low bid prices of our Level II ADRs on the Nasdaq SmallCap Market:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 57 | 
| | -- | 



---





|                               | Per ADR (US$)
|------------------------------ | -------------
|                               | High         
|September (from September 5th) | 12.80        
|October                        | 11.50        
|November                       | 10.50        
|December                       | 9.52         
|                               |              



|B. PLAN OF DISTRIBUTION
|-----------------------



|Not applicable.
|---------------



|C. MARKETS
|----------



|The principal
listing of our ordinary shares and listed options to purchase ordinary shares is on the
ASX. As of April 5, 2002, our ADRs were eligible to trade on the Nasdaq Small Cap OTC
Bulletin Board in the U.S. and since September 5, 2002 our ADRs have traded on the Nasdaq
Small Cap Market under the symbol PRNAY. We entered into a Deposit Agreement with the
Bank of New York under which the Bank of New York, acting as depositary, issues ADRs,
each of which evidences an American Depositary Share, or ADS, which in turn represents
ten of our ordinary shares.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|D. SELLING SHAREHOLDERS
|-----------------------



|Not applicable.
|---------------



|E. DILUTION
|-----------



|Not applicable.
|---------------



|F. EXPENSES OF THE ISSUE
|------------------------



|Not applicable.
|---------------



|ITEM 10. ADDITIONAL INFORMATION
|-------------------------------



|A. SHARE CAPITAL
|----------------



|Not applicable.
|---------------



|B. MEMORANDUM AND ARTICLES OF ASSOCIATION
|-----------------------------------------



|Incorporated by reference to our Registration
Statement on Form 20-F dated August 26, 2002.
|-------------------------------------------------------------------------------------------



| | 58 | 
| | -- | 



---





|C. MATERIAL CONTRACTS
|---------------------



|On May 7, 1999, we
entered into a patent assignment and license agreement with the University of Melbourne.
The agreement provided for the assignment of various patents and patent rights to us. We
may not assign or transfer such patents for a period of five years unless the University
of Melbourne provides prior written content. The University of Melbourne may terminate
the agreement if we default in our obligations and do not remedy that default within
thirty days of receiving notice. In consideration of the assignment of the patents, we
were required to make certain payments to the University of Melbourne and to pay a
royalty of 1.5% on the net price of products sold utilizing such patents. In addition we
must also pay the lesser of 1.5% of the net invoice price of products sold or 10% of
royalties received from any license or sub-licensee we appoint to utilize the patents.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the terms of
a research funding agreement between us and the University of Melbourne, we are required
to pay the University a minimum of A$297,000 (inclusive of goods and services tax), each
year for a period of three years from December 1, 2000 for research projects. We have
paid the University of Melbourne a total of A$1,589,950 through March 31, 2002 under our
agreement of May 7, 1999.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On February 8,
2000, we entered into a patent assignment agreement with BRI. The agreement provides for
the assignment of various patent applications and patent rights from BRI to us. In
consideration of the assignment of the patents, we are required to pay BRI a royalty of
1.5% on the net invoiced price of products sold utilizing such patents. In addition, we
must also pay the lesser of 1.5% of the net invoice price of products sold or 10% of
royalties received from any licensee or sub-licensee we appoint to utilize such patents,
or a minimum of A$2,000 a year. If the patent rights are assigned before a total of
A$20,000 has been paid as royalties, the difference between the royalties paid and
A$20,000 must be paid to BRI.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the terms of
a license agreement between us and GHC, we are required to pay GHC U.S.$166,590
(A$310,108) over a period of 30 months beginning January 1, 2001, and U.S.$182,000
(A$338,794) over a period of 30 months beginning August 1, 2001, for the right to use the
results of research under a license for certain patent rights.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On January 1,
2001, we entered into another license agreement with GHC whereby we obtained an exclusive
license with respect to certain patents and permits us to sublicense the patent rights to
others. The agreement also provides us with the non exclusive right to use materials,
substances and information that were used by GHC in research sponsored by us. In
consideration of the license we are required to pay GHC royalties of 1.5% of the net
sales price of products sold utilizing patents exclusively licensed to us. We are also
required to pay certain advance milestone payments, to be reduced from the royalties. In
addition to the royalties we are obligated to pay GHC 1.5% of any and all non-royalty
payments, including license fees received from our affiliates. Each party to the
agreement may terminate the agreement if the other party defaults in its materials
obligations and does not remedy the default within sixty days after notice is given. GHC
can terminate the licenses and rights granted to us under the agreement in any country in
the event that after the first commercial sale in that country there will be a continuous
one year period in which no products are sold.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 59 | 
| | -- | 



---





|Under the terms of
our strategic alliance agreement with Kendle, they provide us with consultancy services
in relation to the co-ordination, planning and management of intellectual property,
research and development, planning, management and commercialisation strategy. Kendle
provides its services to us at a rate of A$1,200 per day. For the years ended June 30,
2002, 2001 and 2000, we paid Kendle A$537,327 and A$279,896 and A$91,406, respectively.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We have entered
into a consulting agreement with Professor Ashley Bush for the provision of research and
development services relating to inventions and treatments for diseases caused by
metal-mediated oxidative stress. The agreement provides for our payment of A$6,000
monthly consultancy fee during a three year term commencing on February 1, 2000.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|D. EXCHANGE CONTROLS
|--------------------



|Australia has
largely abolished exchange controls on investment transactions. The Australian dollar is
freely convertible into U.S. dollars. In addition, there are currently no specific rules
or limitations regarding the export from Australia of profits, dividends, capital, or
similar funds belonging to foreign investors, except that certain payments to
non-residents must be reported to the Australian Cash Transaction Reports Agency, which
monitors such transactions.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The Foreign Acquisitions and Takeovers Act
1975
|-----------------------------------------------



|Under Australian
law, foreign persons are prohibited from acquiring more than a limited percentage of the
shares in an Australian company without approval from the Australian Treasurer or in
certain other limited circumstances. These limitations are set forth in the Australian
Foreign Acquisitions and Takeovers Act, or the Takeovers Act.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the
Takeovers Act, as currently in effect, any foreign person, together with associates, is
prohibited from acquiring 15% or more of our outstanding shares (or else the Treasurer
may make an order requiring the acquirer to dispose of those shares within a specified
period of time). In addition, if a foreign person acquires shares in our company and as a
result the total holdings of all foreign persons and their associates exceeds 40% in
aggregate without the approval of the Australian Treasurer, then the Treasurer may make
an order requiring the acquirer to dispose of those shares within a specified time. Under
the current Australian foreign investment policy, however, it is unlikely that the
Treasurer would make such an order where the level of foreign ownership exceeds 40% in
the ordinary course of trading, unless the Treasurer finds that the acquisition is
contrary to the national interest. The same rule applies if the total holdings of all
foreign persons and their associates already exceeds 40% and a foreign person (or its
associate) acquires any further shares, including in the course of trading in the
secondary market of the ADRs.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If the level of
foreign ownership exceeds 40% at any time, we would be considered a foreign person under
the Takeovers Act. In such event, we would be required to obtain the approval of the
Treasurer for our company, together with our associates, to acquire; (i) more than 15% of
an Australian company or business with assets totaling over A$5 million; or (ii) any
direct or indirect ownership interest in Australian residential real estate.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 60 | 
| | -- | 



---





|The percentage of
foreign ownership in our company would also be included in determining the foreign
ownership of any Australian company or business in which it may choose to invest. Since
we have no current plans for any such acquisitions and does not own any property, any
such approvals required to be obtained by us as a foreign person under the Takeovers Act
will not affect our current or future ownership or lease of property in Australia.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Our Constitution
does not contain any additional limitations on a non-residents right to hold or vote our
securities.
|----------------------------------------------------------------------------------------------------------------------



|Australian law
requires the transfer of shares in our company to be made in writing, and stamp duty at
the rate of 0.6% is payable in relation to any transfer of shares. No stamp duty will be
payable in Australia on the transfer of ADRs provided that any instrument by which the
ADRs are transferred is executed outside Australia.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|E. TAXATION
|-----------



|Australian Tax Consequences
|---------------------------



|In this section we
discuss the material Australian tax considerations that apply to non-Australian tax
residents with respect to the acquisition, ownership and disposal by the absolute
beneficial owners of ADSs, which are evidenced by ADRs. This discussion is based upon
existing Australian tax law as of the date of this annual report, which is subject to
change, possibly retrospectively. This discussion does not address all aspects of
Australian income tax law which may be important to particular investors in light of
their individual investment circumstances, such as ADSs or shares held by investors
subject to special tax rules (for example, financial institutions, insurance companies or
tax exempt organizations). In addition, this summary does not discuss any foreign or
state tax considerations, other than stamp duty. Prospective investors are urged to
consult their tax advisors regarding the Australian and foreign income and other tax
considerations of the purchase, ownership and disposition of the ADSs or shares.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Nature of ADRs for Australian Taxation
Purposes
|-----------------------------------------------



|ADSs held by a
U.S. holder will be treated for Australian taxation purposes as held under a `bare trust
for such holder. Consequently, the underlying ordinary shares will be regarded as owned
by the ADS holder for Australian income tax and capital gains tax purposes. Dividends
paid on the underlying ordinary shares will also be treated as dividends paid to the ADS
holder, as the person beneficially entitled to those dividends. Therefore, in the
following analysis we discuss the tax consequences to non-Australian resident holders of
ordinary shares which, for Australian taxation purposes, will be the same as to U.S.
holders of ADSs.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Taxation of Dividends
|---------------------



|Australia operates
a dividend imputation system under which dividends may be declared to be `franked to the
extent of tax paid on company profits. Fully franked dividends are not subject to
dividend withholding tax. Dividends payable by our company to non-Australian resident
stockholders will be subject to dividend withholding tax, to the extent the dividends are
unfranked. Dividend withholding tax will be imposed at 30%, unless a stockholder is a
resident
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 61 | 
| | -- | 



---





|of a country with which Australia has a double
taxation agreement. Under the provisions of the current Double Taxation Convention
between Australia and the U.S., the Australian tax withheld on unfranked dividends paid
by us to which a resident of the U.S. is beneficially entitled is limited to 15%, unless
the shares are effectively connected to a permanent establishment or fixed base in
Australia through which the stockholder carries on business or provides independent
personal services, respectively.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Tax on Sales or other Dispositions of Shares
- Capital gains tax
|----------------------------------------------------------------



|Non-Australian
resident stockholders will not be subject to Australian capital gains tax on the gain
made on a sale or other disposal of our shares, unless they, together with associates,
hold 10% or more of our issued capital at any time during the five years before the
disposal of the shares.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|If a
non-Australian resident stockholder did own a 10% or more interest, that stockholder
would be subject to Australian capital gains tax to the same extent as Australian
resident stockholders. The Australian Taxation Office maintains the view that the Double
Taxation Convention between the U.S. and Australia does not limit Australian capital
gains tax. Australian capital gains tax applies to net capital gains at a taxpayers
marginal tax rate but for certain stockholders a discount of the capital gain may apply
if the shares have been held for 12 months or more. For individuals, this discount is
50%. Net capital gains are calculated after reduction for capital losses, which may only
be offset against capital gains.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Tax on Sales or other Dispositions of Shares - Stockholders
      Holding Shares on Revenue Account
|---------------------------------------------------------------------------------------------------



|Some
non-Australian resident stockholders may hold shares on revenue rather than on capital
account, for example, share traders. These stockholders may have the gains made on the
sale or other disposal of the shares included in their assessable income under the
ordinary income provisions of the income tax law, if the gains are sourced in Australia.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Non-Australian
resident stockholders assessable under these ordinary income provisions in respect of
gains made on shares held on revenue account would be assessed for such gains at the
Australian tax rates for non-Australian residents, which start at a marginal rate of 29%.
Some relief from the Australian income tax may be available to such non-Australian
resident stockholders under the Double Taxation Convention between the U.S. and
Australia, for example, because the stockholder does not have a permanent establishment
in Australia.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|To the extent an
amount would be included in a non-Australian resident stockholders assessable income
under both the capital gains tax provisions and the ordinary income provisions, the
capital gain amount would generally be reduced, so that the stockholder would not be
subject to double tax on any part of the income gain or capital gain.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dual Residency
|--------------



|If a stockholder
were a resident of both Australia and the U.S. under those countries domestic taxation
laws, that stockholder may be subject to tax as an Australian resident. If, however, the
stockholder is determined to be a U.S. resident for the purposes of the Double Taxation
Convention between the U.S. and Australia, the Australian tax would be subject to
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 62 | 
| | -- | 



---





|limitation by the Double Taxation Convention.
Stockholders should obtain specialist taxation advice in these circumstances.
|---------------------------------------------------------------------------------------------------------------------------



|Stamp Duty
|----------



|Any transfer of
shares through trading on the Australian Stock Exchange, whether by Australian residents
or foreign residents, will be subject to a 2.0% stamp duty except in Queensland.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Australian Death Duty
|---------------------



|Australia does not
have estate or death duties. No capital gains tax liability is realized upon the
inheritance of a deceased persons shares. The disposal of inherited shares by
beneficiaries, may, however, give rise to a capital gains tax liability.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Goods and Services Tax
|----------------------



|The issue or
transfer of shares will not incur Australian goods and services tax and does not require
a stockholder to register for Australian goods and services tax purposes.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|United States Federal Income Tax
Consequences
|---------------------------------------------



|The following is a
summary of certain material U.S. federal income tax consequences that apply to U.S.
Holders who hold ADRs as capital assets. This summary is based on the United States
Internal Revenue Code of 1986, as amended (the Code), Treasury regulations promulgated
thereunder, judicial and administrative interpretations thereof, the bilateral taxation
convention between Australia and the U.S. or the Tax Treaty, all as in effect on the date
hereof and all of which are subject to change either prospectively or retroactively. This
summary does not address all tax considerations that may be relevant with respect to an
investment in ordinary shares. This summary does not account for the specific
circumstances of any particular investor, such as:
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | broker-dealers,
| | - |  | ---------------

| |  |  | financial
institutions,
| | - |  | -----------------------

| |  |  | certain
insurance companies,
| | - |  | ----------------------------

| |  |  | investors
liable for alternative minimum tax,
| | - |  | ---------------------------------------------

| |  |  | tax-exempt
organizations,
| | - |  | -------------------------

| |  |  | non-resident
aliens of the U.S. or taxpayers whose functional currency is not the U.S. dollar,
| | - |  | ----------------------------------------------------------------------------------------------

| |  |  | persons
who hold the ordinary shares through partnerships or other pass-through entities,
| | - |  | -----------------------------------------------------------------------------------------

| |  |  | investors
that actually or constructively own 10 percent or more of our voting shares, and
| | - |  | ------------------------------------------------------------------------------------------



| | 63 | 
| | -- | 



---





| |  |  | investors
holding ordinary shares as part of a straddle or a hedging or conversion transaction.
| | - |  | -----------------------------------------------------------------------------------------------



|This summary does
not address the effect of any U.S. federal taxation other than U.S. federal income
taxation. In addition, this summary does not include any discussion of state, local or
foreign taxation.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|You are urged to
consult your tax advisors regarding the foreign and United States federal, state and
local tax considerations of an investment in ordinary shares.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------



|For purposes of
this summary, a U.S. Holder is:
|-----------------------------------------------

| |  |  | an
individual who is a citizen or, for U.S. federal income tax purposes, a resident of the
United States;
| | - |  | ---------------------------------------------------------------------------------------------------------

| |  |  | a
partnership, corporation or other entity created or organized in or under the laws of the
United States or any political subdivision thereof;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | an
estate whose income is subject to U.S. federal income tax regardless of its source; or
| | - |  | -----------------------------------------------------------------------------------------



|a trust if:
|-----------

| |  |  | a
court within the United States is able to exercise primary supervision over
administration of the trust, and
| | - |  | --------------------------------------------------------------------------------------------------------------

| |  |  | one
or more United States persons have the authority to control all substantial decisions of
the trust.
| | - |  | -------------------------------------------------------------------------------------------------------



|Taxation of Dividends
|---------------------



|The gross amount
of any distributions received with respect to ordinary shares, including the amount of
any Australian taxes withheld therefrom, will constitute dividends for U.S. federal
income tax purposes, to the extent of our current and accumulated earnings and profits as
determined for U.S. federal income tax principles. You will be required to include this
amount of dividends in gross income as ordinary income. Distributions in excess of our
earnings and profits will be treated as a non-taxable return of capital to the extent of
your tax basis in the ordinary shares and any amount in excess of your tax basis, will be
treated as gain from the sale of ordinary shares. See Disposition of Ordinary
Shares below for the discussion on the taxation of capital gains. Dividends will not
qualify for the dividends-received deduction generally available to corporations under
Section 243 of the Code.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Dividends that we
pay, including the amount of any Australian taxes withheld therefrom, will be included in
your income in a U.S. dollar amount calculated by reference to the exchange rate in
effect on the day such dividends are received. A U.S. Holder who receives payment in A$
and converts the into U.S. dollars at an exchange rate other than the rate in effect on
such day may have a foreign currency exchange gain or loss that would be treated as
ordinary income or loss. U.S. Holders should consult their own tax advisors concerning
the U.S. tax consequences of acquiring, holding and disposing of our ordinary shares.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 64 | 
| | -- | 



---





|Any Australian
withholding tax imposed on such dividends will be a foreign income tax eligible for
credit against a U.S. Holders U.S. federal income tax liability, subject to certain
limitations set out in the Code (or, alternatively, for deduction against income in
determining such tax liability). The limitations set out in the Code include
computational rules under which foreign tax credits allowable with respect to specific
classes of income cannot exceed the U.S. federal income taxes otherwise payable with
respect to each such class of income. Dividends generally will be treated as
foreign-source passive income or financial services income for United States foreign tax
credit purposes. Foreign income taxes exceeding the credit limitation for the year of
payment or accrual may be carried back for two taxable years and forward for five taxable
years in order to reduce U.S. federal income taxes, subject to the credit limitation
applicable in each of such years. Other restrictions on the foreign tax credit include a
prohibition on the use of the credit to reduce liability for the U.S. individual and
corporation alternative minimum taxes by more than 90%. A U.S. Holder will be denied a
foreign tax credit with respect to Australian income tax withheld from dividends received
on the ordinary shares to the extent such U.S. Holder has not held the ordinary shares
for at least 16 days of the 30-day period beginning on the date which is 15 days before
the ex-dividend date or to the extent such U.S. Holder is under an obligation to make
related payments with respect to substantially similar or related property. Any days
during which a U.S. Holder has substantially diminished its risk of loss on the ordinary
shares are not counted toward meeting the 16-day holding period required by the statute.
The rules relating to the determination of the foreign tax credit are complex, and you
should consult with your personal tax advisors to determine whether and to what extent
you would be entitled to this credit.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|U.S. Gift and Estate Tax
|------------------------



|An individual U.S.
Holder of ordinary shares will be subject to U.S. gift and estate taxes with respect to
ordinary shares in the same manner and to the same extent as with respect to other types
of personal property.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|F. DIVIDEND AND PAYING AGENTS
|-----------------------------



|Not applicable.
|---------------



|G. STATEMENT BY EXPERTS
|-----------------------



|Not applicable.
|---------------



|H. DOCUMENTS ON DISPLAY
|-----------------------



|We are subject to
the reporting requirements of the United States Securities Exchange Act of 1934, as
amended, as applicable to foreign private issuers as defined in Rule 3b-4 under the
Exchange Act, and in accordance therewith, we are required to file annual and interim
reports and other information with the Securities and Exchange Commission.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|As a foreign
private issuer, we are exempt from certain provisions of the Exchange Act. Accordingly,
our proxy solicitations are not subject to the disclosure and procedural
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 65 | 
| | -- | 



---





|requirements of Regulation 14A under the
Exchange Act, transactions in our equity securities by our officers and directors are
exempt from reporting and the short-swing profit recovery provisions contained in
Section 16 of the Exchange Act. We make our Securities and Exchange Commission filings
electronically and they are available on the Securities and Exchange Commissions
website. We are not required under the Exchange Act to file periodic reports and
financial statements as frequently or as promptly as United States companies whose
securities are registered under the Exchange Act. However, we will distribute annually to
our shareholders an annual report containing financial statements that have been examined
and reported on, with an opinion expressed by, an independent public accounting firm and
we will file reports with the Securities and Exchange Commission on Form 6-K containing
unaudited financial information for the first six months of each fiscal year.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|This annual report
and the exhibits thereto and any other document that we have to file pursuant to the
Exchange Act may be inspected without charge and copied at prescribed rates at the
Securities and Exchange Commission public reference room at 450 Fifth Street, N.W.,
Judiciary Plaza, Room 1024, Washington, D.C. 20549. You may obtain information on the
operation of the Securities and Exchange Commissions public reference room in
Washington, D.C. by calling the Securities and Exchange Commission at 1-800-SEC-0330 and
may obtain copies of our filings from the public reference room by calling (202) 942-8090.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The documents
concerning our company which are referred to in this annual report may also be inspected
at our offices located at Suite 2, 1233 High Street, Armalale, Victoria, Australia, 3133.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|I. SUBSIDIARY INFORMATION
|-------------------------



|Not applicable.
|---------------



|ITEM 11. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISKS
|-------------------------------------------------------------------



|We invest our
excess cash in interest-bearing accounts and time deposits with government-insured
institutions. Certain of our cash equivalents are subject to interest rate risk. Due to
the short duration and conservative nature of these instruments, we do not believe that
we have a material exposure to interest rate risk. Additionally, the principal is not
subject to any material risks arising from foreign currency exchange, rates, equity
prices, or other market changes that affect market risk sensitive instruments. We do not
utilize derivative financial instruments or other financial instruments subject to market
risk.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We conduct our
activities almost exclusively in Australia. However, we are required to make certain
limited payments to the GHC in U.S. dollars. We do not believe that such limited payments
subject us to any material foreign currency exchange risks.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN
EQUITY SECURITIES
|---------------------------------------------------------------



|Not applicable.
|---------------



| | 66 | 
| | -- | 



---





|PART II
|-------



|ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
|---------------------------------------------------------



|Not applicable.
|---------------



|ITEM 14.  MATERIAL MODIFICATIONS TO THE RIGHTS OF
      SECURITY HOLDERS AND USE OF PROCEEDS
|--------------------------------------------------------------------------------------------



|Not applicable
|--------------



|ITEM 15.  CONTROLS AND PROCEDURES
|---------------------------------



|Within the 90 days
prior to the date of the filing of this annual report, we carried out an evaluation,
under the supervision and with the participation of our senior management, including
Chief Executive Officer Geoffrey P. Kempler and Chief Financial Officer Colin Masters, of
the effectiveness of the design and operation of our disclosure controls and procedures
pursuant to Rule 13(a)-14(c) of the Securities Exchange Act of 1934. Disclosure controls
and procedures are designed to ensure that the material financial and non-financial
information required to be disclosed in this Form 20-F filed with the SEC is recorded,
processed, summarized and reported timely. In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures, no
matter how well designed and operated, can provide only reasonable, rather than absolute,
assurance of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of possible
controls and procedures. Based upon that evaluation, our management, including the Chief
Executive Officer and Chief Financial Officer, concluded that our disclosure controls and
procedures are effective in timely alerting them to material information relating to us
required to be included in the our periodic SEC filings.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|There have been no
significant changes in our internal controls or other factors which could significantly
affect internal controls subsequent to the date of the evaluation. Therefore, no
corrective actions were taken.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Item 16. Reserved
|-----------------



| | 67 | 
| | -- | 



---





|PART III
|--------



|ITEM 17.  FINANCIAL STATEMENTS
|------------------------------

| |                                                    
| | ---------------------------------------------------
| |                                                    
| | Index to Financial Statements                      
| | Independent Auditors Report                       
| | Statements of Financial Performance                
| | Statements of Financial Position                   
| | Statements of Cash Flows                           
| | Statements of Changes in Stockholders
      Equity
| | Notes to the Financial Statements                  



|ITEM 18. FINANCIAL STATEMENTS
|-----------------------------



|Our company has
elected to furnish financial statements and related information specified in Item 17.
|-----------------------------------------------------------------------------------------------------



|ITEM 19. EXHIBITS
|-----------------

| | Exhibit | Description                                                                                                                                                                                                                                                                   
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 1.1     | Constitution of Registrant.(1)                                                                                                                                                                                                                                                
| |         |                                                                                                                                                                                                                                                                               
| | 2.1     | Deposit Agreement, dated as of March 23,
        2001, entered into among Registrant and the Bank of New York, as Depositary,
        and owners and holders of American Depositary Receipts issued thereunder,
        including the Form of American Depositary Receipts.(2)
| |         |                                                                                                                                                                                                                                                                               
| | 4.1     | Research Funding and Intellectual Property
        Assignment Agreement, dated December 1, 2000, between Registrant and the
        University of Melbourne.(1)                                                                                                               
| |         |                                                                                                                                                                                                                                                                               
| | 4.2     | Agreement for the Assignment of Patents
        and Intellectual Property Licensing in relation to treatment to Alzheimer
        Disease, dated May 7, 1999, between Registrant and the University of Melbourne
        University of Melbourne University of Melbourne.(1)  
| |         |                                                                                                                                                                                                                                                                               
| | 4.3     | Agreement for the Assignment of Patents
        and Intellectual Property Licensing in relation to treatment to Alzheimer
        Disease, dated February 8, 2000, between Registrant and the Biomolecular
        Research Institute.(1)                                     
| |         |                                                                                                                                                                                                                                                                               
| | 4.4     | Agreement for the Development of Novel
        Therapies for Alzheimer Disease, dated August 3, 2001, between Registrant
        and AusIndustry.(1)                                                                                                                          
| |         |                                                                                                                                                                                                                                                                               
| | 4.5     | Research Expenditures Agreement, dated
        August 2, 2001, between Registrant and Massachusetts General Hospital.(1)                                                                                                                                                      



| | 68 | 
| | -- | 



---



| | Exhibit | Description                                                                                                                                                                                                                                                                                                       
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 4.6     | Variation Agreement, dated August 8, 2001,
        between Registrant and General Hospital Corporation.(1)                                                                                                                                                                                                        
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.7     | License Agreement, dated January 1, 2001,
        between Registrant and General Hospital Corporation.(1)                                                                                                                                                                                                         
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.8     | Scientific Advisory Board Agreement, dated
        December 2, 1999, between Registrant and Prof. Peter Colman.(1)                                                                                                                                                                                                
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.9     | Deed of variations to Services Agreement,
        dated January 26, 2000, between Registrant and Prof. Ashley Bush.(1)                                                                                                                                                                                            
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.10    | Agreement for Services, dated February
        7, 2000, between Registrant and Prof. Colin Masters.(1)                                                                                                                                                                                                            
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.11    | Agreement to provide office, computer,
        administration and meeting facilities, dated January 31, 2000, between
        Registrant and Aroma Science Pty Ltd.(1)                                                                                                                                            
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.12    | Strategic Alliance Agreement in relation
        to co-ordination, planning and management of intellectual property, research
        and development, planning, management and commercialisation strategy,
        dated December 1, 2000, between Registrant and Kendle Pty Ltd.(1)                             
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.13    | Advisory Agreement dated October 20, 2,000
        between Registrant and GTH Capital Inc.(1)                                                                                                                                                                                                                     
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.14    | Agreement to Provide Accounting, Administration,
        Corporate Advice And Company Secretarial Services, dated as of, February
        23, 2000, between Registrant and Malvern Administrative Services.(1)                                                                                                    
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.15    | Grant Agreement, dated as of, January
        1, 2001, between Registrant and the Commonwealth of Australia, by the
        Industry Research and Development Board.(1)                                                                                                                                           
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.16    | Form of Indemnity for Clinical Trials,
        dated as of September 2000, between Registrant and Melbourne Health (Royal
        Melbourne Hospital Campus), Royal Melbourne Hospital Research Foundation
        Incorporated, University of Melbourne, Mental Health Research Institute
        of Victoria.(1)
| |         |                                                                                                                                                                                                                                                                                                                   
| | 4.17    | Commitment, dated as of November 7, 2001,
        between Registrant and University of Melbourne.(1)                                                                                                                                                                                                              
| |         |                                                                                                                                                                                                                                                                                                                   
| | 10.1    | Prana Biotechnology Limited, Employees
        and Consultants Option Plan 2000.(1)                                                                                                                                                                                                                               
| |         |                                                                                                                                                                                                                                                                                                                   
| | 99.1    | Certification by Chief Executive Officer Pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                       



| | 69 | 
| | -- | 



---





| | Exhibit | Description                                                                                                                                                       
| | ------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 99.2    | Certification by Chief Financial Officer Pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                       
| |         |                                                                                                                                                                   
| | 99.3    | Certification by Chief Executive Officer Pursuant to 18
        U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.
| |         |                                                                                                                                                                   
| | 99.4    | Certification by Chief Financial Officer Pursuant to 18
        U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.

|
|

|(1) |  | Incorporated by referenced to our Registration
      Statement on Form 20-F filed with the Securities and Exchange Commission
      on May 28, 2002. (File No. 000-49843).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Incorporated
by referenced to our Registration Statement on Form F-6 filed with the Securities and
Exchange Commission on March 9, 2001 (File No. 333-13264).
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 70 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|PRANA BIOTECHNOLOGY LIMITED
|---------------------------



|INDEX TO FINANCIAL STATEMENTS
|-----------------------------

|                                              | 
|--------------------------------------------- | 
|                                              | 
|Independent Auditors Report                  | 
|                                              | 
|Statements of Financial Position              | 
|                                              | 
|Statements of Financial Performance           | 
|                                              | 
|Statements of Cash Flows                      | 
|                                              | 
|Statements of Changes in Stockholders Equity | 
|                                              | 
|Notes to Financial Statements                 | 



| |  | 
| |  | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|INDEPENDENT AUDITORS REPORT
|----------------------------



|To The Board Of Directors And Shareholders Of
Prana Biotechnology Limited
|-------------------------------------------------------------------------



|We have audited the accompanying statements of
financial position of Prana Biotechnology Limited (a development stage enterprise) as of
30 June 2002 and 2001, and the related statements of financial performance, cash flows
and changes in stockholders equity for each of the three years in the period ended 30
June 2002 and for the period from 11 November 1997 (date of inception) to 30 June 2002.
These financial statements are the responsibility of the Companys management. Our
responsibility is to express an opinion on these financial statements based on our audits.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|We conducted our audits in accordance with
auditing standards generally accepted in Australia and in the United States of America.
Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis for our
opinion.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In our opinion, the financial statements
referred to above present fairly, in all material respects, the financial position of
Prana Biotechnology Limited as of 30 June 2002 and 2001, and the results of its
operations and its cash flows for each of the three years in the period ended 30 June
2002 and for the period from 11 November 1997 (date of inception) to 30 June 2002, in
conformity with accounting principles generally accepted in Australia.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Accounting principles generally accepted in
Australia differ in certain significant respects from accounting principles generally
accepted in the United States of America. The application of the latter would have
affected the determination of net loss for each of the three years in the period ended 30
June 2002 and the determination of total equity as of 30 June 2002 and 2001, to the
extent summarised in Note 26 to the financial statements.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|DELOITTE TOUCHE TOHMATSU
|------------------------



|Deloitte Touche Tohmatsu
|------------------------



|Chartered Accountants
|---------------------



|Melbourne, Victoria, Australia23 October 2002,
except for Note 26as to which the date is 6 December 2002
|--------------------------------------------------------------------------------------------------------



| |  | 
| |  | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|STATEMENTS OF FINANCIAL POSITION
      (in Australian dollars)
|--------------------------------------------------------------

|                                                 |  | 30 June     |  
|------------------------------------------------ |  | ----------- | -
|                                                 |  | 2002        |  
|Current assets                                   |  |             |  
|Cash assets                                      |  | 3,585,014   |  
|Receivables                                      |  | 107,936     |  
|Other                                            |  | 60,367      |  
|Total Current Assets                             |  | 3,753,317   |  
|Non Current Assets                               |  |             |  
|Property, plant and equipment                    |  | 139,653     |  
|Intangible assets                                |  | 13,688,349  |  
|Total Non Current Assets                         |  | 13,828,002  |  
|Total Assets                                     |  | 17,581,319  |  
|Current Liabilities                              |  |             |  
|Payables                                         |  | 912,333     |  
|Provisions                                       |  |            |  
|Total Current Liabilities                        |  | 912,333     |  
|Total Liabilities                                |  | 912,333     |  
|Net Assets                                       |  | 16,668,986  |  
|Equity                                           |  |             |  
|Contributed equity                               |  | 13,001,468  |  
|Reserves                                         |  | 14,661,942  |  
|Accumulated deficit during the development stage |  | (10,994,424 | )
|Total Equity                                     |  | 16,668,986  |  



|See notes to the financial
statements.
|--------------------------------------

| | 2 | 
| | - | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|STATEMENTS OF FINANCIAL PERFORMANCE 
      (in Australian dollars)
|------------------------------------------------------------------

|                                                                                                   |       |  | Years ended
      30 June |   | Period
      from 
      Inception 
      (11 November 
      1997) to 30 
      June 2002
|-------------------------------------------------------------------------------------------------- | ----- |  | ------------------------- | - | ------------------------------------------------------------------------------------------
|                                                                                                   |       |  | 2002                      |   | 2001                                                                                      
|                                                                                                   | Notes |  |                           |   |                                                                                           
|Revenue from ordinary activities                                                                   |       |  | 793,970                   |   | 516,182                                                                                   
|                                                                                                   |       |  |                           |   |                                                                                           
|Depreciation and amortisation expense                                                              |       |  | (1,160,595                | ) | (1,140,658                                                                                
|Patents, research and development expense                                                          |       |  | (2,479,945                | ) | (2,362,917                                                                                
|Consulting fee expense                                                                             |       |  | (604,873                  | ) | (306,530                                                                                  
|Legal fee expense                                                                                  |       |  | (823,201                  | ) | (252,675                                                                                  
|Employee benefits expense                                                                          |       |  | (378,853                  | ) | (122,199                                                                                  
|Corporate compliance expense                                                                       |       |  | (339,383                  | ) | (196,629                                                                                  
|Other expenses from ordinary activities                                                            |       |  | (455,587                  | ) | (273,553                                                                                  
|                                                                                                   |       |  |                           |   |                                                                                           
|Loss from ordinary activities before income tax expense                                            |       |  | (5,448,467                | ) | (4,138,979                                                                                
|Income tax expense relating to ordinary activities                                                 |       |  |                          |   |                                                                                          
|                                                                                                   |       |  |                           |   |                                                                                           
|Net loss                                                                                           |       |  | (5,448,467                | ) | (4,138,979                                                                                
|                                                                                                   |       |  |                           |   |                                                                                           
|Total changes in equity other than those resulting from
        transactions with owners as owners |       |  | (5,448,467                | ) | (4,138,979                                                                                
|                                                                                                   |       |  |                           |   |                                                                                           
|Loss per share (basic and diluted)                                                                 |       |  | (0.10                     | ) | (0.08                                                                                     
|                                                                                                   |       |  |                           |   |                                                                                           



|See notes to the financial
statements.
|--------------------------------------

| | 3 | 
| | - | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------

|PART IV STATEMENTS OF CASH FLOWS 
      (in Australian dollars)
|---------------------------------------------------------------

|                                                              |        |  | Years ended
      30 June |   | Period
      from 
      Inception 
      (11 November 
      1997) to 30 
      June 2002
|------------------------------------------------------------- | ------ |  | ------------------------- | - | ------------------------------------------------------------------------------------------
|                                                              |        |  | 2002                      |   | 2001                                                                                      
|                                                              | Notes  |  |                           |   |                                                                                           
|                                                              |        |  |                           |   |                                                                                           
|Cash Flows fromOperating Activities                           |        |  |                           |   |                                                                                           
|                                                              |        |  |                           |   |                                                                                           
|Payments to suppliers
        and employees                   |        |  | (4,851,902                | ) | (2,651,685                                                                                
|Interest received                                             |        |  | 242,215                   |   | 253,177                                                                                   
|Government grant received                                     |        |  | 843,714                   |   |                                                                                          
|Income tax refund/(paid)                                      |        |  |                          |   | 38,193                                                                                    
|Net cash flows used
        in operating activities           | 13 (a) |  | (3,765,973                | ) | (2,360,315                                                                                
|Cash Flows from Investing Activities                          |        |  |                           |   |                                                                                           
|                                                              |        |  |                           |   |                                                                                           
|Payments for purchase
        of property, plantand equipment |        |  | (84,232                   | ) |                                                                                          
|Net cash flows used
        ininvesting activities            |        |  | (84,232                   | ) |                                                                                          
|Cash Flows from Financing Activities                          |        |  |                           |   |                                                                                           
|Proceeds from issue of shares                                 |        |  |                          |   | 4,999,999                                                                                 
|Payment of share issue costs                                  |        |  |                          |   | (254,400                                                                                  
|Proceeds from exercise of options                             |        |  | 580,346                   |   |                                                                                          
|Repayment of borrowings                                       |        |  |                          |   |                                                                                          
|Net cash flows fromfinancing activities                       |        |  | 580,346                   |   | 4,745,599                                                                                 
|Net (decrease)/increase
        in cash held                  |        |  | (3,269,859                | ) | 2,385,284                                                                                 
|                                                              |        |  |                           |   |                                                                                           
|Opening cash brought forward                                  |        |  | 6,854,873                 |   | 4,469,589                                                                                 
|Closing cash carried forward                                  | 13 (b) |  | 3,585,014                 |   | 6,854,873                                                                                 

|See notes to the financial
statements.
|--------------------------------------

| | 4 | 
| | - | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|STATEMENTS OF CHANGES IN STOCKHOLDERS EQUITY
      (in Australian dollars)
|---------------------------------------------------------------------------

|                                                                                                | Number
      of 
      Shares |  | Contributed 
        Equity |  | Accumulated 
        Deficit During 
        Development Stage |   | AssetRevaluationReserve |  | Total      |  
|----------------------------------------------------------------------------------------------- | ----------------------------- |  | --------------------------- |  | -------------------------------------------------------------- | - | ----------------------- |  | ---------- | -
|Balance, 11 November 1997 
        (Inception)                                                  |                              |  |                            |  |                                                               |   |                        |  |           |  
|                                                                                                |                               |  |                             |  |                                                                |   |                         |  |            |  
|Net loss                                                                                        |                              |  |                            |  | (690                                                           | ) |                        |  | (690       | )
|Issuance of shares to founders                                                                  | 20                            |  | 20                          |  |                                                               |   |                        |  | 20         |  
|Balance, 30 June 1998                                                                           | 20                            |  | 20                          |  | (690                                                           | ) |                        |  | (670       | )
|Net loss                                                                                        |                              |  |                            |  | (80,000                                                        | ) |                        |  | (80,000    | )
|Balance, 30 June 1999                                                                           | 20                            |  | 20                          |  | (80,690                                                        | ) |                        |  | (80,670    | )
|                                                                                                |                               |  |                             |  |                                                                |   |                         |  |            |  
|Net loss                                                                                        |                              |  |                            |  | (1,326,288                                                     | ) |                        |  | (1,326,288 | )
|Revaluation of intangible assets    to
        directors valuation                             |                              |  |                            |  |                                                               |   | 14,661,942              |  | 14,661,942 |  
|297 for 1 share split                                                                           | 5,920                         |  |                            |  |                                                               |   |                        |  |           |  
|Issuance of shares in connection    with
        private placement                              | 960                           |  | 960                         |  |                                                               |   |                        |  | 960        |  
|5,000 for 1 share split                                                                         | 34,493,100                    |  |                            |  |                                                               |   |                        |  |           |  
|Issuance of shares in connection    with
        initial public offering, net    of issue costs | 16,000,000                    |  | 7,470,863                   |  |                                                               |   |                        |  | 7,470,863  |  
|Issuance
      of shares in connection                                                          |                               |  |                             |  |                                                                |   |                         |  |            |  
|with
        exercise of options                                                                | 5,000                         |  | 2,500                       |  |                                                               |   |                        |  | 2,500      |  
|Balance, 30 June 2000                                                                           | 50,505,000                    |  | 7,474,343                   |  | (1,406,978                                                     | ) | 14,661,942              |  | 20,729,307 |  
|                                                                                                |                               |  |                             |  |                                                                |   |                         |  |            |  
|Net loss                                                                                        |                              |  |                            |  | (4,138,979                                                     | ) |                        |  | (4,138,979 | )
|Issuance of shares in connection    with
        private placements, net of    issue costs      | 6,666,666                     |  | 4,745,599                   |  |                                                               |   |                        |  | 4,745,599  |  
|Compensation expense 
           attributable to issuance of 
           shares to consultants  | 88,600                        |  | 48,950                      |  |                                                               |   |                        |  | 48,950     |  
|Compensation expense 
           attributable to issuance of 
           options to consultants |                              |  | 8,000                       |  |                                                               |   |                        |  | 8,000      |  
|Balance, 30 June 2001                                                                           | 57,260,266                    |  | 12,276,892                  |  | (5,545,957                                                     | ) | 14,661,942              |  | 21,392,877 |  
|Net loss                                                                                        |                              |  |                            |  | (5,448,467                                                     | ) |                        |  | (5,448,467 | )
|Issuance of shares in connectionwith exercise of options                                        | 1,160,690                     |  | 580,346                     |  |                                                               |   |                        |  | 580,346    |  
|Compensation
      expense 
         attributable to issuance of                                |                               |  |                             |  |                                                                |   |                         |  |            |  
|shares to consultants                                                                           | 191,794                       |  | 144,230                     |  |                                                               |   |                        |  | 144,230    |  
|Balance, 30 June 2002                                                                           | 58,612,750                    |  | 13,001,468                  |  | (10,994,424                                                    | ) | 14,661,942              |  | 16,668,986 |  



|See notes to the financial
statements.
|--------------------------------------

| | 5 | 
| | - | 



---







|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|NOTES TO FINANCIAL STATEMENTS -
in Australian dollars
|-----------------------------------------------------



|ITEM 20. 1  BACKGROUND AND SUMMARY OF SIGNIFICANT
      ACCOUNTING POLICIES
|---------------------------------------------------------------------------



|Background
|----------



|Prana Biotechnology Limited (Prana or the
Company) was incorporated on 11 November 1997 in Melbourne, Australia and is a
development stage enterprise engaged in the research and development of therapeutic drugs
designed to treat the underlying cause of degeneration of the brain and the eye as the
aging process progresses.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|On 28 March 2000, the Company completed its
initial public offering in Australia and listed on the Australian Stock Exchange. In
September 2002, the Companys shares were approved for listing on NASDAQ (Code: PRAN).
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Financial Reporting Framework
|-----------------------------



|The financial report is a general purpose
financial report which has been prepared in accordance with the requirements of the
Corporations Act 2001 and Accounting Standards. Other mandatory professional reporting
requirements (Urgent Issues Group Consensus Views) have also been complied with.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The financial report has been prepared on the
basis of historical cost and except where stated, does not take into account changing
money values or current valuations of non-current assets. Cost is based on the fair
values of the consideration given in exchange for assets.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM 21.  Development Stage  Risks and uncertainties
|-----------------------------------------------------



|As a development stage enterprise, the Companys
prospects are subject to the risks, expenses and uncertainties frequently encountered by
companies, which have not yet commercialised any applications of their technology,
particularly in new and evolving markets. Pranas operating results may fluctuate
significantly in the future as a result of a variety of factors, including capital
expenditure and other costs relating to establishing, maintaining and expanding the
operations, the number and mix of potential customers, potential pricing of future
products by the Company and its competitors, new technology introduced by the Company and
its competitors, delays or expense in obtaining necessary equipment, economic and social
conditions in the biotechnology industry and general economic conditions.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Prana will continue to review the need to seek
additional funding through public and private financing and/or through collaboration or
other arrangements with corporate partners. The Company cannot be certain that they will
be able to raise any required funding or capital, on favourable terms or at all, or that
they will be able to establish corporate collaborations on acceptable terms, if at all.
If the Company is unable to obtain such additional funding or capital, they may be
required to reduce the scope of their development plans.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Pranas experience in exploiting their
technology is limited. The Company cannot be certain that their operations will be
profitable in the short-term, or at all. If Prana fails in any of their efforts to
establish or expand their business, the results of operations, financial condition and
liquidity of the Company could be materially adversely affected. The Company cannot be
certain that they will be able to obtain or retain any permits required by the Company to
market, sell and deliver our technology. Any of these factors could result in cessation
of Pranas operations.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 6 | 
| | - | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1.  BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (contd)
|----------------------------------------------------------------------------



|Significant Accounting Policies
|-------------------------------



|Accounting policies are selected and applied in
a manner which ensures that the resulting financial information satisfies the concepts of
relevance and reliability, thereby ensuring that the substance of the underlying
transactions or other events is reported.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|The following significant accounting policies
have been adopted in the preparation and presentation of the financial report:
|----------------------------------------------------------------------------------------------------------------------------



| | 7 | 
| | - | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1.  BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (contd)
|----------------------------------------------------------------------------



|(a) Cash and cash equivalents
|-----------------------------



|For the purposes of the Statement of Cash Flows,
cash includes cash on hand and in banks, and money market investments readily convertible
to cash.
|---------------------------------------------------------------------------------------------------------------------------------------------------



|(b) Recoverable amount of non-current assets
|--------------------------------------------



|Each reporting period, the directors assess the
recoverable amount of all non-current assets. Where the carrying amount of a non-current
asset is greater than its recoverable amount, the asset is revalued down to its
recoverable amount. The recoverable amount is estimated based on expected net cash flows
discounted to their present values using a market-determined, risk-adjusted discounted
rate.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(c) Property, plant and equipment
|---------------------------------



|Property, plant and equipment are recorded at
cost. Depreciation is provided on a straight-line basis over the estimated useful lives
of three to five years.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) Intangible assets and research and
development expense
|----------------------------------------------------------



|Until December 1999, costs associated with the
acquisition and development of the Companys core intellectual property were capitalised
as intangible assets. After considering an independent valuation of the Companys core
intellectual property at December 1999, the directors revalued the assets upwards by
$14,661,942 to $16,500,000. The revaluation was recorded in the asset revaluation reserve
in equity. Subsequent to the revaluation, all costs associated with the acquisition and
development of core intellectual property are charged to patents, research and
development expense.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Core intellectual property is being amortised on
a straight-line basis over a period of 15 years, being the period in which the future
benefits are expected to arise. The directors regularly review the carrying value of core
intellectual property to ensure its carrying value does not exceed its recoverable amount.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|In accordance with Australian Accounting
Standard AASB 1041: Revaluation of Non-Current Assets (AASB 1041), on 1 July 2000 the
directors deemed the revalued carrying amount of core intellectual property to be cost
for financial reporting purposes.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(e) Payables
|------------



|Liabilities for trade creditors and other
amounts are carried at cost, which is the fair value of the consideration to be paid in
the future for goods and services received, whether or not billed to the Company.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Payables to related parties are carried at the
principal amount. No interest is charged by the lender.
|------------------------------------------------------------------------------------------------------



| | 8 | 
| | - | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1.  BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING
      POLICIES (contd)
|----------------------------------------------------------------------------



|(f) Share capital
|-----------------



|Ordinary share capital is recognised at the fair
value of the consideration received by the Company, as determined by the directors.
|------------------------------------------------------------------------------------------------------------------------------------



| | 9 | 
| | - | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|(g) Revenue recognition
|-----------------------



|Revenue is recognised to the extent that it is
probable that the economic benefits will flow to the entity and the revenue can be
reliably measured.
|----------------------------------------------------------------------------------------------------------------------------------------------------



|Interest
|--------



|Interest income is recognized as earned and
collectibility reasonably assured.
|------------------------------------------------------------------------------



|Government grants
|-----------------



|Government grants are recorded as income when
key milestones set within each agreement are achieved and accepted by all parties to the
grant. The agreements comprise different phases based on product development. Milestones
are based on the phases of each product development, for example Phase 1, Phase 2 and
Phase 3. Revenue is not recognized prior to acceptance that the milestones have been
achieved, as collectibility is not assured until this point is reached. Once each
milestone is reached and approved, the grantor is obligated to pay and there are no
further significant obligations as to that part of the milestone. Grant income for
achievement of such milestones is agreed between the parties in legally binding
contracts. Revenue for each milestone achieved is fixed up front.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(h) Income tax
|--------------



|Tax-effect accounting is applied using the
liability method whereby income tax is regarded as an expense and is calculated on the
accounting profit after allowing for permanent differences. To the extent timing
differences occur between the time items are recognised in the financial statements and
when items are taken into account in determining taxable income, the net related taxation
benefit or liability, calculated at current rates, is disclosed as a future income tax
benefit or a provision for deferred income tax. The net future income tax benefit
relating to tax losses and timing differences is not carried forward as an asset unless
the benefit is virtually certain of being realised. The future income tax benefit
relating to timing differences is not carried forward as an asset unless its realisation
is assured beyond any reasonable doubt.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Where assets are revalued, no provision for
potential capital gains tax has been made.
|--------------------------------------------------------------------------------------



|(i) Employee entitlements
|-------------------------



|Provision is made for employee entitlement
benefits accumulated as a result of employees rendering services up to the reporting
date. These benefits include wages and salaries, annual leave and long service leave.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Employee entitlements expenses and revenues
arising in respect of the following categories:
|-------------------------------------------------------------------------------------------

| |  |  | Wages
and salaries, non-monetary benefits, annual leave, long service leave, sick leave and
other leave entitlements; and
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| | 10 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

| |  |  | Other
types of employee entitlements;
| | - |  | -------------------------------------



|are charged against profits on a net basis in
their respective categories.
|--------------------------------------------------------------------------



|The value of the options issued under the
Employee Share Incentive Scheme described in Note 15 (b) is not being charged as an
employee entitlement expense.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------



| | 11 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|(j) Loss per share
|------------------



|Basic loss per share is determined by dividing
the loss from ordinary activities after income tax by the weighted average number of
ordinary shares outstanding during the period. The computation of diluted loss per share
is similar to basic loss per share, except that it assumes the potentially dilutive
securities, such as share options, were converted to shares as of the beginning of the
period. For all periods presented, diluted loss per share is equivalent to basic loss per
share as the potentially dilutive securities are excluded from the computation of diluted
loss per share because the effect is anti-dilutive. See Note 18.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|All per share amounts have been restated to
reflect the share splits during the year ended 30 June 2000. See Note 11(b).
|------------------------------------------------------------------------------------------------------------------------



|(k) Financial instruments issued by the
Company
|-----------------------------------------------



|Debt and equity instruments
|---------------------------



|Debt and equity instruments are classified as
either liabilities or as equity in accordance with the substance of the contractual
arrangement.
|----------------------------------------------------------------------------------------------------------------------------------------------



|Transaction costs on the issue of equity
instruments
|----------------------------------------------------



|Transaction costs arising on the issue of equity
instruments are recognised directly in equity as a reduction of the proceeds of the
equity instruments to which the costs relate. Transaction costs are the costs that are
incurred directly in connection with the issue of those equity instruments and which
would not have been incurred had those instruments not been issued.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Interest and dividends
|----------------------



|Interest and dividends are classified as
expenses or as distributions of profit consistent with the statement of financial
position classification of the related debt or equity instruments or component parts of
compound instruments.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(l) Goods and services tax
|--------------------------



|Revenues, expenses and assets are recognised net
of the amount of goods and services tax (GST), except:
|-------------------------------------------------------------------------------------------------------



|i. | Where
the amount of GST incurred is not recoverable from the taxation authority, it is
recognised as part of the cost of acquisition of an asset or as part of an item of
expense; or
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| | 12 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|ii. | For
receivables and payables which are recognised inclusive of GST.
|--- | -------------------------------------------------------------------





|The gross amount of GST recoverable from, or
payable to, the taxation authority is included as part of receivables or payables.
|-------------------------------------------------------------------------------------------------------------------------------



|Cash flows attributable to the GST are included
in the statement of cash flows on a gross basis.
|------------------------------------------------------------------------------------------------



|(m) Receivables
|---------------



|Trade receivables and other receivables are
recorded at amounts due less any provision for doubtful debts.
|----------------------------------------------------------------------------------------------------------



|(n) Foreign currency
|--------------------



|All foreign currency transactions during the
financial year are brought to account using the exchange rate in effect at the date of
the transaction. Accounts payable and receivable balances at the reporting date are
translated at the exchange rate in effect at that date.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 13 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED(A
Development Stage Enterprise)
|-----------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|(o) Going concern
|-----------------



|The Companys financial statements are prepared
on a going concern basis which contemplates the realization of assets and settlement of
liabilities and commitments in the normal course of business. During the year ended 30
June 2002, the Company incurred a net loss of $5,448,467 and net cash outflows from
operating activities of $3,779,515, and had an accumulated deficit of $10,994,424 as at
30 June 2002. The continuation of the Company as a going concern is dependent upon its
ability to generate sufficient cash from operating and financing activities. The
directors consider that the going concern basis of accounting is appropriate for the
following reasons:
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | As
at 30 June 2002, the Company had cash assets of $3,585,014 and working capital of
$2,840,984;
| | - |  | ------------------------------------------------------------------------------------------------

| |  |  | The
most recently prepared cash flow forecasts prepared by management and reviewed by the
directors indicate that the Company will have sufficient cash to meet their operating
requirements for the foreseeable future;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Company has 7,173,310 share options on issue with an exercise price of $0.50 which expire
1 March 2003. As the exercise price is significantly lower than the Companys current and
recent share price (being $2.15 at 30 June 2002) the directors are confident that these
options will be exercised, resulting in expected cash inflows of $3,765,973 (included
within the Companys cash flow forecasts);
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | The
Company expects to place further shares with strategic investors within the next six to
12 months. The directors are confident that a share placement will be achieved if
required, based on strong interest from investors and the Companys track record in
successfully placing shares with US and Australian investors.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(p) Start-up and organization costs
|-----------------------------------



|Costs of start-up activities and organizational
costs are expensed as incurred.
|-------------------------------------------------------------------------------



|(q) Reclassifications
|---------------------



|Certain prior year amounts have been
reclassified to conform to the current year presentation.
|----------------------------------------------------------------------------------------------



| | 14 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|2. REVENUE FROM ORDINARY ACTIVITIES
|-----------------------------------

|                                         |  |                           | 
|---------------------------------------- |  | ------------------------- | 
|                                         |  | Years Ended 30
      June
|                                         |  | 2002                      | 
|Interest - Other persons/corporations    |  | 226,720                   | 
|                                         |  |                           | 
|Government grant (i)                     |  | 567,250                   | 
|Total revenues from ordinary  activities |  | 793,970                   | 



|(i) On 26 July 2001, the Company announced the
grant of a $1.74 million START grant from the Australian Industry Research and
Development Board to expand the Companys core intellectual property for drug treatment
of neurodegenerative diseases. During the year ended 30 June 2001, $226,000 of the grant
was recognized as revenue as the Company received written notification of the grant prior
to 30 June 2001 and met the revenue recognition criteria disclosed in Note 1(g) for this
portion of the grant. During the year ended 30 June 2002, the Company met the revenue
recognition criteria to record an additional $567,250 of this grant as revenue.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|3. EXPENSES FROM ORDINARY ACTIVITIES
|------------------------------------

|                                                 |  |           | 
|------------------------------------------------ |  | --------- | 
|Depreciation of non-current assets               |  |           | 
|                                                 |  |           | 
|Property, plant and equipment                    |  | 60,591    | 
|                                                 |  |           | 
|Amortisation of non-current assets               | 
|Core intellectual property                       |  | 1,100,004 | 
|Total depreciation and amortisation expenses     |  | 1,160,595 | 
|Patents, research and development expenses       | 
|Research and development                         |  | 1,708,380 | 
|Patents                                          |  | 771,565   | 
|Total patents, research and development expenses |  | 2,479,945 | 

| | 15 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|4. INCOME TAX
|-------------

|                                                                                                                                  |  |                           |  
|--------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | -
|                                                                                                                                  |  | Years Ended 30
      June |  
|                                                                                                                                  |  | 2002                      |  
|                                                                                                                                 
|(a) Prima facie income on the loss from ordinary
            activities before income tax                                         |  | 1,634,540                 |  
|                                                                                                                                  | 
|Non-deductible amortisation                                                                                                       |  | (330,001                  | )
|                                                                                                                                  |  |                           |  
|Other non-deductible expenses                                                                                                     |  | (169,528                  | )
|                                                                                                                                  | 
|Timing differences and tax  losses not
      brought to                                                                           |  |                           |  
|account as  future income tax benefits
      (Note 4(b))                                                                          |  | (1,135,011                | )
|Income tax expense relating to  ordinary
      activities                                                                         |  |                          |  
|(b) Potential future tax benefits at
      30% (2001: 34%,        2000: 36% not
      brought  to account attributable        to: |  |                           |  
|Tax losses - revenue                                                                                                              |  | 2,269,938                 |  
|Timing differences                                                                                                                |  | 7,500                     |  
|                                                                                                                                  |  | 2,277,438                 |  

| | 16 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|The Company has future income tax benefits of
tax losses not recognised as assets because recovery is not virtually certain. Such
benefits will only be obtained if:
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(i) | future assessable income is derived
      of a nature and of an amount sufficient to enable the benefit to be realised;
|--- | -----------------------------------------------------------------------------------------------------------------------





|(ii) | the conditions for deductibility imposed
      by tax legislation continue to be complied with; and
|---- | ---------------------------------------------------------------------------------------------------





|(iii) | no changes in tax legislation adversely
      affect the Company in realising the benefit. The Company has no franking
      credits available at year end.
|----- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

|5. RECEIVABLES
      (CURRENT)
|------------------------------

|                                                      |  |        
|----------------------------------------------------- |  | -------
|                                                      |  | 30 June
|                                                      |  | 2002   
|Government grant receivable (inclusive
       of GST) |  |       
|Sundry debtors and other                              |  | 21,510 
|Goods and services tax receivable                     |  | 86,426 
|                                                      |  | 107,936
|                                                      |  |        
|6. OTHER ASSETS (CURRENT)                             |  |        
|                                                      |  |        
|Prepayments                                           |  | 60,367 

| | 17 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (contd)
|---------------------------------------------------------------------------

|7. PROPERTY, PLANT
|------------------

|                              |       |         
|----------------------------- | ----- | --------
|                              |       | 30 June 
|                              |       | 2002    
|                              | Notes |         
|Gross carrying amount         |       |         
|Balance at beginning of year  |       | 233,543 
|Additions                     |       | 50,689  
|Disposals                     |       |        
|Balance at end of year        |       | 284,232 
|Accumulated depreciation      |      
|Balance at beginning of year  |       | (83,988 
|Disposals                     |       |        
|Depreciation expense          |       | (60,591 
|Balance at end of year        |       | (144,579
|Net book value at end of year |       | 139,653 



|Aggregate depreciation allocated during the year
is recognised as an expense and disclosed in Note 3.
|-----------------------------------------------------------------------------------------------------

| | 18 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|8. INTANGIBLE ASSETS
|--------------------

|                                            |  |  |           
|------------------------------------------- |  |  | ----------
|                                            |  |  | 30 June   
|                                            |  |  | 2002      
|Core intellectual  property
      - at cost |  |  | 16,500,000
|                                            |  |  |           
|Accumulated amortisation                    |  |  | (2,811,651
|                                            |  |  | 13,688,349



|Aggregate amortisation allocated during the year
is recognised as an expense and disclosed in Note 3.
|-----------------------------------------------------------------------------------------------------

|                                           |  |        
|------------------------------------------ |  | -------
|9. PAYABLES (CURRENT)                      |  |        
|                                           |  |        
|Trade creditors                            |  | 518,375
|Other creditors                            |  | 324,040
|Amounts payable to Director-related entity |  | 69,918 
|Goods and services tax payable             |  |       
|                                           |  | 912,333
|10. PROVISIONS (CURRENT)                   |  |        
|Employee entitlements                      |  |       

| | 19 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|11. CONTRIBUTED EQUITY
|----------------------

|                           |  |            | 
|-------------------------- |  | ---------- | 
|                           |  | 30 June    | 
|                           |  | 2002       | 
|(a) Contributed equity     |  |            | 
|Ordinary shares fully paid |  | 12,993,468 | 
|Options fully paid         |  | 8,000      | 
|                           |  | 13,001,468 | 



|(b) Movements in shares on issue
|--------------------------------

|                         |  |                         |  |            |  |                        
|------------------------ |  | ----------------------- |  | ---------- |  | -----------------------
|                         |  | A. 30 JUNE              | 
|                         |  | 2002                    |  | 2001       |  | 2000                   
|                         |  | Number of 
      Shares |  | $          |  | Number of 
      Shares
|Beginning of the year    |  | 57,260,266              |  | 12,268,892 |  | 50,505,000             
|                         |  |                         |  |            |  |                        
|Movement during the year |  | 1,352,484               |  | 724,576    |  | 6,755,266              
|End of the year          |  | 58,612,750              |  | 12,993,468 |  | 57,260,266             



|Details of share
issuances are as follows:
|------------------------------------------

| | 20 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (contd)
|---------------------------------------------------------------------------

|                        |  |                                                           |       |           
|----------------------- |  | --------------------------------------------------------- | ----- | ----------
|Date                    |  | Details                                                   | Notes | Number    
|                       
|23 December 1999        |  | 297 for 1 share split                                     |       | 5,920     
|                        |  |                                                           |       |           
|6 January 2000          |  | Private placement                                         | (i)   | 960       
|                        |  |                                                           |       |           
|7 January 2000          |  | 5000 for 1 share split                                    |       | 34,493,100
|                        |  |                                                           |       |           
|28 March 2000           |  | Initial public offering, net of
      issue               |       |           
|                        |  | costs of $529,137                                         |       | 16,000,000
|                        |  |                                                           |       |           
|26 April 2000           |  | Exercise of options                                       |       | 5,000     
|Year ended 30 June 2000 |  | Total                                                     |       | 50,504,980
|15 February 2001        |  | Private placement, net of issue
       costs of $254,400  |       | 6,666,666 
|                        |  |                                                           |       |           
|4 April 2001            |  | Non-cash share issue in consideration
      for services  |       |           
|                        |  | provided by consultants                                   | (ii)  | 50,000    
|                        |  |                                                           |       |           
|27 June 2001            |  | Non-cash share issue in 
      consideration for services |       |           
|                        |  | provided by consultants                                   | (iii) | 38,600    
|Year ended 30 June 2001 |  | Total                                                     |       | 6,755,266 

| | 21 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|11. CONTRIBUTED EQUITY (continued)
|----------------------------------



|(b) Movements in shares on issue (continued)
|--------------------------------------------



|Details of share
issuances are as follows (continued):
|------------------------------------------------------

|                               |  |                                                                                         |       |          
|------------------------------ |  | --------------------------------------------------------------------------------------- | ----- | ---------
|Date                           |  | Details                                                                                 | Notes | Number   
|                              
|4 February 2002                |  | Exercise of options                                                                     |       | 134,000  
|12 February 2002               |  | Exercise of options                                                                     |       | 2,000    
|22 February 2002               |  | Exercise of options                                                                     |       | 76,000   
|27 February 2002               |  | Exercise of options                                                                     |       | 40,000   
|6 March 2002                   |  | Exercise of options                                                                     |       | 90,000   
|8 March 2002                   |  | Non-cash share issue in consideration
      
      for services provided by consultants | (iv)  | 191,794  
|12 March 2002                  |  | Exercise of options                                                                     |       | 272,690  
|14 March 2002                  |  | Exercise of options                                                                     |       | 10,000   
|20 March 2002                  |  | Exercise of options                                                                     |       | 12,000   
|21 March 2002                  |  | Exercise of options                                                                     |       | 100,000  
|25 March 2002                  |  | Exercise of options                                                                     |       | 3,000    
|9 April 2002                   |  | Exercise of options                                                                     |       | 32,500   
|10 April 2002                  |  | Exercise of options                                                                     |       | 2,500    
|11 April 2002                  |  | Exercise of options                                                                     |       | 102,500  
|10 May 2002                    |  | Exercise of options                                                                     |       | 100,000  
|23 May 2002                    |  | Exercise of options                                                                     |       | 180,000  
|16 June 2002                   |  | Exercise of options                                                                     |       | 3,500    
|Year ended 30  June
      2002 |  | Total                                                                                   |       | 1,352,484

|
|

|(i) |  | The
issuance of 960 shares at $1.00 per share on 6 January 2000 does not give effect to the
5000 for 1 share split on 7 January 2000. After giving effect to the share split, such
shares amounted to 4,800,000 shares at $0.0002 per share.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(ii) |  | The
Company recognised non-cash compensation expense of $20,000 based on the directors
valuation of the services rendered.
|---- |  | ---------------------------------------------------------------------------------------------------------------------------

|(iii) |  | The
Company recognised non-cash compensation expense of $28,950 based on the directors
valuation of the services rendered.
|----- |  | ---------------------------------------------------------------------------------------------------------------------------

|(iv) |  | The
Company recognised non-cash compensation expense of $144,230 based on the directors
valuation of the services rendered.
|---- |  | ----------------------------------------------------------------------------------------------------------------------------



| | 22 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|11. CONTRIBUTED EQUITY (continued)
|----------------------------------



|(c) Movements in share options
|------------------------------

|                                             |  |                          |   |      |                      |     
|-------------------------------------------- |  | ------------------------ | - | ---- | -------------------- | ----
|                                             |  | B. 30 JUNE              
|                                             |  |                         
|                                             |  | 2002                     |   | 2001 |                      | 2000
|                                             |  |                         
|                                             |  | Number of 
      Options |   |      | Comp. 
      Expense |     
|                                             |  |                         
|Beginning of the year                        |  | 28,655,000               |   |      | 8,000                |     
|                                             |  |                          |   |      |                      |     
|Issued during the year                       |  | 400,000                  |   |      |                     |     
|                                             |  |                          |   |      |                      |     
|Exercised during the year (Note
      11(b)) |  | (1,160,690               | ) |      |                     |     
|                                             |  |                         
|End of the year                              |  | 27,894,310               |   |      | 8,000                |     
|                                             |  |                         



|Details of option
issuances are summarised as follows:
|------------------------------------------------------

| |  |  | On 6 January 2000, the Company issued 17,250,000
      options to shareholders and promoters as an award for assisting the Company
      with its initial public offering (IPO). Such options are exercisable
      after 1 March 2002 and on or before 1 December 2004 at an exercise price
      of $0.50 per option.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | On
6 January 2000, the Company issued 3,000,000 options to directors and consultants as an
incentive. Such options are exercisable after 1 March 2002 and on or before 1 December
2004 at an exercise price of $0.50 per option. These options are forfeited in the event
the director or consultant terminates employment with the Company except in the event
that a director is removed from office within this period by a vote of the shareholders.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | On
28 March 2000, the Company issued 8,000,000 options attached on a 1 for 2 basis to the
shares issued in connection with the IPO. Such options are exercisable on or before 1
March 2003 at an exercise price of $0.50 per option.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 23 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

| |  |  | On
4 April 2001, the Company issued 400,000 options to an outside consultant in
consideration for services rendered. Such options are exercisable on or before 20 March
2004 at an exercise price of $0.50 per option. The Company recorded $7,800 compensation
expense based on the directors valuation of the options.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | On
27 June 2001, the Company issued 10,000 options to an outside consultant under the
Employee Share Incentive Scheme (see Note 15(b)) as a reward for services rendered to the
Company. Such options are exercisable on or before 30 June 2005 at an exercise price of
$0.50 per option. These options are forfeited in the event the consultant terminates
employment with the Company. The Company recorded $200 compensation expense based on the
directors valuation of the options.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | On
23 January 2002, the Company issued 200,000 options to an outside consultant in
consideration for services rendered. Such options are exercisable on or before 20 March
2004 at an exercise price of $0.50 per option. The Company did not record any
compensation expense in connection with the issuance of the options.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | On
7 March 2002, the Company issued 200,000 options to outside consultants under the
Employee Share Incentive Scheme (see Note 15(b)) as a reward for services rendered to the
Company. Such options are exercisable on or before 3 June 2005 at an exercise price of
$0.50 per option. These options are forfeited in the event the consultants terminate
employment with the Company. The Company did not record any compensation expense in
connection with the issuance of the options.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) Terms and conditions of contributed equity
|----------------------------------------------



|Ordinary shares have the right to receive
dividends as declared and, in the event of winding up the Company, to participate in the
proceeds from the sale of all surplus assets in proportion to the number of and amounts
paid up on shares held. Ordinary shares entitle their holders to one vote, either in
person or by proxy, at a meeting of the Company. Option holders do not have the right to
receive dividends and are not entitled to vote at a meeting of the Company.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| | 24 | 
| | -- | 



---



|PRANA BIOTECHNOLOGY LIMITED
      (A
Development Stage Enterprise)
|------------------------------------------------------------------



|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|11. CONTRIBUTED EQUITY (continued)
|----------------------------------



|(e) Shares and options issued after reporting date
|--------------------------------------------------



|Details of share
issuances are as follows:
|------------------------------------------



|Date              | Details                                                                                                           | Notes | Number | Issue Price | $     
|----------------- | ----------------------------------------------------------------------------------------------------------------- | ----- | ------ | ----------- | ------
|                  |                                                                                                                   |       |        |             |       
|8 July 2002       | Exercise of options                                                                                               |       | 4,000  | 0.50        | 2,000 
|10 July 2002      | Exercise of options                                                                                               |       | 13,274 | 0.50        | 6,637 
|12 July 2002      | Non-cash share issue in 
            consideration for 
            services provided by 
            consultants | (i)   | 13,550 | 2.02        | 27,371
|18 September 2002 | Exercise of options                                                                                               |       | 32,000 | 0.50        | 16,000
|30 September 2002 | Exercise of options                                                                                               |       | 25,000 | 0.50        | 12,500
|                  | Total                                                                                                             |       | 87,824 |             | 64,508

|(i) |  | The
Company recognised non-cash compensation expense of $27,371 based  on the directors
valuation of the services rendered.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------



|Details of option
issuances are summarised as follows:
|------------------------------------------------------

| |  |  | On 10 July 2002, the Company issued 113,274 options to consultants under the  Employee
Share Incentive Scheme. Such options are exercisable on or before  30 June 2005 at an
exercise price of $0.50 per option. These options are  forfeited in the event the
consultant terminates employment with the  Company. The Company did not record any
compensation expense in connection  with the issuance of the options.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 25 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|12.  RESERVES AND ACCUMULATED LOSSES
|------------------------------------

|                                                                                                                   | 30 June
|------------------------------------------------------------------------------------------------------------------ | -------
|                                                                                                                   | 2002   
|                                                                                                                   | Notes  
|Asset revaluation reserve                                                                                          | 12(a)  
|Accumulated losses                                                                                                 | 12(b)  
|                                                                                                                   |        
|(a) Asset revaluation reserve                                                                                      |        
|                                                                                                                   |        
|Nature and purpose of reserve                                                                                      |        
|                                                                                                                  
|The asset revaluation reserve is used to record
      increments and decrements in the value of non-current assets
|                                                                                                                   |        
|Movements in reserve                                                                                               |        
|Balance at beginning of year                                                                                       |        
|Revaluation of core intellectual property                                                                          |        
|to directors valuation                                                                                            |        
|Balance at end of year                                                                                             |        

|On 1 July 2000, as allowed by AASB 1041, the
directors have deemed the carrying  value of the Companys core intellectual property at
valuation to be cost. As a  result, the asset revaluation reserve is no longer available
to absorb any  future write-downs of core intellectual property. Subsequent to 1 July
2000,  future write-downs of these assets to the recoverable amount must be made  through
the Statements of Financial Performance.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                             |  |             |   |            |   |            |  
|---------------------------- |  | ----------- | - | ---------- | - | ---------- | -
|(b) Accumulated losses       |  |             |   |            |   |            |  
|                             |  |             |   |            |   |            |  
|Balance at beginning of year |  | (5,545,957  | ) | (1,406,978 | ) | (80,690    | )
|Net loss for the year        |  | (5,448,467  | ) | (4,138,979 | ) | (1,326,288 | )
|Balance at end of year       |  | (10,994,424 | ) | (5,545,957 | ) | (1,406,978 | )



| | 26 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------

|13. STATEMENT OF CASH FLOWS
|---------------------------

|                                                                                                           | Years Ended 30 June
|---------------------------------------------------------------------------------------------------------- | -------------------
|                                                                                                           | 2002               
|                                                                                                           | Notes              
|                                                                                                           |                    
|(a) Reconciliation of the operating loss
      after tax to the
            net cash flows from operations |                    
|Loss from ordinary activities after tax                                                                    |                    
|Non-cash items                                                                                             |                    
|Depreciation of property, plant and equipment                                                              |                    
|Amortisation of intangible assets                                                                          |                    
|Non-cash issue of shares and share options in
      
      consideration of operating expenses             |                    
|Changes in assets and liabilities                                                                          |                    
|Increase in payables                                                                                       |                    
|Decrease/(increase) in receivables                                                                         |                    
|Decrease/(increase) in prepayments                                                                         |                    
|(Decrease)/increase in provision
      for employee 
      entitlements                                    |                    
|                                                                                                           |                    
|Net cash flows used in operating
      activities                                                          |                    
|(b) Reconciliation of cash                                                                                 |                    
|Cash balance comprises:                                                                                    |                    
| cash on hand                                                                                             |                    
|Closing cash balance                                                                                       |                    

|(c)  Non-cash financing and investing
activities
|------------------------------------------------



|During the years ended 30 June 2002 and 2001,
the Company issued shares and  options to outside consultants in consideration for
services rendered. See Notes  11(b) and 11(c).
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|During the year ended 30 June 2001, the Company
purchased property and equipment  for $33,543. Such purchase was financed with trade
creditors and therefore has  not been reflected in the Statements of Cash Flows until the
year ended 30 June  2002 when the liability was repaid.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|There were no non-cash investing and financing
activities during the year ended  30 June 2000.
|----------------------------------------------------------------------------------------------



| | 27 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|14.  EXPENDITURE COMMITMENTS
|----------------------------



|Under the terms of a Research Funding and
Intellectual Property assignment  agreement between Prana Biotechnology Limited and the
University of Melbourne,  Prana is required to pay the University a minimum sum of
$297,000 (inclusive of  GST), each year for a period of three years from 1 December 2000
for research  projects.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Under the terms of several licence agreements
between the Company and the  General Hospital Corporation conducting business as The
Massachusetts General  Hospital, Prana is required to pay the hospital for the right to
use the results  of research under a licence to patent rights in order to commercially
develop,  manufacture, use and distribute products through the world. Commitments
include:  USD 166,590 for a period of 30 months from 1 January 2001 and USD 182,000 for a
period of 30 months from 1 August 2001.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Professor Ashley Bush has entered a Consultancy
Agreement with the company for  the provision of research and development services
relating to technologies in  respect of inventions and treatments for diseases caused by
metal-mediated  oxidative stress. The agreement provides for a term of three years
commencing on  1 February 2000 with a monthly consultancy fee payable by the Company of
$6,000.
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Malvern Administrative Services Pty Ltd provides
administrative support at a  rate of $10,000 per month.
|--------------------------------------------------------------------------------------------------------



|Aroma Science Pty Ltd provides office, computer
administration and meeting  facilities at a rate of $2,500 per month. These latter two
commitments may be  terminated with three months notice from either Prana or the other
party.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 28 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|15.   EMPLOYEE ENTITLEMENTS AND SUPERANNUATION
COMMITMENTS
|----------------------------------------------------------

|                                                                     | 30 June
|-------------------------------------------------------------------- | -------
|                                                                     | 2002   
|                                                                     |        
|(a) Employee Entitlements                                            |        
|                                                                     |        
|The aggregate employee entitlement liability
        is composed of: |        
|Provisions (current)                                                 |       

|Number of employees: five (2001: three employees)
|-------------------------------------------------

|(b) Employee Share Incentive Scheme
|-----------------------------------



|At the Annual General Meeting held on 22
November 2000, shareholders approved  the establishment of an Employee Share Incentive
Scheme designed to reward  executives, employees and/or consultants for their
contributions to the Company.  It is also proposed as a method of retaining key personnel
for the growth and  development of the Companys intellectual property rights. The
options cannot be  transferred and will not be quoted on the Australian Stock Exchange.
At 30 June  2002 there were no Directors, no executives, no staff and three consultants
participating in the scheme.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 29 | 
| | -- | 



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|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|15.   EMPLOYEE ENTITLEMENTS AND SUPERANNUATION
COMMITMENTS (continued)
|----------------------------------------------------------------------



|(b) Employee Share Incentive Scheme (continued)
|-----------------------------------------------



|Information with respect to the number of
options granted under the Employee  Share Incentive Scheme is as follows:
|-------------------------------------------------------------------------------------------------------------------

|                          | 30 June                   
|------------------------- | --------------------------
|                          | 2002                      
|                          | Number 
        of Options
|Beginning of the year     | 10,000                    
|                          |                           
|Issued during the year    | 200,000                   
|                          |                           
|End of the financial year | 210,000                   
|                          |                           

|16.  CONTINGENT LIABILITIES
|---------------------------



|Prana Biotechnology Limited is developing a
pipeline of drugs for the diagnosis  and treatment of Alzheimers Disease and other
neurodegenerative disorders.  Prana sponsored scientists, led by Professor Colin Masters
(University of  Melbourne) and Professor Ashley Bush (Harvard Medical School), have
reported the  use of one such molecule, PBT1, for the reversal of the plaques associated
with  Alzheimers disease in transgenic mice.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Prana is involved in a patent dispute, limited
to only one of its molecules. In  particular, a company called P.N. Gerolymatos S.A. has
been granted patents in  the United States of America in relation to certain applications
of the lead  compound PBT1 currently in use in Pranas Phase II human clinical trials. In
addition, a corresponding Australian application in the name of P.N. Gerolymatos  S.A.
has been accepted, but is the subject of an opposition by Prana  Biotechnology Limited.
The
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 30 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
      (contd)
|---------------------------------------------------------------------------



|results of these proceedings are yet to be
determined. Prana is confident of its just entitlement to any necessary rights  to all
patents required to commercialise its discoveries. Prana has retained  William Lee,
Managing Partner of Hale & Dorr, to protect its position.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Apart from this matter, the Company is not
involved in any legal or arbitration  proceedings and, so far as Directors are aware, no
such proceedings are pending  or threatened against the Company.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|17.  SUBSEQUENT EVENTS
|----------------------



|No matters or circumstances have arisen since
the end of the financial year  which significantly affected or may significantly affect
the operations of the  Company, the results of those operations, or the state of affairs
of the Company  in subsequent financial years.
|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|18.  LOSS PER SHARE
|-------------------

|                                                                                                                                                                                                             | Years Ended 30 June
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | -------------------
|                                                                                                                                                                                                             | 2002               
|                                                                                                                                                                                                             |                    
|Basic loss per share                                                                                                                                                                                         | (0.10)             
|                                                                                                                                                                                                             |                    
|                                                                                                                                                                                                             |                    
|Weighted average number of ordinary shares on
      issue used in
      the calculation of basic loss per share (as adjusted for the share
      splits during the year ended 30 June 2000  see Note 11(b)) | 57,623,389         

|The options in place do not have the effect to
dilute the loss per share.
|-------------------------------------------------------------------------



| | 31 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|19.  REMUNERATION OF DIRECTORS
|------------------------------

|                                                                                                                                                                                                                                          | Years Ended 30
      June
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | -------------------------
|                                                                                                                                                                                                                                          | 2002                     
|                                                                                                                                                                                                                                          |                          
|                                                                                                                                                                                                                                          |                          
|Directors remuneration                                                                                                                                                                                                                   |                          
|                                                                                                                                                                                                                                          |                          
|Income paid or payable, or otherwise
      made available, in respect of the 
      financial year, to all Directors of the Company directly or indirectly,
      from 
      the entity of which they are Directors or any related party | 348,204                  

|The number of Directors of the Company
      whose income (including 
      superannuation contributions) falls within the following income bands is: |   |  |   |  |  
|----------------------------------------------------------------------------------------------------------------------------------------------------- | - |  | - |  | -
|                                                                                                                                                      |   |  |   |  |  
|$ 0 to $   9,999                                                                                                                                      |  |  |  |  | 1
|$ 10,000 to $ 19,999                                                                                                                                  |  |  |  |  | 2
|$ 20,000 to $ 29,999                                                                                                                                  | 2 |  | 2 |  | 1
|$ 50,000 to $ 59,999                                                                                                                                  | 1 |  | 1 |  | 
|$ 70,000 to $ 79,999                                                                                                                                  |  |  |  |  | 1
|$ 100,000 to $ 109,999                                                                                                                                |  |  | 1 |  | 
|$ 240,000 to $ 249,999                                                                                                                                | 1 |  |  |  | 



| | 32 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|20.  REMUNERATION OF EXECUTIVES
|-------------------------------



|                                                                                                                                                                                                                                                                                               |  | Years Ended 30
      June
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|                                                                                                                                                                                                                                                                                               |  | 2002                     
|                                                                                                                                                                                                                                                                                               |  |                          
|Remuneration received or due and receivable
      by executive officers of the Company whose remuneration is $100,000 or more,
      from the Company or any related party, in connection with the management
      of the affairs of the Company whether as an executive officer or otherwise |  | 248,204                  
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  | No.                      
|The number of executives of the Company whose
      remuneration falls within the following band is:                                                                                                                                                                                           |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|$100,000  $109,999                                                                                                                                                                                                                                                                            |  |                         
|$240,000  $249,999                                                                                                                                                                                                                                                                            |  | 1                        
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|21. AUDITORS REMUNERATION                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|Amounts received or due and receivable for:                                                                                                                                                                                                                                                    |  |                          
| an audit or review of the financial report
      of the entity                                                                                                                                                                                                                               |  | 67,078                   
| other services in relation to the entity                                                                                                                                                                                                                                                     |  | 69,275                   
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  |                          
|                                                                                                                                                                                                                                                                                               |  | 136,353                  



| | 33 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|22.  RELATED PARTY DISCLOSURES
|------------------------------

|                                                                                                                                                                                                                                                                                                                     |  | Years Ended 30
      June
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------------
|                                                                                                                                                                                                                                                                                                                     |  | 2002                     
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Directors                                                                                                                                                                                                                                                                                                            |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|The Directors of the Company during the financial
      year were: G. P. Kempler C. L. Masters G. W. Mihaly B. D. Meltzer                                                                                                                                                                                            |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Directorrelated entity transactions                                                                                                                                                                                                                                                                                 |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Services                                                                                                                                                                                                                                                                                                             |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Kendle Pty Ltd, a Directorrelated company
      to G. Mihaly, provided continuous analysis and reviews of the Companys
      commercialisation and intellectual property management as well as clinical
      trial management and monitoring. Fees paid to Kendle Pty Ltd during the
      year were:             |  | 537,327                  
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Amount owing to Kendle Pty Ltd (included in
      payables)                                                                                                                                                                                                                                                          |  | 69,918                   
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Melbourne University, an entity to which C.Masters
      is an employee, provided research & development activities. Fees paid
      to Melbourne University during the year were:                                                                                                                                   |  | 994,506                  
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Aroma Science Pty Ltd, a Directorrelated
      company to G. Kempler, provided office, computer administration and meeting
      facilities. Fees paid to Aroma Science Pty Ltd during the year were:                                                                                                               |  | 30,000                   
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|The operations of the Company prior to the 28
      March 2000 IPO and listing on the Australian Stock Exchange were funded
      by two Directorrelated entities Baywick Pty Ltd (G Kempler) and Jagan
      Nominees Pty Ltd (B Liberman). These loans were repaid in the 2000 fiscal
      year in the amount of |  |                         
|                                                                                                                                                                                                                                                                                                                     |  |                          
|                                                                                                                                                                                                                                                                                                                     |  |                          
|Professor Ashley Bush in consulting fees for
      the provision of research and development services relating to inventions
      and treatments for diseases caused by metalmediated oxidative stress                                                                                                             |  | 72,000                   

|Equity Instruments of Directors
|-------------------------------

|                                              | Number of Ordinary
      Shares Fully Paid | Number of Options
      over Ordinary Shares
|--------------------------------------------- | ------------------------------------------ | --------------------------------------------
|                                              | 2002                                       | 2001                                        
|                                              |                                            |                                             
|Interests at balance sheet date               | 16,953,000                                 | 15,409,000                                  
|Movement in directors equity 
      holdings | 1,544,000                                  |                                            



| | 34 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|23.  SEGMENT INFORMATION
|------------------------



|The Companys activities are predominantly
within Australia and cover research  into Alzheimers Disease and other major age-related
degenerative disorders.
|------------------------------------------------------------------------------------------------------------------------------------------------------------



|24.  FINANCIAL INSTRUMENTS
|--------------------------



|(a) Significant accounting
      policies
|-----------------------------------------



|Details of the significant accounting policies
and methods adopted, including  the criteria for recognition, the basis of measurement
and the basis on which  revenues and expenses are recognised, in respect of each class of
financial  asset, financial liability and equity instrument are disclosed in Note 1 to
the  financial statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(b) Interest rate risk
|----------------------



|The Company has cash on deposit which is
professionally managed by external  parties to optimise the impact of interest rate
fluctuations pursuant to  conservative investment guidelines. The Company has $2,800,000
in 90 day term  deposits at fixed interest rates between 4.47% and 4.95%, $400,000 in a
30 day  term deposit at a fixed interest rate of 4.80%, and $ 385,014 in a cheque account
at a variable interest rate of 3.53% at 30 June  2002. The weighted average interest rate
is 4.45% and apart from usual variances  in general rates of interest the Company is not
exposed to any significant  interest rate risk.
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|At 30 June 2001, the Company had $1,300,000 in a
six month term deposit at a  fixed interest rate of 5.46%, $1,326,303 in a four month
term deposit at a fixed  rate of 4.9% and $4,228,571 in a cheque account at a variable
interest rate of  4.10%. The weighted average interest rate was 4.51%.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Deposits or withdrawals from term deposits may
be made at any time without prior  notice or penalty.
|----------------------------------------------------------------------------------------------------



|Receivables and payables are non-interest
bearing.
|--------------------------------------------------



| | 35 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|(c) Net fair values
|-------------------



|The carrying amount of financial assets and
financial liabilities recorded in  the financial statements represents their respective
net fair values, determined  in accordance with the accounting policies disclosed in Note
1 to the financial  statements.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(d) Credit risk
|---------------



|Financial assets, which potentially expose the
Company to concentrations of  credit risk, consist primarily of cash and receivables. The
Companys cash and  cash equivalents are placed with high credit quality financial
institutions and  receivables are presented net of any allowances for estimated doubtful
receivables. Accordingly, the Directors believe the Company has no significant
concentration of credit risk.
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|25.  ADDITIONAL COMPANY INFORMTION
|----------------------------------



|Prana Biotechnology Limited is a listed public
company, incorporated and  operating in Australia.
|-------------------------------------------------------------------------------------------------

|Registered Office         |  | Principal Place
      of Business
|------------------------- |  | ---------------------------------
|                          |  |                                  
|Suite 2                   |  | Level 1                          
|                          |  |                                  
|1233 High Street          |  | 100 Dorcas Street                
|                          |  |                                  
|Armadale Vic 3148         |  | South Melbourne
      Vic 3205   
|                          |  |                                  
|Tel: (03) 9824
      8166 |  | Tel: (03) 9690
      8537        



| | 36 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|26.  RECONCILIATION TO US GAAP
|------------------------------



|The financial statements have been prepared in
accordance with accounting  principles generally accepted in Australia
(A-GAAP), which differ in certain  significant respects from accounting
principles generally accepted in the  United States of America (US GAAP). The
following is a summary of the  significant adjustments to net loss and total equity
required when reconciling  such amounts recorded in the financial statements to the
corresponding amounts  in accordance with US GAAP, considering the significant
differences between  A-GAAP and US GAAP.
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|Reconciliation of net loss
|--------------------------

|                                                                                |     | Years Ended 30
      June
|------------------------------------------------------------------------------- | --- | -------------------------
|                                                                                |     | 2002                     
|                                                                                |     |                          
|                                                                                |     |                          
|Net loss in accordance with AGAAP                                              |     | (5,448,467)              
|US GAAP adjustments:                                                            |     |                          
|Sharebased compensation                                                        | (a) |                          
|960 shares issued to consultants and promoters in private placement             |     |                         
|17,250,000 options issued to shareholders and promoters                         |     |                         
|3,000,000 options issued to directors and consultants                           |     | (352,000)                
|Options issued to consultants for services
      rendered                       |     | (656,600)                
|Shares issued to consultants for services rendered                              |     | (306,485)                
|Intangible assets                                                               | (b) |                          
|Costs capitalised under AGAAP but expensed
      under US GAAP                 |     |                         
|Reversal of amortisation expense attributable
      to above                    |     | 60,670                   
|Reversal of amortisation expense attributable
      to upward asset revaluation |     | 977,463                  
|Costs capitalised under US GAAP but expensed
      under AGAAP                 |     | 1,181,792                
|Amortisation expense attributable to above                                      |     | (184,392)                
|Deferred tax effect of US GAAP adjustments                                      |     |                         
|Net loss in accordance with US GAAP                                             |     | (4,728,019)              
|                                                                                |     |                          
|Loss per share in accordance with US GAAP:                                      |     |                          
|Basic and diluted                                                               |     | (0.08)                   
|Weighted average shares  basic and diluted                                     |     | 57,623,389               



| | 37 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|Reconciliation of shareholders equity
|--------------------------------------

|                                                                                          |     | Years Ended 30
      June
|----------------------------------------------------------------------------------------- | --- | -------------------------
|                                                                                          |     | 2002                     
|                                                                                          |     |                          
|Total equity in accordance with
      AGAAP                                              |     | 16,668,986               
|US GAAP adjustments:                                                                      |     |                          
|Intangible assets                                                                         | (b) |                          
|Costs capitalised under AGAAP but expensed
          under US GAAP                       |     | (910,058)                
|Reversal of amortisation expense attributable
      to above                              |     | 155,075                  
|Reversal of upward asset revaluation                                                      |     | (14,661,942)             
|Reversal of amortisation expense attributable
      to upward 
          assetrevaluation |     | 2,498,434                
|Costs capitalised under US GAAP but expensed
      under
          AGAAP                 |     | 3,356,776                
|Amortisation expense attributable to above                                                |     | (391,468)                
|Deferred tax effect of US GAAP
      adjustments                                          |     |                         
|Total equity in accordance with US
      GAAP                                             |     | 6,715,803                

|                                                                                                                       |     | Years Ended 30
      June
|---------------------------------------------------------------------------------------------------------------------- | --- | -------------------------
|                                                                                                                       |     | 2002                     
|                                                                                                                       |     |                          
|Balance in accordance with US
      GAAP, beginning of year                                                            |     | 9,404,161                
|Issuance of shares in connection
      with private placement, net of issue costs                                      |     |                         
|Issuance of shares in connection
      with exercise of options                                                        |     | 580,346                  
|Amortization of unearned compensation
      attributable to issuance of 3,000,000 options to directors and consultants | (a) | 352,000                  
|Compensation expense attributable
      to issuance of options toconsultants for services rendered                     | (a) | 656,600                  
|Compensation expense attributable
      to issuance of shares to consultants for services rendered                     | (a) | 450,715                  
|Net loss in accordance with US
      GAAP                                                                              |     | (4,728,019)              
|Balance in accordance with US GAAP,
      end of year                                                                  |     | 6,715,803                



| | 38 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|a. | Share-based compensation
|-- | ------------------------



| | 960 shares
issued to consultants and promoters in private placement
| | -------------------------------------------------------------------



| | As disclosed
in Note 11(b), on 6 January 2000, the Company issued 960  shares at $1.00 per share to
consultants and promoters in a private  placement. On 7 January 2000, the Company passed
a 5000 for 1 share  split. After giving effect to the share split, the shares issued in
the  private placement amounted to 4,800,000 shares at $0.0002 per share.  Under A-GAAP,
no compensation cost has been recognised in respect of the  shares issued by the Company
substantially below the IPO price. For US  GAAP purposes, the Securities and Exchange
Commission has stated that the  IPO price should be presumed to be fair value for
issuances of shares up  to one year preceding the IPO, unless objective evidence to the
contrary  exists to support another value. As Prana does not have objective  evidence to
support a fair value other than the 28 March 2000 IPO price,  the Company has recognised
compensation cost under US GAAP for the shares  issued to the employees based on the
substantial disparity between the  issue price ($0.0002 per share, as adjusted for the
share split) and the  IPO price ($0.50 per share).
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 17,250,000
options issued to shareholders and promoters
| | -------------------------------------------------------



| | As disclosed
in Note 11(c), on 6 January 2000, the Company issued  17,250,000 share options to
shareholders and promoters, one of which is  an employee of the Company. Under A-GAAP, no
compensation cost has been  recognised in respect of the share options issued by the
Company. For the  shareholder and promoter that is also an employee of Prana, the Company
has elected to account for the issuance of share options to the employee  in accordance
with Accounting Principles Board Opinion No. 25: Accounting  for Stock Issued to
Employees and related interpretations (APB 25)  under US GAAP. Under APB 25,
compensation cost is recognized to the  extent that the estimated fair value of the stock
exceeds the exercise  price of the options at the grant date, and is charged to
operations  ratably over the service period. Accordingly, no compensation cost has  been
recognised for the options issued to the employee, as the exercise  price of the options
equalled the estimated fair value of the stock at  the grant date. With respect to the
shareholders and promoters that are  not employees of Prana, the Company is required to
account for the  issuance of share options to the non-employees in accordance with
Statement of Financial Accounting Standards No. 123: Accounting for Stock  Based
Compensation (SFAS 123) and Emerging Issues Task Force Issue  96-18:
Accounting for Equity Instruments That Are Issued to Other Than  Employees for Acquiring,
or in Conjunction with Selling, Goods or  Services (EITF 96-18). Under SFAS
123 and EITF 96-18, compensation cost  is calculated based on the fair value of options
on the date at which the  counterpartys performance is complete. The Company estimated
the fair  value of the share options issued to the non-employees using the  Black-Scholes
model with the following weighted average assumptions:
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |    risk-free
      interest rate of 5.6%;
| | ------------------------------------------

| |    no
      dividends;
| | -----------------------

| |    expected
      volatility of 21%; and
| | -----------------------------------------

| |    expected
      life of three years.
| | ---------------------------------------



| | 3,000,000
options issued to directors and consultants
| | -----------------------------------------------------



| | As disclosed
in Note 11(c), on 6 January 2000, the Company issued  3,000,000 share options as an
incentive for directors and outside  consultants. Of the 3,000,000 options, 2,600,000
were issued to directors  and 400,000 were issued to consultants. Under A-GAAP, no
compensation  cost has been recognised in respect of
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 39 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



| | the share
options issued by the  Company. Under US GAAP, the options issued to the directors are
accounted  for under APB 25, and accordingly, no compensation expense has been
recognized for the options issued to the directors as the exercise price  of the options
equalled the estimated fair value of the stock at the  grant date. The options issued to
the consultants are accounted for under  SFAS 123 and EITF 96-18. The fair value of the
options was estimated on  the date of grant using the Black-Scholes model with the
following  weighted average assumptions:
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |    risk-free
      interest rate of 5.6%;
| | ------------------------------------------

| |    no
      dividends;
| | -----------------------

| |    expected
      volatility of 21%; and
| | -----------------------------------------

| |    expected
      life of four years.
| | --------------------------------------

| | The amount of
compensation cost is charged to earnings over the  performance (vesting) period and
adjusted at each balance sheet date for  changes in the fair value of the options.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Options issued
to consultants for services rendered
| | ---------------------------------------------------



| | As disclosed
in Note 11(c), the Company issued 410,000 and 400,000 share  options to outside
consultants in consideration for services rendered to  the Company during the years ended
30 June 2002 and 2001, respectively.  Under A-GAAP, the Company recognised compensation
expense based on the  directors valuation of the share options. Under US GAAP, the
options  issued to the outside consultants are accounted for under SFAS 123 and  EITF
96-18. Accordingly, the Company has calculated compensation cost  based on the estimated
fair value of the options measured on the date the  services were completed by the
respective consultants, using the  Black-Scholes model with the following weighted
average assumptions:
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |    risk-free
      interest rate of 5.48% for 2002 and 5.725% for 2001;
| | ------------------------------------------------------------------------

| |    no
      dividends;
| | -----------------------

| |    expected
      volatility of 25% for 2002 and 21% for 2001; and
| | -------------------------------------------------------------------

| |    expected
      life of three years.
| | ---------------------------------------

| | Shares issued
to consultants for services rendered
| | --------------------------------------------------



| | As disclosed
in Note 11(b), the Company issued 191,794 and 88,600 shares  to outside consultants in
consideration for services rendered to the  Company during the years ended 30 June 2002
and 2001, respectively. Under  A-GAAP, the Company recognised compensation expense based
on the  directors valuation of the shares issued. Under US GAAP, the shares  issued to
the outside consultants are accounted for under SFAS 123 and  EITF 96-18. Accordingly,
compensation cost is based on the fair value of  the shares measured on the date the
services were completed by the  respective consultants.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|b. | Intangible assets
|-- | -----------------



| | Under A-GAAP,
the Company capitalised costs associated with the  acquisition and development of core
intellectual property (primarily  patents) until December 1999. Such costs are amortised
on a straight-line  basis over the estimated useful lives of 15 years. In December 1999,
the  directors revalued the intangible assets upwards by $14,661,942 and  recorded the
revaluation in the asset revaluation reserve in equity. The  increased asset value
resulted in additional amortisation for periods  subsequent to the revaluation. All costs
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 40 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



| | associated
with the acquisition  and development of core intellectual property incurred subsequent
to the  December 1999 revaluation are expensed as incurred under A-GAAP.
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | For US GAAP
purposes, the Company capitalises costs associated with the  acquisition of patents and
other core intellectual property, legal costs  associated with successful patent defences
and successful patent  applications. Such costs are amortised on a straight-line basis
over the  estimated useful lives of 15 years. All other costs associated with  patents
and other core intellectual property are expensed as incurred.  Upward revaluations of
intangible assets are not allowed under US GAAP  (except in connection with a purchase
business combination).
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|c. | Other
|-- | -----



| | Under A-GAAP,
interest income is reported as a component of revenue from  ordinary activities. Under US
GAAP, interest income is reported as a  component of non-operating income.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | Under A-GAAP,
amortisation of intangible assets used in research and  development projects is reported
in depreciation and amortisation  expense. Under US GAAP, amortisation of intangible
assets used in  research and development projects is reported in research and development
expense.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | 41 | 
| | -- | 



---





|PRANA BIOTECHNOLOGY LIMITED
      (A Development Stage Enterprise)
|------------------------------------------------------------------

|1. BACKGROUND AND SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (contd)
|---------------------------------------------------------------------



|Under A-GAAP,
other expenses from ordinary activities consist of the  following:
|--------------------------------------------------------------------------------

|                                                 | Years Ended 30
      June
|------------------------------------------------ | -------------------------
|                                                 | 2002                     
|                                                 |                          
|Travel                                           | 78,483                   
|Insurance                                        | 41,158                   
|Marketing                                        | 71,690                   
|Payroll and other employee benefit related costs | 5,344                    
|Office overhead costs                            | 139,404                  
|Lab supplies                                     | 119,156                  
|Other                                            | 352                      
|                                                 |                          
|                                                 |                          
|Total                                            | 455,587                  

|Under US GAAP,
such costs are classified as general and administrative  costs.
|------------------------------------------------------------------------------



| | 42 | 
| | -- | 



---







|SIGNATURES
|----------



|THE REGISTRANT
HEREBY CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS  FOR FILING ON FORM 20-F AND THAT
IT HAS DULY CAUSED AND AUTHORIZED THE  UNDERSIGNED TO SIGN THIS ANNUAL REPORT ON ITS
BEHALF.
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | PRANA BIOTECHNOLOGY
      LIMITED 
      (REGISTRANT)  
| | -------------------------------------------------------
| |                                                        
| | BY: /s/ Geoffrey
      Kempler                         
| | Geoffrey
      Kempler 
             Executive Chairman



|Dated:  January 9, 2003
|-----------------------



| | 43 | 
| | -- | 



---





|EXHIBIT INDEX
|-------------

|Exhibit | Description                                                                                                                                                                                                                                                                    | Page No.
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------
|        |                                                                                                                                                                                                                                                                                |         
|1.1     | Constitution of Registrant.(1)                                                                                                                                                                                                                                                 |         
|        |                                                                                                                                                                                                                                                                                |         
|2.1     | Deposit Agreement, dated as of March 23,
        2001, entered into among Registrant and the Bank of New York, as Depositary,
        and owners and holders of American Depositary Receipts issued thereunder,
        including the Form of American Depositary Receipts.(2) |         
|        |                                                                                                                                                                                                                                                                                |         
|4.1     | Research Funding and Intellectual Property
        Assignment Agreement, dated December 1, 2000, between Registrant and the
        University of Melbourne.(1)                                                                                                                |         
|        |                                                                                                                                                                                                                                                                                |         
|4.2     | Agreement for the Assignment of Patents
        and Intellectual Property Licensing in relation to treatment to Alzheimer
        Disease, dated May 7, 1999, between Registrant and the University of Melbourne
        University of Melbourne University of Melbourne.(1)   |         
|        |                                                                                                                                                                                                                                                                                |         
|4.3     | Agreement for the Assignment of Patents
        and Intellectual Property Licensing in relation to treatment to Alzheimer
        Disease, dated February 8, 2000, between Registrant and the Biomolecular
        Research Institute.(1)                                      |         
|        |                                                                                                                                                                                                                                                                                |         
|4.4     | Agreement for the Development of Novel
        Therapies for Alzheimer Disease, dated August 3, 2001, between Registrant
        and AusIndustry.(1)                                                                                                                           |         
|        |                                                                                                                                                                                                                                                                                |         
|4.5     | Research Expenditures Agreement, dated
        August 2, 2001, between Registrant and Massachusetts General Hospital.(1)                                                                                                                                                       |         
|        |                                                                                                                                                                                                                                                                                |         
|4.6     | Variation Agreement, dated August 8, 2001,
        between Registrant and General Hospital Corporation.(1)                                                                                                                                                                     |         
|        |                                                                                                                                                                                                                                                                                |         
|4.7     | License Agreement, dated January 1, 2001,
        between Registrant and General Hospital Corporation.(1)                                                                                                                                                                      |         
|        |                                                                                                                                                                                                                                                                                |         
|4.8     | Scientific Advisory Board Agreement, dated
        December 2, 1999, between Registrant and Prof. Peter Colman.(1)                                                                                                                                                             |         
|        |                                                                                                                                                                                                                                                                                |         
|4.9     | Deed of variations to Services Agreement,
        dated January 26, 2000, between Registrant and Prof. Ashley Bush.(1)                                                                                                                                                         |         
|        |                                                                                                                                                                                                                                                                                |         
|4.10    | Agreement for Services, dated February
        7, 2000, between Registrant and Prof. Colin Masters.(1)                                                                                                                                                                         |         
|        |                                                                                                                                                                                                                                                                                |         
|4.11    | Agreement to provide office, computer,
        administration and meeting facilities, dated January 31, 2000, between
        Registrant and Aroma Science Pty Ltd.(1)                                                                                                         |         



| | 44 | 
| | -- | 



---





|Exhibit | Description                                                                                                                                                                                                                                                                                                        | Page No.
|------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | --------
|        |                                                                                                                                                                                                                                                                                                                    |         
|4.12    | Strategic Alliance Agreement in relation
        to co-ordination, planning and management of intellectual property, research
        and development, planning, management and commercialisation strategy,
        dated December 1, 2000, between Registrant and Kendle Pty Ltd.(1)                              |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|4.13    | Advisory Agreement dated October 20, 2,000
        between Registrant and GTH Capital Inc.(1)                                                                                                                                                                                                                      |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|4.14    | Agreement to Provide Accounting, Administration,
        Corporate Advice And Company Secretarial Services, dated as of, February
        23, 2000, between Registrant and Malvern Administrative Services.(1)                                                                                                     |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|4.15    | Grant Agreement, dated as of, January
        1, 2001, between Registrant and the Commonwealth of Australia, by the
        Industry Research and Development Board.(1)                                                                                                                                            |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|4.16    | Form of Indemnity for Clinical Trials,
        dated as of September 2000, between Registrant and Melbourne Health (Royal
        Melbourne Hospital Campus), Royal Melbourne Hospital Research Foundation
        Incorporated, University of Melbourne, Mental Health Research Institute
        of Victoria.(1) |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|4.17    | Commitment, dated as of November 7, 2001,
        between Registrant and University of Melbourne.(1)                                                                                                                                                                                                               |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|10.1    | Prana Biotechnology Limited, Employees
        and Consultants Option Plan 2000.(1)                                                                                                                                                                                                                                |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|99.1    | Certification by Chief Executive Officer Pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                        |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|99.2    | Certification by Chief Financial Officer Pursuant to Section
        302 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                        |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|99.3    | Certification by Chief Executive Officer Pursuant to 18
        U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.                                                                                                                                                 |         
|        |                                                                                                                                                                                                                                                                                                                    |         
|99.4    | Certification by Chief Financial Officer Pursuant to 18
        U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley
        Act of 2002.                                                                                                                                                 |         

|
|

|(1) |  | Incorporated
by reference to our Registration Statement on Form  20-F filed with the Securities and
Exchange Commission on May 28, 2002. (File  No. 000-49843).
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Incorporated
by reference to our Registration Statement on Form  F-6 filed with the Securities and
Exchange Commission on March 9, 2001 (File  No. 333-13264).
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | 
| |  | 



---