UNITED STATES
                       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

          For  the  fiscal  year  ended  June  30,  2006
                                         ---------------

                                       OR

     [ ]  TRANSITION  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF  THE
          SECURITIES  EXCHANGE  ACT  OF  1934

                                       OR

     [ ]  SHELL  COMPANY  REPORT  PURSUANT  TO  SECTION  13  OR  15(d)  OF THE
          SECURITIES  EXCHANGE  ACT  OF  1934

                        Commission file number 000-29228
                                               ---------

                            PROGEN INDUSTRIES LIMITED
             (Exact name of Registrant as specified in its charter)

                                 Not Applicable
                                 --------------
                 (Translation of Registrant's Name into English)

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

              16 Benson Street, Toowong, Queensland 4066, Australia
              -----------------------------------------------------
                    (Address of Principal Executive Offices)

                                 +61 7 3842 3333
                                 ---------------
         (Registrant's telephone number including country and area code)

 Securities registered or to be registered pursuant to Section 12(b) of the Act.

       Title of each Class          Name of each Exchange on which Registered
       -------------------          -----------------------------------------
              None                                    None

 Securities registered or to be registered pursuant to Section 12(g) of the Act,
                                 Ordinary Shares
                                 ---------------
                                (Title of Class)

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

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:  40,589,793  (as  of  June  30,  2006)
         -------------------------------------

Indicate by checkmark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act.
Yes        No   X
     ---       ---

If  this report is an annual or transition report, indicate by check mark if the
registrant  is  not  required to file reports pursuant to Section 13 or 15(d) of
the  Securities  Exchange  Act  of  1934.
Yes        No   X
     ---       ---


<PAGE>
Indicate  by checkmark 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 whether the registrant is a large accelerated filer, an
accelerated  filer,  or  an  non-accelerated  filer.  See  the  definition  of
"accelerated  filer  and  large accelerated filer" in Rule 12b-2 of the Exchange
Act.  (Check  one):
Large accelerated filer [ ]  Accelerated filer [X]  Non-accelerated filer [  ]

Indicate by check mark which financial statement item the registrant has elected
to  follow.
Item  17       Item  18   X
          ---            ---

If  this is an annual report, indicate by check mark whether the registrant is a
shell  company  (as  defined  in  Rule  12b-2  of  the  Exchange  Act).
Yes        No   X
     ---       ---


<PAGE>
<TABLE>
<CAPTION>
                                TABLE OF CONTENTS
                                -----------------

                                                                            Page
                                                                            ----
<S>                                                                         <C>

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS . . . . .     6

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE . . . . . . . . . . . .     6

ITEM 3.    KEY INFORMATION . . . . . . . . . . . . . . . . . . . . . . . .     7

  ITEM 3.A     SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . .     7
  ITEM 3.D.    RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . .     8

ITEM 4.    INFORMATION ON THE COMPANY. . . . . . . . . . . . . . . . . . .    21

  ITEM 4.A.    HISTORY AND DEVELOPMENT OF THE COMPANY. . . . . . . . . . .    21
  ITEM 4.B.    BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . .    21
  ITEM 4.D.    PROPERTY, PLANTS AND EQUIPMENT. . . . . . . . . . . . . . .    40

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS. . . . . . . . . .    41

  ITEM 5.A.    OPERATING RESULTS . . . . . . . . . . . . . . . . . . . . .    43
  ITEM 5.B.    LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . .    48
  ITEM 5.E.    OFF-BALANCE SHEET ARRANGEMENTS. . . . . . . . . . . . . . .    50
  ITEM 5.F.    TABULAR DISCLOSURE OF AGGREGATE CONTRACTUAL
                 OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . .    51

ITEM 6.    DIRECTORS, SENIOR MANAGMENT AND EMPLOYEES . . . . . . . . . . .    52

  ITEM 6.A.    DIRECTORS AND SENIOR MANAGEMENT . . . . . . . . . . . . . .    52
  ITEM 6.B.    COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . .    54
  ITEM 6.C.    BOARD PRACTICES . . . . . . . . . . . . . . . . . . . . . .    55
  ITEM 6.D.    EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . .    57
  ITEM 6.E.    SHARE OWNERSHIP . . . . . . . . . . . . . . . . . . . . . .    57

ITEM 7.    MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS . . . . . . .    59

  ITEMS 7.A.   MAJOR SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . .    59
  ITEM 7.B.    RELATED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . .    60

ITEM 8.    FINANCIAL INFORMATION . . . . . . . . . . . . . . . . . . . . .    61

  ITEM 8.A.    FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION. . . .    61
  ITEM 8.B.    SIGNIFICANT CHANGES . . . . . . . . . . . . . . . . . . . .    61

ITEM 9.    THE OFFER AND LISTING . . . . . . . . . . . . . . . . . . . . .    62

  ITEM 9.C.    MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . .    62

ITEM 10.   ADDITIONAL INFORMATION. . . . . . . . . . . . . . . . . . . . .    64

  ITEM 10.B.   MEMORANDUM AND ARTICLES OF ASSOCIATION. . . . . . . . . . .    64
  ITEM 10.C.   MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . .    65
  ITEMS 10.D.  EXCHANGE CONTROLS . . . . . . . . . . . . . . . . . . . . .    65
  ITEM 10.E.   TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . .    65

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. . .    72

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES. . . . .    73

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES. . . . . . . . .    74

ITEM 14.   MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY
             HOLDERS AND USE OF PROCEEDS . . . . . . . . . . . . . . . . .    74


                                        3
<PAGE>
ITEM 15.   CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . .    74

ITEM 16.   [RESERVED]. . . . . . . . . . . . . . . . . . . . . . . . . . .    75

  ITEM 16A.    AUDIT COMMITTEE FINANCIAL EXPERT. . . . . . . . . . . . . .    75
  ITEM 16B.    CODE OF ETHICS. . . . . . . . . . . . . . . . . . . . . . .    75
  ITEM 16C.    PRINCIPAL ACCOUNTANT FEES AND SERVICES. . . . . . . . . . .    76
  ITEM 16D.    EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES.    76
  ITEM 16E.    PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
                 PURCHASERS. . . . . . . . . . . . . . . . . . . . . . . .    76

ITEM 17.   FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . .    76

ITEM 18.   FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . .    77

ITEM 19.   EXHIBITS. . . . . . . . . . . . . . . . . . . . . . . . . . . .    77
</TABLE>

     References  in  this  annual report to "Progen," "we," "our", "us" and "the
Company"  refer  to  Progen  Industries  Limited.

     All  references to dollars or $ are to the currency of the United States of
America;  and  references  to  Australian  dollars  or A$ are to the currency of
Australia.


                                       4
<PAGE>
              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

     This  annual  report contains forward-looking statements that involve risks
and  uncertainties.    Forward-looking statements relate to future events or our
future  financial performance and include information concerning our possible or
assumed  future  results  of  operations,  business strategies, financing plans,
competitive  position, industry environment, potential growth opportunities, the
effect of future regulation and the effects of competition. These statements are
based  on  our current expectations, beliefs and assumptions, and on information
currently  available  to  our  management.  In  some  cases,  you  can  identify
forward-looking  statements by the use of words such as  "anticipate," "expect,"
"intend,"  "plan," "seek," "may," "will," "should," "could," "would," "believe,"
"estimate,"  "project,"  "predict,"  "potential," "continue," or the negative of
such  terms or similar expressions.    These forward-looking statements are only
predictions and involve known and unknown risks, uncertainties and other factors
which  may cause our actual results, levels of activities, performance and other
factors  to  be  materially  different  from  those  anticipated  in  such
forward-looking  statements.  Factors  that might cause such differences include
the  risks  discussed  in  "Item  3.  Key  Information - Risk Factors", "Item 4.
Information  on  the  Company"  and  "Item 5. Operating and Financial Review and
Prospects,"  as  well  as  those  discussed  elsewhere  in  this  annual report.

     Certain  statements contained in this report may not be based on historical
facts  and are "forward-looking statements" within the meaning of Section 27A of
the  Securities  Act  of  1933,  as  amended,  and Section 21E of the Securities
Exchange  Act  of  1934,  as amended. In particular, certain statements included
herein  under  "Item  3.  Key  Information" and "Item 5. Operating and Financial
Review  and  Prospects,"  including  without  limitation,  those  concerning the
Company's  strategy  and  competitive  strengths, the Company's expectations and
plans,  the  Company's  collaborative  revenues,  research  and  development and
general  and administrative expenses, contain certain forward-looking statements
concerning  the  Company's operations, performance and financial condition. Such
statements  may  generally,  but not always, be identified by their use of words
such  as  "anticipates," "expects," or "believes." Although the Company believes
that  the  expectations  reflected  in  such  forward-looking  statements  are
reasonable,  no  assurance  can  be  given  that such expectations will prove in
hindsight  to  be  correct. Many important factors could cause actual results to
differ  materially  from  such  expectations  including, among others, those set
forth  in "Item 3. Key Information-Risk Factors" and "Item 4. Information on the
Company-Australian  Government  Regulation  and  U.S.  Government  Regulation"
(collectively,  the  "Risk  Factors").  All  subsequent  written  and  oral
forward-looking  statements attributable to the Company or persons acting on its
behalf  are expressly qualified by the Risk Factors. Other relevant risks may be
detailed  from time to time in the Company's press releases and filings with the
Securities  and  Exchange Commission. We undertake no obligation to update these
forward-looking  statements  to reflect events or circumstances that occur after
the  date  of  this  report.


                                       5
<PAGE>
                                     PART I

ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.


                                       6
<PAGE>
ITEM 3.     KEY INFORMATION

ITEM 3.A    SELECTED FINANCIAL DATA

     The  following  selected  financial  data for the five years ended June 30,
2006  should be read in conjunction with "Item 5. Operating and Financial Review
and  Prospects"  below  and our financial statements and related notes contained
elsewhere in this annual report. Our financial statements and related notes have
been  prepared  in  accordance  with  U.S.  GAAP.

The  balance sheet information as at June 30, 2005 and 2006 and the statement of
operations  data  for  fiscal  2004,  2005 and 2006 are derived from our audited
financial  statements  included in this annual report. Balance sheet information
as  of  June 30, 2002, 2003 and 2004 and statement of operations information for
fiscal 2002 and 2003 are derived from our audited financial statements which are
not  included  in  this  annual  report.

<TABLE>
<CAPTION>
                                                       For the Years Ended June 30,
                                   ----------------------------------------------------------------------
                                       2002           2003           2004          2005          2006
---------------------------------------------------------------------------------------------------------
<S>                                <C>            <C>            <C>           <C>           <C>
STATEMENT OF OPERATIONS DATA:
Revenue From Operations            $    704,044   $  1,051,695   $ 1,394,589   $ 1,076,308   $   676,975
Cost of Operations:
    Research and development          2,088,001      2,371,704     3,061,120     2,712,427     3,151,595
    Selling, general and
    administrative costs              1,311,836      2,022,547     2,616,728     2,953,886     2,879,906
Total Cost of Operations              4,104,544      5,018,983     6,299,231     6,583,949     7,293,174
                                   -------------  -------------  ------------  ------------  ------------
Gross Loss                           (3,601,294)    (4,391,353)   (5,277,908)   (5,760,917)   (6,650,279)
Total Other Income (Expenses)           417,658        537,991     1,078,787     1,212,603     1,423,097
                                   -------------  -------------  ------------  ------------  ------------
Net Loss from continuing
operations                         $ (3,183,636)  $ (3,853,362)  $(4,199,121)  $(4,548,314)  $(5,227,182)
Discontinued operations                 104,421        288,213       654,666             -             -
                                   -------------  -------------  ------------  ------------  ------------
Net Loss                           $ (3,079,215)  $ (3,565,149)  $(3,544,455)  $(4,548,314)  $(5,227,182)
                                   =============  =============  ============  ============  ============
Profit/(Loss) Per Ordinary Share
                                   =============  =============  ============  ============  ============
  Continuing operations            $      (0.13)  $      (0.16)  $     (0.13)  $     (0.13)  $     (0.13)
                                   =============  =============  ============  ============  ============
  Discontinued operations                     -   $       0.01   $      0.02             -             -
                                   =============  =============  ============  ============  ============
  Net loss per ordinary share      $      (0.13)  $      (0.15)  $     (0.11)  $     (0.13)  $     (0.13)
                                   =============  =============  ============  ============  ============
  Weighted Average Number of
  Ordinary Shares Outstanding        24,391,869     24,391,869    32,675,867    35,709,343    40,560,782
</TABLE>


                                       7
<PAGE>
<TABLE>
<CAPTION>
                                                   For the Years Ended June 30,
                              -------------------------------------------------------------------------
                                  2002           2003           2004           2005           2006
-------------------------------------------------------------------------------------------------------
<S>                           <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:
Cash and Cash Equivalents     $  6,430,377   $  8,001,842   $  9,885,656   $ 17,851,895   $ 11,588,471
Working Capital                  7,174,683      7,379,033      9,107,687     16,990,609     10,859,242
Total Assets                     9,865,368     10,230,017     11,208,140     18,768,255     13,158,885
Long-Term Debt                           -              -              -              -              -
Capital Stock                   41,800,156     44,153,011     48,869,981     59,907,735     60,017,537
Accumulated Deficit            (31,850,511)   (35,415,660)   (38,960,115)   (43,508,429)   (48,735,611)
Total Stockholders' Equity    $  8,523,149   $  8,504,942   $  9,934,555   $ 17,522,624   $ 11,792,387
</TABLE>

ITEM  3.D.     RISK  FACTORS

     The  risks  and uncertainties described below are not the only ones that we
face.  Additional  risks  and uncertainties not presently known to us or that we
currently  believe  to  be immaterial may also adversely affect our business. If
any  of  the  following risks and uncertainties develops into actual events, our
business,  financial condition and results of operations could be materially and
adversely  affected, and the trading price of our ordinary shares could decline.

     WE  ARE  PRIMARILY  ENGAGED  WITH  ACTIVITIES AT A STAGE IN THE DEVELOPMENT
     OF  PHARMACEUTICAL  PRODUCTS  WHERE  SUCCESS  IS  UNCERTAIN

     Although  we  are  presently  generating revenues from the sale of contract
manufacturing services, we have not sufficiently advanced the development of our
lead  product  candidates,  PI-88 and PI-166, to enable their registration, and,
accordingly,  have  not  begun  to  market  or  generate  revenues  from  their
commercialization.  PI-88,  PI-166  and future pharmaceutical product candidates
will  require  significant  additional  investment  in research and development,
preclinical testing and clinical trials, drug manufacture and supply, regulatory
and  sales  and  marketing  activities,  and  regulatory  approval  prior to any
commercial sales.  We cannot make any assurances that PI-88, PI-166 or any other
product  candidates,  if  successfully  developed,  will  generate sufficient or
sustainable  revenues  to  enable  us  to  be  profitable.

     THERE  IS  A  SIGNIFICANT  RISK  THAT  WE  MAY  NOT BE ABLE TO COMPLETE THE
     DEVELOPMENT  OF  PI-88  OR PI-166, OR DEVELOP OTHER PHARMACEUTICAL PRODUCTS

     We cannot make any assurances that we will be able to develop PI-88, PI-166
or  any  future  pharmaceutical  product  candidates  adequately  to  successful
commercialization,  the  development  of  one  or  more  suitable  collaborative
partners,  or  a  combination  thereof,  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, will be proven to be
safe  and  efficacious  in  clinical  trials,


                                       8
<PAGE>
meet  applicable  regulatory  standards and receive regulatory approval, will be
capable  of being produced in commercial quantities at reasonable costs, or will
be successfully or profitably marketed, either by us or a collaborative partner.
We  also cannot make any assurances that the 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 PI-88, PI-166, or any of our other pharmaceutical
products  under  development  will  be  commercialized.

     THE  RESULTS  OF  ON-GOING  AND  FUTURE CLINICAL TRIALS OF PI-88 AND PI-166
     ARE UNCERTAIN AND WE WILL NOT BE ABLE TO COMMERCIALIZE PI-88, PI-166 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 preclinical testing and
clinical  studies  that our product candidates are safe and effective for use in
humans  for  each target indication. Conducting preclinical testing and clinical
studies is an expensive, protracted and time-consuming process. Furthermore, the
results  of  preclinical  in vitro (within an artificial environment) and animal
studies  may not necessarily be predictive of results obtained in human clinical
testing.  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  are  currently  conducting  four  Phase  II clinical trials of PI-88 in
cancer  patients  in  the  United  States, Taiwan and Australia and have planned
further  trials.  We  also  are conducting a Phase I clinical trial of PI-166 in
Australia  and,  depending  on the results of this trial, may conduct additional
clinical  trials.  We plan to pursue a range of commercialization approaches for
our  lead  products  PI-88  and PI-166, amongst them entering into collaborative
arrangements  with  one  or  more  suitable  pharmaceutical  or  biotechnology
company(ies)  .  We  cannot  make  any assurances that we will be able either to
complete  the current clinical trials of PI-88 and PI-166 successfully, commence
additional  clinical  trials of PI-88 or PI-166 as anticipated, or at all, or to
demonstrate  the  safety  and  efficacy  or  superiority of PI-88 or PI-166 over
existing  therapies or enter into any collaborative arrangement to commercialize
PI-88  and  PI-166  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.

     Clinical  trials  may  take  up to several years to complete. The length of
time  varies  substantially  according to the type, complexity, novelty, patient
recruitment  into  and intended use of the product candidate. We cannot make any
assurances that, when Phase II clinical trials are completed, we will be able to
pursue  further  clinical development, execute market development efforts, enter
into a collaborative arrangement with a suitable pharmaceutical or biotechnology
company  to  complete  the development of, or commercialize PI-88 or PI-166. 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 Australian Therapeutic Good Administration's (TGA) Drug
Safety and Evaluation Branch, the U.S. Food and Drug Administration (FDA) or any
other  authority,  or,  that  such  request and application will be reviewed and
cleared  by  any  of these authorities, as applicable, in a timely manner, or at
all.


                                       9
<PAGE>
     During  the course of clinical trials and toxicology studies, PI-88, PI-166
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 effect, thereby preventing
widespread  use  or  requiring  withdrawal  from  the market. We cannot make any
assurances  that  PI-88,  PI-166  or any of our other product candidates will be
safe  or  effective  when  administered  to  patients.

     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  or  prepare,  as  applicable,
          sufficient  quantities  of  PI-88,  PI-166 or any of our other product
          candidates;

     -    Unforeseen  safety  issues;  and

     -    Lack  of  efficacy  during  the  clinical  trials.

     Patient  enrollment  is  a function of, amongst 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
meet  the eligibility criteria for the clinical trial. Delays in planned patient
enrollment  may  result  in  increased  costs,  delays  in  trial  completion or
termination  of  clinical  trials.  Moreover,  we  have  limited  experience  in
conducting  and managing clinical trials and may 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.


                                       10
<PAGE>
     WE  HAVE  LIMITED  MANUFACTURING  EXPERIENCE,  AND  DELAYS IN MANUFACTURING
     SUFFICIENT  QUANTITIES  OF  PI-88  AND  PI-166 FOR PRECLINICAL AND CLINICAL
     TRIALS  MAY  NEGATIVELY  IMPACT  OUR  BUSINESS  AND  OPERATIONS

     We  believe  that  we  have the capability to manufacture PI-88 and prepare
PI-166  for  preclinical studies and  clinical trials, including for PI-88 Phase
III  clinical  trials.  We  cannot, however, make any assurances that we will be
able  to  manufacture or prepare, as applicable, sufficient quantities of PI-88,
PI-166  or  any  of  our  other product candidates in a cost-effective or timely
manner. Any delays in production would delay our preclinical and clinical trials
which  could have a material adverse effect on our business, financial condition
and  results  of  operations.

     We have chosen to enter into contracting arrangements with a third party to
assume the final steps in the manufacture of PI-88 in anticipation of conducting
Phase  III  clinical  trials  and  we  may be required to enter into contracting
arrangements  with  third  parties  to  manufacture,  or prepare, as applicable,
PI-166  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  successfully.  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 or prepare 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.

     IF  WE  ARE  UNABLE  TO  INDEPENDENTLY  COMMERCIALIZE  OR  ESTABLISH  AND
     MANAGE  STRATEGIC  COLLABORATIONS  TO  DEVELOP  PI-88, PI-166 OR ANY OF OUR
     OTHER  PRODUCT  CANDIDATES,  WE  MAY  HAVE  TO  REDUCE  OR  DELAY  PRODUCT
     DEVELOPMENT  AND/OR  INCREASE  OUR  EXPENDITURES

     Our  strategy  for  developing  and  commercializing our product candidates
includes  entering  into  various  relationships  with  pharmaceutical  or
biotechnology  companies  to provide us with funding and/or to perform research,
clinical  development,  regulatory  clearance,  commercial  scale manufacturing,
sales, marketing or distribution activities relating to PI-88, PI-166 or some or
all  of  our  current or future product candidates. To date, we have not entered
into  any  agreements  with  third  parties capable of providing those services.
Establishing  strategic  collaborations  is  difficult  and  time-consuming. Our
discussions  with  potential  collaborators may not lead to the establishment of
collaborations  on  favorable  terms,  if  at all. If we are unable to establish
collaborative  arrangements,  we may have to reduce or delay further development
of  PI-88,  PI-166  and  our  other  product  candidates  and/or  increase  our
expenditures  and  undertake the development and commercialization activities at
our  own  expense.  If we elect to fund our research and development programs on
our  own, we will need to obtain additional financing which may not be available
on  acceptable  terms,  or  at  all.

     If  we  successfully  establish strategic collaborations, the management of
our  relationship  with  collaborators  will require significant time and effort
from  our management team, coordination of our research and development programs
with the research and development priorities of our collaborators, and effective
allocation  of  our  resources  to  multiple projects. We cannot be certain that


                                       11
<PAGE>
these  relationships  will  result  in  the  successful  development  or
commercialization  of our product candidates or the generation of sales revenue.
If  we  enter  into  strategic  collaborations  at  an  early  phase  of product
development, our success will in part depend on the performance of our corporate
collaborators.  Factors  that  could  harm  a  successful collaboration include:

     -    Collaborators  may  delay  clinical  trials,  underfund  a  clinical
          trial  program,  stop a clinical trial or abandon a product candidate,
          repeat  or conduct new clinical trials or require a new formulation of
          a  product  candidate  for  clinical  testing;

     -    Collaborators  could  independently  develop,  or  develop  with third
          parties,  products  that  could  compete  with  our current and future
          product  candidates;

     -    Collaborators  may  not  commit  adequate  resources  to the marketing
          and  distribution  of  our  product  candidates,  limiting  potential
          revenues  from  the  commercialization  of  a  product;

     -    Collaborators  may  not  pursue  further  development  and
          commercialization  of  compounds  resulting from collaborations or may
          elect  not  to  continue  or  renew research and development programs;

     -    The terms of our agreements with collaborators may not be favorable to
          us;

     -    Disputes  may  arise  delaying  or  terminating  the  research,
          development  or commercialization of our product candidates, resulting
          in  significant litigation or arbitration, or causing collaborators to
          act  in  their  own  self-interest  and  not  in  the  interest of our
          shareholders;  and

     -    Collaborators  may  terminate  their  agreements  with  us  if,  for
          example,  we  fail  to  meet  a  required  milestone  or observe other
          obligations  in  those  agreements.

     OUR  EFFORTS  TO  DISCOVER,  DEVELOP  AND  COMMERCIALIZE  NEW  PRODUCT
     CANDIDATES  BEYOND  PI-88  AND  PI-166  ARE  AT  A  VERY  EARLY  STAGE AND,
     THEREFORE,  THESE  EFFORTS  ARE  SUBJECT  TO  A  HIGH  RISK  OF  FAILURE

     The  process  of  successfully  developing  product candidates is very time
consuming,  expensive  and  unpredictable.  Although  we  have  a dedicated drug
discovery  group  focused  on identifying and developing molecule(s) that, among
others,  inhibit angiogenesis by disrupting heparan sulfate protein interactions
as  product  candidates,  we may not be successful in identifying, developing or
commercializing  any  additional  new  product  candidates.

     IF  WE  CANNOT  ENTER  INTO  NEW  LICENSING  ARRANGEMENTS,  OUR  ABILITY TO
     DEVELOP  A  BROAD  PRODUCT  PORTFOLIO  COULD  BE  LIMITED

     A  component  of  our  business  strategy  is  in-licensing  drug compounds
developed  by  other  commercial or academic entities. Competition for promising
compounds  is  intense.  If  we  are  not  able to identify additional licensing
opportunities  or  enter  into licensing arrangements on acceptable terms, if at
all,  our  ability  to  develop  a  diverse  portfolio  of product candidates is
restricted.


                                       12
<PAGE>

     WE  MAY  REQUIRE  SUBSTANTIAL  ADDITIONAL  FINANCING  IN  THE  FUTURE  TO
     SUFFICIENTLY  FUND  OUR  OPERATIONS,  DEVELOPMENT  EFFORTS  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
preclinical  testing  and as we conduct clinical trials of PI-88, PI-166 and our
other  product  candidates. Although our future capital requirements will depend
on  many factors, we believe that our existing cash and cash equivalents will be
adequate  to  satisfy  the  requirements  of  our current and planned operations
through  to  September  2007.  We cannot, however, make any assurances that such
funds  will  be  sufficient  to  meet  our actual operating expenses and capital
requirements  during  this  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;

     -    The timing,  scope,  results  and  costs  of  preclinical  studies and
          clinical  trials;

     -    The  progress  of  licensing  efforts;

     -    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  are  currently planning a phase III trial of PI-88 in patients with HCC
(primary  liver  cancer).  We  anticipate  that  we  will  require  substantial
additional  funds  in order to conduct this and other clinical trials as well as
completing  the  research  and  development  of  our  pharmaceutical  product
candidates.  In  addition, we will require additional funds to pursue regulatory
clearances,  prosecute  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 may 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 PROFITABILITY IN
     THE  NEAR  FUTURE


                                       13
<PAGE>
     We  have  incurred  net  operating  losses  in  each  year  since  we began
operations  in  1989.  As  of  June  30,  2006, we had an accumulated deficit of
approximately  $48.7  million,  primarily  attributable  to  our  research  and
development  activities.  We expect 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  preclinical activities and
commence additional clinical trials of PI-88 and PI-166, potentially including a
Phase  III  trial  of  PI-88  in  patients  with  HCC.

     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;

     -    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.
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
the  patent is issued, 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 depends 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


                                       14
<PAGE>
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.

     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 to be incurred by us
and  the  diversion  of  our  efforts.  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. We cannot make any assurances that we
will  have  adequate  remedies  for any breach. In addition, third parties could
independently  develop  the  same  or  similar  technologies.

     WE  MAY  NOT  BE  ABLE  TO  OBTAIN  THE  EXTENSIVE  GOVERNMENT  APPROVALS
     REQUIRED  TO  BRING  OUR  PHARMACEUTICAL  PRODUCTS  TO  MARKET

     Our ongoing research and development activities are, and the production and
marketing  of  our pharmaceutical product candidates derived there from will be,
subject  to  regulation  by  numerous  governmental  authorities  in  Australia,
principally  the  TGA,  and  by  the  FDA  in the United States, the Medicines &
Healthcare  Products  Regulatory  Agency  in the United Kingdom and the European
Medicines  Evaluation  Authority.  Prior  to  marketing, any therapeutic product
developed must undergo rigorous preclinical 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  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.  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


                                       15
<PAGE>
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  ATTRACT  AND  RETAIN  KEY  PERSONNEL AND CULTIVATE KEY
     ACADEMIC  AND  SCIENTIFIC  COLLABORATIONS

     We  are a company with 44 full-time employees at June 30, 2006. Our success
is  highly  dependent on the continued contributions of our principal management
and  scientific  personnel  and on our ability to develop and maintain important
relationships  with  leading  academic  institutions and 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.

     WE  MAY  NOT  BE  ABLE  TO  KEEP PACE WITH TECHNOLOGICAL CHANGE OR WITH THE
     ADVANCES  OF  OUR  COMPETITORS

     The  biotechnology  and  pharmaceutical industries are subject to rapid and
significant technological change. Our competitors in Australia and elsewhere are
numerous  and  include,  among  others,  major  pharmaceutical  companies, large
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
preclinical  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  some  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  we  would.

     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;


                                       16
<PAGE>
     -    The establishment  and  demonstration  in  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.

     WE  MAY  NEED  TO  ESTABLISH  OUR  OWN  SALES,  MARKETING  AND DISTRIBUTION
     CAPABILITY

     As  a  company,  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.  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 may have a material adverse impact our potential revenues
and  results  of  operations.

     HEALTHCARE  INSURERS  AND  OTHER  ORGANIZATIONS  MAY  NOT  PAY  FOR  OUR
     PRODUCTS,  OR  MAY  IMPOSE  LIMITS  ON  REIMBURSEMENT

     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 potential revenues and results of operations.

     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. Although
the  Australian  government continues to provide a subsidy to certain prescribed
prescription pharmaceutical products through the Pharmaceutical Benefits Scheme,
which,  pending  development,  could  include  PI-88  and  PI-166,


                                       17
<PAGE>
uncertainty  exists as to the reimbursement status of newly approved health care
products  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.

     OUR  BUSINESS  AND  OPERATIONS  MAY  BE  NEGATIVELY  IMPACTED IF WE FAIL TO
     COMPLY  WITH  GOVERNMENT  REGULATIONS  APPLICABLE  TO  OUR  CURRENT REVENUE
     GENERATING  BUSINESS

     We  import  biological  products into Australia under existing permits from
the  Australian  Quarantine  and  Inspection  Service that require us to declare
incoming biological materials and to ensure that such products contain labels as
to  their  use  and  disposal under approved methods. Any potential violation of
Australian  import  laws  or  modification or revocation of our permits could be
significant  and may negatively impact our business and operations. Our contract
manufacturing  operations include some manufacturing processes that are required
to  comply  with  the  applicable  cGMP  requirements of the TGA, the Australian
Office  of  Gene  Technology  Regulator and the Australian National Registration
Authority  (agricultural  and  veterinary  chemicals), which govern the methods,
controls,  facilities  and  quality  assurance procedures used in manufacturing,
packing and storing biological and pharmaceutical products. In addition, certain
international markets have quality assurance and manufacturing requirements that
may  be  more  or  less  rigorous  than  those  in  Australia. Our manufacturing
facilities  are  also  subject  to  periodic  inspections  by  the  TGA  and the
Australian National Registration Authority. Any potential failure to comply with
cGMP  requirements  or  with  any  other international requirements could have a
material  adverse  impact  on  our  business, financial condition and results of
operations.

     WE  MAY  HAVE  PRODUCT  LIABILITY  EXPOSURE

     The  importation  of  biological  products  entails the risk of product and
manufacturer's liability under present Australian law. We currently have limited
product  and  manufacturer's liability insurance coverage related to our current
sales  activities.  We  cannot be certain that this coverage will be adequate to
protect  us  in  the  event  of a successful product or manufacturer's liability
claim  or  that  the  insurance  will  continue  to be available on commercially
reasonable  terms.

     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. In
addition,  product  liability  claims  or  product  recalls,  regardless  of the
ultimate  outcome,  could  require  us  to  spend  significant time and money in
litigation and to pay significant damages. We cannot be certain that our current
limited  product liability coverage will adequately protect us in the event of a
successful  product  liability  claim or that such insurance will continue to be
available  on  commercially  reasonable  terms.


                                       18
<PAGE>
     WE  MAY  BE  LIABLE  FOR  DAMAGES  FOR  ANY  ACCIDENTAL  CONTAMINATION  OR
     INJURY FROM OUR USE OF BIOLOGICAL AND HAZARDOUS MATERIALS OR OUR FAILURE TO
     COMPLY  WITH  APPLICABLE  LAWS  AND  REGULATIONS

     Our research and development activities and manufacturing processes involve
the  use  or  sale  of  potentially  harmful  biological materials and hazardous
substances.  As  a  result,  we are subject to federal, state and local laws and
regulations  in  Australia governing the use, manufacture, storage, handling and
disposal  of  potentially  harmful biological materials and hazardous substances
and  certain  waste  products.  We  are  also  subject  to applicable Australian
environmental  laws  and  regulations.  Although  we  believe  that  our  safety
procedures  for  handling and disposing of such materials comply in all material
respects  with  the  standards prescribed by applicable laws and regulations, we
cannot  completely eliminate the risk of accidental contamination or injury from
these  materials.  In the event of such an accident, we could be held liable for
any resulting damages and any such liability could exceed our resources. We also
believe  that  we  are  in  compliance  in all material respects with applicable
environmental  laws  and  regulations. However, any potential violation of these
and  other  applicable  laws  and  regulations  could  be  significant  and  may
negatively  impact  our  business  and  operations.

     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,  exchange  rate,  relevant  taxation and other legal regimes and
government  policies  may  adversely  affect  our  operations,  the  use  of our
financial  resources  and  the  market  price  of  our  ordinary  shares.

     EXCHANGE  RATE  FLUCTUATIONS  WILL  CONTINUE  TO  AFFECT  OUR  REPORTED
     RESULTS  OF  OPERATIONS

     Substantially  all  of our revenues are realized, and a significant portion
of  our  operating  costs  are  incurred,  in  Australian  dollars.  Because our
financial  statements  included elsewhere in this annual report are presented in
U.S. dollars, any significant fluctuation in the currency exchange rates between
the  Australian  dollar  and the U.S. dollar will affect our reported results of
operations.

     OUR  STOCK  PRICE  MAY  BE  VOLATILE  AND  THE  U.S. TRADING MARKET FOR OUR
     ORDINARY  SHARES  IS  LIMITED

     The  market  price  for our ordinary shares, like that of the securities of
other  biotechnology companies, has fluctuated substantially and may continue to
be  highly  volatile  in  the  future. 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  preclinical  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;


                                       19
<PAGE>

     -    Determinations  regarding our patent applications and those of others;

     -    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
biotechnology  companies,  and,  in  many  cases, are unrelated to the operating
performance  of  the  particular  companies.  We believe that these broad market
fluctuations  may  continue  to  affect the market price of our ordinary shares.

     From  time  to  time, there has been limited trading volume with respect to
our  ordinary shares quoted on the NASDAQ Capital Market, but we cannot make any
assurances  that  there  will  continue  to  be a trading market in our ordinary
shares.


                                       20
<PAGE>
ITEM  4.     INFORMATION  ON  THE  COMPANY

ITEM  4.A.     HISTORY  AND  DEVELOPMENT  OF  THE  COMPANY

     We  were  incorporated in September 1989 as Almagest Pty. Ltd. in the State
of Queensland, Australia, and changed our name to Progen Industries Pty. Ltd. in
April  1990.  In  1991, we converted to a public limited liability company under
the  name  Progen  Industries  Limited  and  introduced  our first life sciences
products  to  the  Australian  market  for  use  in  DNA  recombinant  research.

     Since October 1993, we have been engaged in the research and development of
small molecule pharmaceuticals, including heparanase inhibitors, that are potent
and  selective  inhibitors  of carbohydrate-protein interactions implicated in a
range  of  disease states. Our research and development activities are conducted
in collaboration with private industry and academic and research institutions in
Australia,  the  United  States  and  elsewhere.

     As  part of our focused strategy towards drug discovery and development, we
sold  our Life Sciences division in November 2003 and intend to pursue selective
strategic  alliances  to  complete  product  development  and  move  our product
candidates  into  the  market  place.

     We  have incurred significant losses since our inception and as of June 30,
2006,  our  accumulated  deficit  was  approximately $48.7 million. We expect to
incur  additional  operating  losses  for  at least the next several years as we
accelerate  our  drug discovery research, expand our development and preclinical
activities,  conduct  additional  clinical  trials  with  PI-88  and PI-166, and
advance  into later stages of development. We may need to raise additional funds
in  the  future  to  continue  our  operations.

     To  date,  we  have funded our operations primarily through sales of equity
securities.

CORPORATE  INFORMATION

     Our  principal  executive offices are located at 16 Benson Street, Toowong,
Queensland  4066,  Australia.

     We  make  available  free  of  charge on or through our web site our annual
reports  on Form 20-F as soon as practicable after they are electronically filed
with,  or  furnished to, the Securities and Exchange Commission. Our web site is
located  at  www.progen.com.au.  Information  contained  on  our web site is not
             -----------------
incorporated  by  reference into and does not form a part of this annual report.

     Progen  is a registered trademark of Progen Industries Limited. Trademarks,
tradenames  or  service marks of other companies appearing in this annual report
are  the  property  of  their  respective  owners.

ITEM  4.B.     BUSINESS  OVERVIEW

     Progen  Industries  Limited  is  an  Australian-based,  globally-focused
biotechnology  company  committed  to  the  discovery,  development  and
commercialization  of small molecule pharmaceuticals for the treatment of cancer
and  other  serious  diseases.


                                       21
<PAGE>
     Our  lead product in development is PI-88, which is a multi-targeted cancer
therapeutic  that  inhibits  angiogenesis  (development  of  new blood vessels),
tumour  invasiveness  and  metastasis  (development  of  secondary  tumours). It
inhibits  angiogenesis  by  interacting  with  the  heparin-binding  site  of
pro-angiogenic  growth  factors  such as VEGF, FGF-1 and FGF-2. It also inhibits
the  enzyme  heparanase,  which  mediates  tumour  invasiveness,  metastasis and
release  of  pro-angiogenic  growth  factors  from  the  extracellular  matrix.

     Our  second oncology product candidate in development is PI-166, which is a
targeted  cytotoxic drug for the treatment of inoperable liver cancer. PI-166 is
a  formulation  with  a  very  high  affinity  for  primary  liver cancer cells.

     Our internal drug discovery program is focused on the design of novel small
molecules  for Progen's future drug development pipeline based on the inhibition
of  carbohydrate-protein  interactions  involved  in  disease  processes.  The
synthesis  and  biochemical analysis of new angiogenesis inhibitors continues to
be  the  focus  of  the  group's activities with the aim of developing potential
therapeutics  for  cancer  and  other  serious  diseases.  Our research team and
academic  collaborators  have  identified a portfolio of heparan sulfate binding
proteins  that  are  involved  in  different diseases, and we are now designing,
synthesizing and screening small molecule compounds that disrupt heparan sulfate
binding.

     We  also operate a manufacturing plant that is responsible for the clinical
supply  of  PI-88  and  PI-166  as  well as providing contract manufacturing and
bioprocess  technology  development  services  to  Australian and overseas based
clients. This manufacturing facility operates in accordance with internationally
recognized  Good  Manufacturing  Practice  (GMP)  requirements.

OUR  BUSINESS  STRATEGY

     We  intend  to  develop and commercialize therapeutics for cancer and other
serious  diseases.  To  achieve  this  objective,  we  are  concentrating on the
following  key  initiatives:

     -    Leveraging  in-house  expertise  and  capabilities  in  Product
          Development.  We  believe that our core scientific and management team
          has  significant  and  demonstrated expertise in drug discovery and in
          selecting  and  advancing  promising  product candidates through human
          clinical  trials  to  demonstrate  proof  of  efficacy  and move these
          product  candidates  towards  registration  and  commercialization.

     -    Discovering  and  developing  novel  small  molecule  therapeutics
          using  our  proprietary  drug  discovery  technology platform. We will
          continue  to  focus  our  drug  discovery  research  programs  on  the
          discovery  and  development  of small molecule therapeutics for cancer
          and  other  serious  diseases  that  will  feed  our product candidate
          pipeline  and  leverage our drug development infrastructure over time.

     -    Expanding  our  product  candidate  pipeline  through in-licensing. In
          addition  to  our  internal  drug  development  efforts,  we intend to
          selectively in-license lead compounds and new therapies for cancer and
          other  serious  diseases  at early stages of development and other new
          therapies  for  cancer  and other serious diseases and undertake early
          stage  clinical  development.


                                       22
<PAGE>
     -    Establishing  strategic  collaborations  for  the  development  and
          commercialization  of  our  product  candidates.  Where appropriate to
          optimizing  clinical  development  and  maximizing  value creation, we
          intend to complement our internal capabilities by selectively entering
          into collaborations with pharmaceutical and biotechnology companies to
          complete  product development and move our product candidates into the
          marketplace  as  well  as to improve our ability to move new compounds
          into  the  clinic.

     -    Leveraging  our  in-house  manufacturing  capabilities  to support the
          development  and  commercialization  of  our  product  candidates.  We
          manufacture  PI-88  and  formulate PI-166 for preclinical and clinical
          trials  at  our  manufacturing  facility.  We  intend  to leverage our
          experience  in  bioprocess  manufacturing  technologies to support the
          development  and  commercialization  of our present and future product
          candidates.

     -    Establishing  and  maintaining  a  strong  intellectual  property
          portfolio.  We  plan  to  continue  to  aggressively  pursue  patent
          protection  in  Australia,  the  United  States  and other significant
          markets,  as  well  as protect trade secrets and know-how, as our drug
          discovery  technologies  uncover  additional  small  molecule  product
          candidates or as necessitated by our in-licensed development programs.

DEVELOPMENT  PROGRAMS

     CANCER  THERAPEUTICS

     PI-88  -  NOVEL  ANGIOGENESIS  AND  METASTASIS  INHIBITOR

     PI-88  is  our  most  advanced  compound  within our oncology pipeline. Our
principal  objective  is  to  commercialize  PI-88  as  a cytostatic anti-cancer
therapy  applicable to a broad range of cancer types.  All PI-88 clinical trials
to  date  are  being  conducted  under  an  active  Investigational  New  Drug
application,  or  IND,  with  the United States Food and Drug Administration, or
FDA.

     PI-88 has been developed to attack the life support system of cancer tumors
in  a  two-fold  manner:

     -    Inhibition  angiogenesis  which  is  essential  to  promote  tumor
          growth.  The  anti-angiogenic  activity  is manifest in three distinct
          ways:

     -    Inhibition  of  heparanase,  which  prevents  the  release  of
          angiogenic  growth  factors  which  are  resident in the extracellular
          matrix;

     -    Direct  interaction  with  the  heparan  sulfate-binding  domains  of
          angiogenic  growth  factors  Vascular  Endothelial  Growth  Factor, or
          VEG-F,  basic  Fibroblast  Growth  Factor  1,  or  FGF-1,  and  basic
          Fibroblast  Growth  Factor,  or  FGF-2, which reduces their functional
          activity;  and

     -    Stimulation  of  the  release  of  Tissue Factor Pathway Inhibitor, or
          TFPI,  an  endogenous  protein  that  has  anti-angiogenic  and
          anticoagulation  properties.


                                       23
<PAGE>
     -    Reduction  in  the  spread  of  secondary  tumors (metastasis) through
          the  inhibition of heparanase, as heparanase is required to break down
          vasculature  to  allow  tumor  cells  to  spread.

     It  is expected that attacking these processes will lead to the development
of  a  cytostatic  therapeutic  approach  that may reduce the toxic side effects
associated  with  current  therapies  such as irradiation or cytotoxic drugs. By
inhibiting  angiogenesis,  it  is  possible to starve the tumor of nutrients and
oxygen.  This  process  has  been  shown  to stop tumor growth in animal models.
Anti-angiogenic  therapeutics,  including  PI-88,  specifically  targeted  at
cancerous  tumors  may  result  in  additive  and/or  synergistic  efficacy when
combined  with  other agents without significantly increasing side effects since
angiogenesis occurs only in specific instances in healthy adults (wound healing,
fetal  development  and  menstrual  cycle).  In  addition, anti-angiogenic drugs
developed  are  expected  to have broader application in a range of cancers. The
concept  of  halting  the  growth  of  cancer  and  "living with the disease" is
becoming  a  more  accepted  paradigm  and  is  reflected  in  the  design  of
anti-angiogenic  clinical  trials,  including  our  clinical  program for PI-88.
Ultimately,  it is hoped that these anti-angiogenic drugs may have the potential
for  co-treatment  with  other  therapies and halt the progression of cancer and
grant  patients  many  years  of  additional  high-quality  life.

     Angiogenesis  Background

     Angiogenesis  is  an  important  process  in the progression of cancer. All
tumors  require  blood  supply  to  grow and survive. The vascularization of the
tumor also promotes the spread of tumor cells throughout the body, which results
in  the  formation  of  metastases  (secondary  tumors).

     Tumor  angiogenesis  involves  the  following  key  steps:

     -    The tumor  produces  enzymes,  including  heparanase,  that  degrade
          the  basement  membrane  of blood vessels and the extracellular matrix
          surrounding  the  endothelial  cells  that  line  blood  vessel walls.
          Specifically,  heparanase  degrades  heparan  sulfate  in the basement
          membrane  where  growth  factors  are  stored.

     -    The release  of  growth  factors  provides  the angiogenic stimulus to
          the  endothelial  cells  lining  the  nearby blood vessels. The growth
          factors  that  are  released  interact  with  heparan sulfate and with
          receptor  molecules  located  on the surface of the endothelial cells,
          both  of  which  are  bound  to  the  cell  surface.  As a result, the
          endothelial  cells begin proliferating. Three important growth factors
          in  this  process  are  VEG-F,  FGF-1  and  FGF-2.

     -    Heparanase  degradation  of  the  extracellular  matrix  and  basement
          membrane  also  allows  the proliferating endothelial cells to migrate
          and  form  new  blood  vessels  and  the  remodeling  of  the basement
          membrane.

     -    The new  blood  vessels  supply  the  tumor  with  the  essential
          nutrients  and  oxygen  required  for  growth.


                                       26
<PAGE>
     Metastasis  Background

     The  spread  of  cancer  beyond  an  initial  tumor (metastasis) is a major
contributing  factor to the accelerated progression of cancer. In the process of
metastasis,  tumor  cells  confront  the extracellular matrix that surrounds the
endothelial  cells  lining blood vessel walls and the basement membrane of blood
vessels.  Tumor  cells confront these blood vessels and membranes at least twice
and  must  penetrate  them  using  degradative  enzymes  including  heparanase.
Metastasis  occurs  in  the  following  sequence:

     -    Tumor cells  detach  from  the  primary  tumor  site  and  invade  the
          blood  vessel.  This  invasion  requires  enzymatic degradation of the
          extracellular  matrix  and  basement  membrane  of blood vessel walls.
          Heparanase  is  a  key  enzyme  in  this  process.

     -    Tumor cells  enter  into  the  circulation  and migrate to other sites
          in  the  body where they lodge in small capillaries. As with invasion,
          tumor cells secrete heparanase to degrade the basement membrane of the
          blood vessel, thus allowing the tumor cells to cross the wall into the
          nearby  tissue.

     -    At the distant site the tumor cells divide and form a secondary tumor.

     PI-88  Clinical  Development  Program

     All  clinical  trials of PI-88 are being conducted under an active IND with
the  FDA.  In  the  preclinical and clinical studies executed to date, PI-88 has
shown an acceptable safety and tolerability profile in clinical trials. PI-88 is
also  showing  signs  of  clinical  efficacy  in  PI-88's multinational clinical
development  program.  To  date  more  than  17,500  doses  of  PI-88  have been
administered  to  over  400  people for periods ranging up between four and five
years. Most oncology drugs are designed to be toxic to the cancer, as their name
-  cytotoxics  -  indicates.  These drugs are designed to eradicate tumor cells,
often  with  adverse consequences for non-cancerous cells as well. Historically,
the  efficacy  of  cytotoxic  compounds  was measured by assessments such as the
degree  to  which  tumors  shrink.  PI-88 belongs to the relatively new class of
cytostatic  drugs.  As  the  name implies, cytostatic drugs are designed to keep
the  disease  stable,  so  the efficacy of these cytostatic drugs is measured by
assessments  such  as  time  to disease progression, time of stable disease, and
survival.

     PI-88  is  currently  in  Phase  II clinical development with four Phase II
clinical  trials  ongoing  in  the  U.S.,  Australia  and Taiwan under an active
Investigational  New  Drug  application, or IND, with the United States Food and
Drug  Administration,  or  FDA.


                                       25
<PAGE>
     The following chart summarizes the results of our completed clinical trials
for  PI-88.

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                        PI-88 COMPLETED CLINICAL TRIALS
------------------------------------------------------------------------------------------------------------------------------
STUDY                               PH            TREATMENT                            STATUS & KEY POINTS
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>                      <C>
INTRAVENOUS INFUSION IN          Phase Ia  Escalating single dose   -  24 healthy male adults recruited
HEALTHY VOLUNTEERS                         as a 3-hour              -  Short term safety and pharmacokinetic data obtained
                                           intravenous infusion     -  Doses of up to 180mg were well tolerated
------------------------------------------------------------------------------------------------------------------------------
INTRAVENOUS INFUSION IN          Phase Ib  Dose escalation          -  14 patients recruited with advanced malignancies
CANCER PATIENTS                            by continuous            -  2 cases of Grade 3 thrombocytopenia, platelets
                                           intravenous infusion        recovered following cessation of treatment
------------------------------------------------------------------------------------------------------------------------------
ALTERNATIVE INTRAVENOUS          Phase Ib  Dose escalation by       -  9 patients recruited with median age of 65 years
DOSAGE REGIMEN IN CANCER                   intravenous              -  Dose limiting toxicity  - 1 case of Grade 3 serum
PATIENTS                                   infusion for                alanine aminotransferase
                                           4 days with 7 day        -  Repeat cycles at 2 week intervals
                                           follow up period
------------------------------------------------------------------------------------------------------------------------------
SUBCUTANEOUS INJECTION IN        Phase Ia  Dose escalation by       -  22 healthy male volunteers
HEALTHY VOLUNTEERS                         subcutaneous             -  Comparison between intravenous infusion and
                                           administration              subcutaneous injection bioavailability via two
                                           and comparison              way crosser design
                                           with intravenous         -  Determined 95% bioavailability by subcutaneous
                                           infusion                    administration
------------------------------------------------------------------------------------------------------------------------------
SELF ADMINISTERED                Phase Ib  Dose escalation          -  42 patients recruited with median age of 55 years
SUBCUTANEOUS IN ADVANCED                   by 4/14 days             -  Maximum tolerated dose of 250 mg/day 4 days in 7
CANCER PATIENTS                            and then 4/7 days           days
                                                                    -  38 evaluable patients, 1 partial response, 14 stable
                                                                       disease for 3 months or longer
                                                                    -  2 patients still on PI-88 treatment for 50 and 58
                                                                       months respectively
------------------------------------------------------------------------------------------------------------------------------
SELF ADMINISTERED                Phase Ib  Dose escalation          -  16 patients recruited
SUBCUTANEOUS WITH                          PI-88 and                -  Established maximum tolerated dose for PI-88 in
TAXOTERE(R) IN PATIENTS                    Taxotere(R)                 combination with docetaxel 250 mg/day 4 days per
WITH ADVANCED                                                          week
MALIGNANCIES                                                        -  No dose limiting toxicities
------------------------------------------------------------------------------------------------------------------------------
SELF ADMINISTERED                Phase II  PI-88 dose               -  Paraprotein marker study - 19 patients recruited
SUBCUTANEOUS IN MULTIPLE                   determined via           -  41% of evaluable patients had disease stabilisation for
MYELOMA PATIENTS                           doubling activated          8 weeks or longer
                                           partial
                                           thromboplastin
                                           time levels
                                           (APTT)
------------------------------------------------------------------------------------------------------------------------------
SELF ADMINISTERED                Phase II  250 mg/day               -  44 patients recruited
SUBCUTANEOUS IN ADVANCED                   4 days in every 7        -  9 months median survival versus historical control of
MELANOMA PATIENTS                                                      6.4 months in other studies of DTIC in first line.
                                                                    -  This lead to initiation of first line trial in
                                                                       combination with DTIC
------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
                                        PI-88 COMPLETED CLINICAL TRIALS
------------------------------------------------------------------------------------------------------------------------------
STUDY                               PH            TREATMENT                            STATUS & KEY POINTS
------------------------------------------------------------------------------------------------------------------------------
<S>                              <C>       <C>                      <C>
ADVANCED PROSTATE CANCER            II     2-arm study: Self-       -  Trial commenced in August 2005
(ANDROGEN-INDEPENDENT                      administration           -  90 patients to be recruited
PROSTATE CANCER)                           of PI-88 combined        -  Recruitment completed for the lead in safety stage
                                           with Taxotere(R)         -  Randomised stage will assess PI-88 at two
                                                                       different dose regimens in combination with
                                                                       Taxotere(R).
------------------------------------------------------------------------------------------------------------------------------
ADVANCED MELANOMA                   II     2-arm study:             -  Trial commenced in May 2005.
(FIRST-LINE TREATMENT)                     Combination therapy      -  Up to 118 patients to be recruited
                                           DTIC, with and           -  Recruitment completed for the lead in stage
                                           without self-            -  Lead in stage will assess safety of combination.
                                           administration of PI-88  -  Randomised stage will assess the benefit of the
                                                                       addition of PI-88 to DTIC.
------------------------------------------------------------------------------------------------------------------------------
ADVANCED NON SMALL CELL             II     2-arm study: Combined    -  Trial commenced February 2004.
LUNG CANCER (NSCLC)                        therapy Taxotere(R)      -  Recruitment of the 100 patients was completed in the
                                           with and without            second quarter of 2006.
                                           self-administration      -  The final study results should be available in the
                                           of PI-88                    first quarter of 2007.
------------------------------------------------------------------------------------------------------------------------------
PRIMARY LIVER CANCER                II     3-arm study: 2           -  Trial commenced July 2004.
(POST SURGERY) *                           dose levels of           -  340 patients to be recruited.
                                           PI-88 and a              -  Completion of recruitment of stage I (172 patients)
                                           non treatment arm
                                           (control).
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*We are currently planning to progress this trial to Phase III

     Development  Strategy  for  PI-88

     In  April 2006 we met with the FDA to discuss the development of PI-88. The
primary  outcome  of this meeting with the FDA was that we will only be required
to submit a single registration trial for PI-88. The FDA furthermore recommended
that  we  submit  a  Special  Protocol  Assessment (SPA) detailing the Phase III
clinical  development  plan to support regulatory approval. As a result, we will
advance  our current Phase II liver cancer program to Phase III thereby reducing
the development time frame of PI-88 by up to three years. Depending on the Phase
II  data,  this  trial  will  commence  in  mid  2007.

     In parallel, we continue to focus on our other Phase II PI-88 clinical
trial programs across multiple cancers. The program has included non small cell
lung cancer (NCSLC), multiple myeloma, metastatic melanoma and hormone
refractory prostate cancer.

     Commercialization  Strategy  for  PI-88

     We  have  retained  worldwide  commercial  rights  to PI-88. We continue to
assess  strategic  partnering  opportunities in parallel with taking the product
aggressively  towards market commercialization. At the appropriate time, we will
select  collaborators for later-stage clinical development and commercialization
of PI-88 as a cancer therapeutic. It is important that if we partner the product
it  should  be  at the appropriate stage that will maximize the product's value.


                                       27
<PAGE>
     PI-166  -  NOVEL  ANTI-CANCER  AGENT

     PI-166, our second oncology product candidate, is a novel combination of an
active  small  organic chemical molecule and a delivery vehicle that directs the
active  drug  constituent  at  the  tumor  site.  PI-166  is being developed for
potential  application  in  the  treatment  of advanced hepatocellular carcinoma
(primary  liver  cancer).

     PI-166  Clinical  Development  Program

     A  Phase  I  clinical  trial  with  PI-166  was initiated at the St. George
Hospital  in  Sydney  in 2003. Due to slower than expected recruitment from this
center  two  additional  sites  have  been  added  (Princess Alexandra Hospital,
Brisbane and Monash Hospital, Melbourne). The primary objective of this trial is
to  investigate  the  safety  and  tolerability of escalating doses of PI-166 in
patients with advanced stage primary liver cancer where surgical intervention is
no  longer  an  option  (unresectable).  Based  on  interim  data  to  date,  no
drug-related  side  effects of PI-166 have been observed in patients enrolled in
the  trial.

     Preclinical Studies of PI-166

     Preclinical  studies  of  PI-166  indicate that this treatment modality has
antiproliferative activity against hepatocellular carcinoma (liver cancer) cells
in  vitro  (within  an  artificial  environment) and anti-tumor activity in vivo
against the Novikoff hepatoma in rats, a model of primary liver cancer in humans
that  like  human  hepatoma,  is  known  to  be  highly  resistant  to  standard
chemotherapeutic  agents.

     Development  Strategy  for  PI-166

We have retained worldwide commercial rights to PI-166. At the appropriate time,
we  will  select  collaborators  to  conduct  later-stage  clinical  trials  and
commercialization of PI-166 as a cancer therapeutic, depending on the outcome of
current  and  possible  future  clinical  development  efforts.

     DRUG  DISCOVERY  RESEARCH

     The  goal  of  our drug discovery research is to discover and develop small
molecule  drug  candidates  that  modulate the interaction between carbohydrates
(sugars)  and  disease  related  protein  targets  as potential therapeutics for
cancer.  Our current drug discovery research involves the on-going collaboration
with  the academic laboratory of Professor Martin Banwell of the Research School
of  Chemistry  at the Australian National University in Canberra, Australia. The
proprietary  core technology for our drug discovery research, out of which PI-88
was  developed,  emanates  from  our  previous collaborative research on heparan
sulfate  mimics and related polysaccharides with Professor Christopher Parish of
The  John  Curtin  School  of  Medical  Research  at  the  Australian  National
University,  Canberra,  Australia.


                                       28
<PAGE>
     Our  internal  research  program,  augmented  by  the  work of our academic
collaborators,  has  led to the identification of a portfolio of heparan sulfate
binding  proteins that are involved in different diseases, and we are designing,
synthesizing and screening small molecule compounds that disrupt heparan sulfate
binding.  A collaboration with the Centre for Drug Candidate Optimization at the
Victorian  College  of  Pharmacy (Monash University) was also initiated in 2005.
This  joint  project  is  aimed  at  characterizing  and  improving  the various
drug-related properties of our molecules to make them more suitable as drugs and
to  increase  the  likelihood  of  their  successful  development

     Our  drug discovery research program is partially funded by a A$3.4 million
Australian  federal  government  AusIndustry  Commercial  Ready grant awarded in
August  2005.  This  grant  is  for  a maximum of A$3.4 million over three years
commencing  August  2005.  With  additional  funding  now secured the aim of the
project  is  the  continued  development of our molecule library through to drug
candidate  selection  suitable  for  human  clinical  trials.

     We  believe  our  advanced  understanding  of  the role of carbohydrates in
disease  processes combined with our clinical development expertise in advancing
promising  product  candidates  into  early stage clinical trials to demonstrate
proof  of efficacy enables us to discover novel therapeutics as well as identify
and  license  product  candidates  for  further Progen development. We intend to
enter  into  collaborations with pharmaceutical and biotechnology companies that
will  allow  us  to  build on our in-house expertise and capabilities, including
acquiring  additional product candidates, as well as improve our ability to move
new  compounds  into  the  clinic.

RESEARCH  AND  CLINICAL  COLLABORATIONS

     In  the course of conducting our research and clinical studies, we maintain
collaborations  with  private  industry  and  a  number of academic and research
institutions  in  Australia,  the  U.S.  and  elsewhere.

     We  currently  support  research at the Research School of Chemistry at the
Australian  National  University,  Canberra,  Australia. This sponsored research
program  is  developing  a  combinatorial chemistry approach to the synthesis of
molecules  that  mimic  the  structure  of  sugars.  This  chemistry will enable
synthesis  of  defined  structures  to  overcome  the  limitations in commercial
synthesis  of  oligosaccharides  and  plays  a  pivotal  supporting  role to our
in-house  drug  discovery  research  program.

     We are currently conducting, or have conducted, our clinical trial programs
at  the  following  medical  centers:

Phase  I/II  melanoma  monotherapy  study:
     -    The  University of Colorado Health Sciences Center (Denver, Colorado);
     -    Sir  Charles  Gairdner  Hospital  (Perth,  Australia);
     -    Princess  Alexandra  Hospital  (Brisbane,  Australia);
     -    The  Alfred  Hospital  (Melbourne,  Australia);  and
     -    The  Queen  Elizabeth  Hospital  (Adelaide,  Australia).

Phase  II  Non-Small  Cell Lung (NSCL) cancer studying PI-88 in combination with
taxotere:
     -    Royal  Prince  Alfred  Hospital  (Sydney,  Australia);


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<PAGE>

     -    Sir  Charles  Gairdner  Hospital  (Perth,  Australia);
     -    Border  Medical  Oncology  (Wodonga,  Australia);
     -    Mater Adult  Hospital  (Brisbane,  Australia);
     -    Prince  Charles  Hospital  (Brisbane,  Australia);
     -    The  Alfred  Hospital  (Melbourne,  Australia);
     -    Royal  North  Shore  Hospital  (Sydney,  Australia);
     -    The  Queen  Elizabeth  Hospital  (Adelaide,  Australia);
     -    Prince  of  Wales  Hospital  (Sydney,  Australia);
     -    Newcastle  Mater  Hospital  (Newcastle,  Australia);
     -    Sydney  Haematology  and  Oncology  Clinics  (Sydney,  Australia);
     -    The  Nambour  General  Hospital  (Nambour,  Australia);  and
     -    The  Princess  Alexandra  Hospital  (Brisbane,  Australia).

Phase  II  Study of PI-88 with dacarbazine in patients with Metastatic Melanoma:
     -    Sir  Charles  Gairdner  Hospital  (Perth,  Australia);
     -    Princess  Alexandra  Hospital  (Brisbane,  Australia);
     -    Royal  Prince  Alfred,  Sydney  Cancer Centre (Sydney, Australia); and
     -    The  University of Colorado Health Sciences Center (Denver, Colorado).

Phase  II  randomised  study  of two dose schedules of PI-88 in combination with
docetaxel  in  patients  with  androgen-independent  prostate  cancer:
     -    Sydney  Haematology  and  Oncology  Clinics  (Sydney,  Australia);
     -    Royal  North  Shore  Hospital  (Sydney,  Australia);
     -    Border  Medical  Oncology  (Wodonga,  Australia);  and
     -    Port  Macquarie  Base  Hospital  (Port  Macquarie,  Australia).

Phase  I  trial of PI-166 in patients with unresectable hepatocellular carcinoma
is  being  conducted  at:
     -    St  George  Hospital  (Sydney,  Australia);
     -    Princess  Alexandra  Hospital  (Brisbane,  Australia);  and
     -    Monash  Medical  Centre  (Melbourne,  Australia).

Medigen  Biotechnology Corporation (MBC) in Taipei, Taiwan, is conducted a Phase
II  clinical  trial  with  PI-88 in patients with hepatocellular carcinoma after
resection  at:
     -    The  National  Taiwan  University  Hospital  (Taipei,  Taiwan);
     -    Chang  Gung  Memorial  Hospital  (Linkou,  Taiwan);
     -    Veterans  General  Hospital  (Taichung,  Taiwan);
     -    China  Medical  University  Hospital.  (Taipei,  Taiwan);
     -    Koahsiung  Veterans  General  Hospital  (Koahsiung,  Taiwan);  and
     -    National  Cheng  Kung  University  Hospital  (Tainan,  Taiwan).

The  collaboration  between  us  and  MBC is described in the following section.

     In  August  2003, we completed an Australian multi-center Phase II study of
PI-88  in  multiple  myeloma  patients  at The Alfred Hospital in Melbourne, The
Mater  Misericordiae Hospital in Newcastle and the Wesley Clinic Research Centre
in  Brisbane.  In  2001,  clinical  testing  of


                                       30
<PAGE>
intravenous  PI-88 in Phase Ib clinical trials in advanced stage cancer patients
at  the Peter MacCallum Cancer Institute and at the Royal Melbourne Hospital was
concluded  under  the  auspices  of  the  Center  for  Developmental  Cancer
Therapeutics.

     COLLABORATION WITH MEDIGEN BIOTECHNOLOGY CORPORATION

     In  May  2000,  we entered into a strategic alliance agreement with Medigen
Biotechnology  Corporation, or MBC, a biotechnology company based in Taiwan. The
collaboration  relates  to  early  stage  clinical  trials  of  PI-88. Under the
original  agreement:

     -    We  have  retained  all  intellectual  property  rights  to  PI-88;

     -    MBC will  receive  a  percentage  of  our  future  revenues  received
          from  PI-88  in  cancer  and  cardiovascular  disease  provided  MBC
          successfully  completes all clinical trials agreed to be conducted and
          funded  by  MBC  under  the  agreement;

     -    MBC will  use  reasonable  endeavors  to  complete  one Phase II trial
          with PI-88 in an oncology indication, one Phase II trial of PI-88 in a
          cardiovascular  indication,  and  two  proof  of  principle  trials in
          oncology  indications;

     -    We will  supply  PI-88  to  MBC,  at no charge, for the conduct of all
          trials  funded  by  MBC;

     -    We have  agreed  to  supply  to  MBC,  at  MBC's  cost,  technical
          assistance,  including the services of trained personnel and technical
          training,  for  the  conduct  of  clinical  trials  by  MBC;

     -    We have  agreed  to  assist  MBC,  at  MBC's  cost,  to  establish  a
          manufacturing  plant  that can produce potential human therapeutics in
          accordance  with  cGMP  and  FDA  requirements  if  so  requested; and

     -    MBC has  the  right  to  negotiate  the  funding  and conduct of Phase
          III  trials  with  PI-88,  subject to any agreements that we may enter
          into  with  strategic  partners  to  further develop and commercialize
          PI-88.

     -    MBC issued  to  us  a  19.9%  equity  stake  in  MBC  with  certain
          anti-dilution  rights;  and

     -    MBC  paid  to us A$11 million for 2.75 million of our ordinary shares.

     In  April  2005  Progen  and  MBC agreed to amend the terms of the Alliance
Agreement  in that Progen agreed to waive the requirement for MBC to conduct one
of  the Phase II trials outlined in the Alliance Agreement. In return MBC agreed
to  fund  50%, up to A$1 million, of the Phase II trial of PI-88 as a first line
therapy  in  patients  with  advanced  melanoma  (PI-88  in  combination  with
dacarbazine).


                                       31
<PAGE>
COMMERCIAL SERVICES BUSINESSES

     LIFE  SCIENCES

     Prior  to  the  sale  of  our  life sciences division to Global Science and
Technology  Limited  in  November  2003  we  were the Australian and New Zealand
distributor of a wide range of life sciences research products manufactured by a
number  of  U.S.  and  European life sciences companies. We also offered our own
range  of  fine  chemical  products  sold  under the Progen brand name. Our life
sciences  products  were  marketed  to  research  and diagnostic laboratories in
private  and  government  institutions,  including  universities,  hospitals and
biotechnology  companies,  by  our  own  sales  staff  and under sub-distributor
arrangements  in  New  Zealand  and  Western  Australia.

     CONTRACT  MANUFACTURING

     We  provide  contract  manufacturing services to cGMP standards for various
human clinical trial and therapeutic products and veterinary pharmaceuticals, as
well  as  non-cGMP  bioproduct  contract manufacturing services. We also provide
bioprocess  technology  development  services and consulting services in quality
and  regulatory  management  systems.  Contract and consulting services revenues
constituted  approximately  56.0%,  100.0% and 100% of our sales revenue for the
fiscal  years  ended  June  30,  2004,  2005  and  2006,  respectively.

     Following  the sale of our life sciences division in November 2003 contract
manufacturing  services  contributes  100%  of  our  sales  revenue.

     Due  to prioritization of our Manufacturing Division on the supply of PI-88
for  clinical  trial  requirements  we  did  not  actively  promote our contract
manufacturing  services  during  fiscal  2006.  We  have  recommenced  pursuing
additional  contract  manufacturing  opportunities  as  we  have  substantially
completed  the  production  of  PI-88  supplies  for  our  future clinical trial
demands.

GOVERNMENT  REGULATION

     Regulation  by  government  authorities  in  the  U.S., Australia and other
countries  in  which  the Company operates is a significant consideration in the
research  and  development  of  our  products.

     The  Company  is  also  subject  to  various  laws,  regulations, policies,
guidelines  and  recommendations  relating  to  such  matters  as  safe  working
conditions,  laboratory  and  manufacturing  practices,  the experimental use of
animals  and  the  protection  of the environment. Furthermore, there has been a
general  trend towards greater regulation of the pharmaceutical industry and its
products.

     MANUFACTURING

     Our  manufacturing facility is licensed by the Australian Therapeutic Goods
Administration  for  the  manufacture of biological-based starting materials for
human  therapeutics  to  cGMP  and  by  the Australian Office of Gene Technology
Regulator  for the manufacture of large scale genetically modified organisms. In
addition, certain international markets have quality assurance and manufacturing
requirements  that  may  be  more  or less rigorous than those in Australia. Our
manufacturing  facilities are also subject to regular inspections by the TGA. We
cannot  make  any assurances that we will continue to be in compliance with cGMP
requirements.  Failure  to  comply  with  cGMP  requirements  or  with any other
international requirements could have a material adverse effect on our business,
financial  condition  and  results  of  operations.


                                       32
<PAGE>
     RESEARCH  AND  DEVELOPMENT

     The  research  and  development,  manufacture  and commercialization of our
pharmaceutical  products  are  subject to regulation by governmental entities in
Australia  and  other  countries  including  the  United  States. Pharmaceutical
products  are  subject  to  rigorous  regulation by the TGA under the Australian
Therapeutic  Goods  Act,  by the FDA in the United States, and by similar health
authorities  in  foreign countries under laws and regulations that govern, among
other  things,  the  testing,  clinical  trials,  manufacture, safety, efficacy,
labeling, storage, record keeping, advertising, promotion, export, marketing and
distribution  of  such  products.  Product  development and approval within this
regulatory framework is uncertain and can take a number of years and require the
expenditure  of substantial resources. Any failure to obtain regulatory approval
or any delay in obtaining such approvals could have a material adverse effect on
our  business,  financial  condition  and  results  of  operations.

     Australian Government Regulation

     The steps required before a drug may be approved for marketing in Australia
generally  include:

     -    Preclinical  laboratory  and  animal  testing;

     -    Submission  to  the  TGA  of  a  clinical  trial notification, or CTN,
          or  a  clinical trial exemption, or CTX, application for human trials;

     -    Submission  of  an  investigators'  brochure  and  clinical  protocols
          to  the  independent  ethics committee, or IEC, of each institution at
          which  the  trial  is  to  be  conducted;

     -    Adequate  and  well-controlled  clinical  trials  to  demonstrate  the
          safety  and  efficacy  of  the  product;

     -    Development  of  a  Drug  Masterfile,  which  demonstrates  that  the
          manufacture  of  the  product  conforms  to  GMP  guidelines;

     -    Submission  of  the  manufacturing,  preclinical  and clinical data to
          the  TGA;  and

     -    Approval  by  the  TGA  for  inclusion  in  the Australian Register of
          Therapeutic  Goods.

     The  testing  and  approval  processes for a drug require substantial time,
effort  and  financial  resources. Furthermore, post-market surveillance must be
carried  out, and any adverse reactions to the drug must be reported to the TGA.
We  cannot  make  any  assurances  that any approval will be granted on a timely
basis,  if  at  all.

     Preclinical studies include laboratory evaluation of the product as well as
animal  studies  to assess the potential safety and efficacy of the product. The
results of the preclinical studies are submitted to each investigator's IEC and,
in  some instances, to the TGA. Approval by each IEC and by the TGA is necessary
before  clinical  trials  can  commence.  An  IEC  is a review committee at each
institution  at which a study is conducted and is set up under guidelines of the
Australian  National  Health and Medical Research Council. The role of an IEC is
to  review  proposals  for  clinical  trials,


                                       33
<PAGE>
and  approve  and  subsequently  monitor  the  clinical  trials.  The  IEC  will
consider,  among other things, ethical factors and the safety of human subjects.
We cannot make any assurances that submission to the applicable IECs and the TGA
will  result  in  authorization  to  commence  clinical  trials.

     Clinical trials are typically conducted in three sequential phases that may
overlap:

     -    Phase I  clinical  trials  that  involve  the  initial introduction of
          the  drug  into  human  subjects  and  the  exploration  of its safety
          (adverse effects), dosage tolerance, absorption, metabolism, excretion
          and  pharmacodynamics;

     -    Phase II  clinical  trials  that  (i)  evaluate  the  efficacy  of the
          drug  for  specific,  targeted  indications,  (ii)  determine  dosage
          tolerance  and  optimal  dosage,  and  (iii) identify possible adverse
          effects and safety risks. Phase II trials usually involve studies in a
          limited  patient  population;  and

     -    Phase III  clinical  trials  that  generally  further  evaluate
          clinical  efficacy  and  further  test  for  safety within an expanded
          patient  population  sufficient  to  provide statistically significant
          data.

     In  the case of products with a high risk of toxicity, the initial clinical
trials  are  sometimes conducted in patients with the target disease rather than
in  healthy  volunteers.  Since  these  patients  are already afflicted with the
target disease, it is possible that such clinical trials may provide evidence of
efficacy  traditionally obtained in Phase II clinical trials. We cannot make any
assurances  that  Phase  I,  Phase  II  or  Phase  III testing will be completed
successfully  within any specific time period, if at all, with respect to any of
our  product  candidates.  Furthermore,  the  TGA  and/or the applicable IEC may
suspend clinical trials at any time on various grounds, including a finding that
the  subjects  or  patients  are  being  exposed to an unacceptable health risk.

     All  completed  and  ongoing  PI-88  patient  clinical trials are/have been
conducted  under an active IND application with the FDA, under a CTN application
with the TGA for Australian sites and other health authority jurisdictions where
relevant.

     In  January  2003,  a  Phase  I clinical trial with PI-166 in patients with
unresectable  primary  liver cancer, was initiated at the St. George Hospital in
Sydney,  Australia.  This  Phase I trial is being conducted under a separate CTN
application  with  the  TGA.

     In order to obtain Australian marketing approval for a drug, the results of
the  preclinical studies and clinical trials, together with detailed information
on the manufacture and composition of the product, are submitted to the TGA with
a  request  for  registration  of  the  product  in  the  Australian Register of
Therapeutic  Goods. The TGA may delay approval if applicable regulatory criteria
are  not  satisfied,  require  additional testing or information, and/or require
post-marketing  testing  and surveillance to monitor the safety or efficacy of a
product.  We cannot make any assurances that approval by the TGA will be granted
on  a  timely  basis,  if  at  all. Also, if regulatory approval of a product is
granted,  such  approval  may entail limitations on the indicated uses for which
such  product  may  be  marketed.


                                       34
<PAGE>
     U.S.  Government  Regulation

     FDA  approval  to  market  our  drug products in the U.S. is expected to be
undertaken  by  us  or  in  conjunction  with a commercial partner. The approval
process  of  the  FDA  and  TGA  are  similar, with substantial requirements for
preclinical  research,  conduct  of  clinical  trials,  and  manufacture  of the
product.  Human clinical testing of a new drug requires the submission of an IND
that  must  include  the  results  of  preclinical  studies,  together  with
manufacturing  information  and  analytical data. We cannot make any assurances,
however,  that  submission  of an IND will allow us to commence clinical trials.
Furthermore,  once  trials  have  commenced,  the  FDA  may  stop the trials, or
particular  types of trials, by placing a "clinical hold" on such trials because
of, for example, concerns regarding the safety of the product being tested. Such
holds can cause substantial delay and, in some cases, may require abandonment of
a  product.  In  addition,  in  the U.S., Phase IV clinical trials are conducted
after  approval  by  the FDA to gain additional experience from the treatment of
patients  in  the  intended  therapeutic  indication  and to document a clinical
benefit in the case of drugs approved under accelerated approval regulations. If
the FDA approves a product while a company has ongoing clinical trials that were
not  necessary  for  approval,  a company may be able to use the data from these
clinical  trials to meet all or part of any Phase IV clinical trial requirement.
These  clinical  trials  are  often  referred  to as "Phase III/IV post-approval
clinical  trials."  Failure  to  promptly conduct Phase IV clinical trials could
result in withdrawal of product approval under accelerated approval regulations.

     The  results  of  preclinical  studies  and  clinical trials, together with
detailed  information  on  the  manufacture  and composition of the product, are
submitted  to  the FDA in the form of a New Drug Application, or NDA, requesting
approval  to  market  the product. Before approving an NDA, the FDA will inspect
the  facilities  at  which  the product is manufactured and will not approve the
product  unless  the  manufacturing  facility  is in GMP compliance. The FDA may
delay  an  NDA  if  applicable  regulatory  criteria  are not satisfied, require
additional  testing  or  information,  and/or require post-marketing testing and
surveillance  to monitor the safety or efficacy of a product. We cannot make any
assurances  that  FDA  approval  of any NDA submitted by us will be granted on a
timely  basis,  if at all. Also, if regulatory approval of a product is granted,
such approval may entail limitations on the indicated uses for which the product
may  be  marketed.

     The  FDA  has  implemented  accelerated  review and approval procedures for
therapies  that have been studied for their safety and effectiveness in treating
serious  life-threatening or severely debilitating diseases, and which provide a
meaningful therapeutic benefit to patients over existing treatments. Sponsors of
such  products may request to meet with the FDA-reviewing officials early in the
drug  development  process  to  review  and  reach  agreement  on  the design of
necessary preclinical and clinical studies. We believe that PI-88 may ultimately
qualify for this expedited review and approval process. Depending on the results
of  our  current  PI-88 clinical trial program, some of our later stage clinical
trials  may  be  designed with the objective of securing accelerated approval by
the  FDA. Significant uncertainty exists as to whether, and the extent to which,
accelerated  review  and  approval  will  be  granted.  The  FDA  also  retains
considerable  discretion  in  determining eligibility for accelerated review and
approval  and  is  not  bound by discussions that an applicant may have with FDA
staff.  Accordingly, the FDA could employ such discretion to deny eligibility of
PI-88  as  a  candidate  for  accelerated  review or require additional clinical
trials or other information before approving PI-88. In addition, the approval of
a  product  under  the  expedited  approval  procedures  is  subject  to various
conditions,  including  the  requirement  to  verify  clinical  benefit  in
post-marketing


                                       35
<PAGE>
studies  and  the  authority  on  the part of the FDA to withdraw approval under
streamlined  procedures if such studies do not verify clinical benefit, or under
various  other  circumstances. We cannot predict the ultimate impact, if any, of
the new approval process on the timing or likelihood of FDA approval of PI-88 or
any  of  our  other  potential  products.

     We are currently conducting several Phase II clinical trials of PI-88 under
our IND with the FDA and separate CTN applications with the TGA. We may seek FDA
and  TGA  approval  for  independent  Phase  II trials of PI-166 in the U.S. and
Australia  upon  successful  completion  of  the  Phase I trial in Australia. We
cannot  make  any  assurances that our submissions to the FDA or the TGA will be
successfully  reviewed,  that  the  requisite  approvals  will  be granted, that
accelerated  approvals  will  apply,  or  that  later stage clinical trials will
commence.

     Orphan Drug Status

     PI-88, our lead product candidate, has been designated as an orphan drug by
the FDA for treatment of high risk Stage II, Stage III and Stage IV melanoma. If
our  other  product  candidates  meet the criteria, we may also apply for orphan
drug  status  for  such  product  candidates.

     The  FDA  may  grant  orphan  drug status to drugs intended to treat a rare
disease  or  condition,  which  is generally a disease or condition that affects
fewer than 200,000 individuals in the United States. Orphan drug status does not
convey  any  advantage in, or shorten the duration of, the regulatory review and
approval process, and the FDA may grant orphan drug status to multiple competing
product  candidates  targeting  the  same  indication.  A  product that has been
designated  as  an orphan drug that subsequently receives the first FDA approval
for  the  indication  for  which it has received such designation is entitled to
orphan  drug  exclusivity  and the FDA may not approve any other applications to
market  the  same  drug  for  the  same  indication,  except  in  very  limited
circumstances,  for seven years from the date of FDA approval. An orphan product
may  also be eligible for a credit against United States tax of certain clinical
testing  expenses  related to the use of a drug for a rare disease or condition.

PATENT RIGHTS; LICENSES AND PROPRIETARY TECHNOLOGY

GENERALLY

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

     -    Obtain  patents  to  protect  our  own  products;

     -    Obtain  licenses  to  the  patented  technologies  of  third  parties;

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

     -    Protect  our  trade  secrets  and  know-how.

     For  a  discussion  of  the  risks  and  uncertainties  associated with our
intellectual property position, see "Risk Factors - Our success depends upon our
ability  to  protect  our intellectual property and our proprietary technology."


                                       36
<PAGE>
     PATENTS

     The  Company's  policy  is  to protect and defend the intellectual property
associated  with  its  technology  and  products,  principally  through  patent
protection.

     We  own  or  have  exclusive rights to 15 patent families, incorporating 25
granted  patents  and  60  filed  applications.

     The  most  material  of  these  patents  and  patent  applications  being:

     -    PI-88 -  Composition  of  matter  and  method  of  use patent families
          have  been granted in countries including the U.S., Australia, Taiwan,
          China, South Africa and New Zealand. Further, the PI-88 composition of
          matter  patent  application  has  been accepted in Canada and filed in
          countries  including Europe and Japan. The PI-88 composition of matter
          patent  expires  in  2016.

     -    Angiogenesis  Inhibitory  antibodies  -  This  patent  describes  an
          antibody  and  the  use  of  this  antibody  for  the  inhibition  of
          angiogenesis.  More  specifically  the  antibody,  being  a monoclonal
          antibody  is  specific  to  proliferating human endothelial cells. The
          specification  also  sets  forth a method of producing the antibody by
          hybridoma  culture.

     The  availability  and  breadth  of  claims  allowed  in  biotechnology and
pharmaceutical  patents is highly uncertain and generally involves complex legal
and  factual questions. We cannot make any assurances that any of our pending or
future  patent applications will be approved, or that we will develop additional
proprietary  products  or  processes, or be able to license any other patentable
products  or  processes. We also cannot make any assurances that others will not
independently  develop  similar  products  or  processes,  duplicate  any of the
products  or  processes  developed  or  being developed by 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, patents
held  by  third  parties  may  prevent  the  commercialization  of  products
incorporating  the  technology developed by or licensed to us, and third parties
may  challenge  or  seek  to  narrow, invalidate or circumvent any or all of the
issued,  pending  or  future  patents  owned  or  licensed  by  us.

     If  it  were determined 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 make any assurances that the
licenses required under patents held by third parties would be made available to
us  on  acceptable  terms, 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.

     We  also  believe  that  because of the differences in patent laws, foreign
patents,  if  obtained,  and the protection afforded by such foreign patents and
foreign  intellectual property laws may be more limited than that provided under
Australian  or United States patents and intellectual property laws. Litigation,
which could result in substantial costs and diversion of effort on our part, may
also  be  necessary  to  enforce  any  patents  issued  or  licensed to us or to
determine  the scope and validity of third party proprietary rights. We may have
to  participate  in  opposition  proceedings  before  the


                                       37
<PAGE>
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 the 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 have a material adverse effect on
our  business,  financial  condition  and  results  of  operations.

     LICENSES

     PI-88.  We have an exclusive worldwide license from the Australian National
     -----
University  in  Canberra,  Australia,  to  five  families  of patents and patent
applications  relating  to  PI-88,  our  sulfated  oligosaccharide  heparanase
inhibitor.  Our  license rights terminate on November 4, 2018 or ten years after
the  expiration of the last patent related to the PI-88 technology, whichever is
later.  Our  license  with the Australian National University requires us to pay
the  University  a  portion  of PI-88 related payments that we receive including
royalties  on sales of PI-88 as well as on any fees we receive from sublicensing
this  technology. In addition we are the assignee to a sixth patent application.

     PI-166.  We also have an exclusive worldwide license from the University of
     ------
New  South  Wales  in  Sydney,  Australia,  to PI-166, a novel drug and delivery
technology  that  is a potential new therapy for the treatment of hepatocellular
carcinoma  (primary liver cancer). Our license rights terminate on expiration of
the  last patent forming part of the technology or, if no patent issues, in 2012
with  an  option  to  extend  until 2022. Our license with the University of New
South  Wales requires us pay the University a portion of PI-166 related payments
that  we receive including royalties on sales of PI-88 as well as on any fees we
receive  from  sublicensing  this  technology.

     Drug Discovery Technology. We also have an exclusive worldwide license from
     -------------------------
the  Australian  National  University  to  our  patent  application covering the
synthesis  of potential drug intermediaries. Our license rights terminate at the
expiration  of  the last patent related to the synthesis technology. Our license
with the Australian National University requires us pay the University a portion
of  product  related  payments  that  we receive including royalties on sales of
products arising from the synthesis technology as well as on any fees we receive
from  sublicensing  this  technology,  and  to  make  periodic  payments  on the
achievement  of  certain  milestones.

     PROPRIETARY  TECHNOLOGY

     In  addition  to patent protection, we rely on unpatented trade secrets and
know-how  and  proprietary  technological innovation and expertise, all of which
are  protected  in  part  by confidentiality and invention assignment agreements
with our employees, advisors and consultants. We cannot make any assurances that
these  agreements  will not be breached, that we will have adequate remedies for
any  breach,  or  that our unpatented proprietary intellectual property will not
otherwise  become  known  or  independently  discovered  by competitors. We also
cannot  make  any  assurances  that persons not bound by an invention assignment
agreement  will  not  develop  relevant  inventions.


                                       38
<PAGE>
COMPETITION

     Drug  Development

     We  face  competition  in  each  of  our  target  product  markets.  The
pharmaceutical  and biotechnology industries are also intensely competitive. Our
anti-cancer  pharmaceutical  product  candidates would be subject to significant
competition  from  existing  drugs  and  therapies, as well as from products and
therapies  utilizing  alternative  or  similar  technologies.  There  are  many
pharmaceutical  and  biotechnology  companies,  and  public and private academic
institutions  and  research  organizations  actively engaged in the research and
development  of alternative products and therapies for the treatment of diseases
that  we have targeted for product development. Many of these organizations have
greater  financial,  technical,  manufacturing  and  marketing  resources.

     We  are  aware  of certain products that are being developed by competitors
that  modulate  tumor-related  angiogenesis,  including  heparanase  inhibitors,
FGF-2,  VEG-F  and  other  signal  protein inhibitors, and inhibitors of certain
matrix  metalloproteases,  a family of enzymes known to be involved in processes
through which tumors invade tissues, metastasize and grow. Other competitors are
developing  technologies  that  interfere with cancer cells directly. Several of
these  product  candidates  are  in advanced stages of clinical trials and being
marketed.  Competitors  that  are  marketing products or developing technologies
that compete with PI-88, our lead oncology product candidate, include Genentech,
Inc., EntreMed, Inc., Imclone Systems, OSI Pharmaceuticals, Eyetech Corporation,
Bayer  Pharmaceuticals  Corporation,  Genaera  Corporation, Genzyme Corporation,
MedImmune  Inc.,  Pfizer  Inc., Novartis AG and Celgene Corporation. We are also
aware  of several agents that are being developed by others for the treatment of
hepatocellular  carcinoma  thereby  competing  with  PI-166. These agents are in
various  stages  of  clinical  development  and comprise small synthetic organic
molecules  and  biologicals,  as  well as targeted radiotherapy and hyperthermia
treatments.  These companies include Maxim Pharmaceuticals, Onyx Pharmaceuticals
and  SIRTeX  Medical.

     Some of our competitors may succeed in developing products earlier than us,
obtain governmental approvals more rapidly than us, or develop products that are
safer and more effective than those under development by us. Other companies may
also  develop  products  or  therapies  that  render our technology and products
obsolete or non-competitive. We also cannot make any assurances that any therapy
developed  by  us  will  be  preferred  to  any  existing  or  newly  developed
technologies.  Some of our competitors may succeed in developing treatments that
are  superior  to  any  therapy  or  product  developed  by  us.  Our ability to
successfully  compete  with  these  and  other  companies  will also depend to a
considerable  degree on the continuing availability of capital to us, as well as
our  ability  to  recruit  and  retain highly qualified scientific personnel and
consultants,  and  to  compete  with the established manufacturing and marketing
capabilities  of  our  competitors.

     Contract  Manufacturing

     Our  contract  manufacturing  division's  clients  are  mostly  from  the
Australasia  region  with  a  limited  number  also  from  the  United  States.
Competitors  offering  a  similar  service  or  facility  to us within Australia
include  BresaGen  Ltd. and CSL Ltd. Our ability to compete with these and other
companies  located  elsewhere  in the world will depend on our ability to remain
cost  competitive  and  to  recruit  and  retain  qualified  personnel.


                                       39
<PAGE>
ITEM  4.D.     PROPERTY,  PLANTS  AND  EQUIPMENT

     Our  principal  offices  are  located  in  Toowong,  a  suburb of Brisbane,
Queensland,  Australia.  We  maintain  and  operate  an  11,200  square  foot
fully-integrated  pharmaceutical  raw  material manufacturing facility in Darra,
also a suburb of Brisbane, Queensland, Australia. Our manufacturing facility has
the  capability  to  develop  and manufacture therapeutic products for worldwide
markets  and  consists  of  15  modular  laboratories,  each  with  a designated
function. There are two independent and eight integrated laboratory modules that
comply  with the Code of Good Manufacturing Practice, or cGMP, and five non-cGMP
laboratory  modules.  The  cGMP  laboratory  modules  have  specific  functions
including  media preparation, cell culture, fermentation, harvest, purification,
pack  and  fill,  and bioprocessing. The non-cGMP laboratories have functions in
fermentation,  research  and  development,  and  analytical  services  covering
microbiology,  biochemistry,  protein  and carbohydrate analysis and processing,
and  quality  control  testing.

     The  facility  is  used  to  manufacture  a  range  of biological products,
including  PI-88 active ingredient and preparation of PI-166 for preclinical and
clinical trials. It is equipped for the genetic manipulation of micro-organisms,
cell  culture,  small  and  large-scale  fermentation  of  micro-organisms,
purification  and  downstream processing, freeze-drying, and sterile packing and
filling.

     Our  manufacturing facility is licensed by the Australian Therapeutic Goods
Administration,  or  TGA,  for  the  manufacture  of  biological-based  starting
materials  for human therapeutics to cGMP standards and by the Australian Office
of  Gene  Technology  Regulator  for  the manufacture of large scale genetically
modified  organisms.  The TGA regulates the manufacture of compounds intended as
starting materials for human therapeutics. In addition, the facility is licensed
by the Australian National Registration Authority for manufacture of sterile and
immunobiological  veterinary  products  to  cGMP standards and by the Australian
Quarantine  and  Inspection  Service  as  a  quarantine  facility.

     The  buildings  in which our principal offices and manufacturing facilities
are located are both leased. The lease agreement on our corporate offices is for
a  three  year  period beginning December 15, 2005 with an option to lease for a
further  three  years.  Rental is approximately $98,000 per annum, subject to an
annual  increase  based  on  the  movement  in  the  consumer price index or 4%,
whichever  is  higher.

     The lease agreement on our manufacturing facility expires in March 2007, we
pay  a  current  rental  of  approximately  $78,000 per annum, subject to annual
review,  based on the movement in the consumer price index. We have an option to
extend  this  lease  for  a  further  two  years.


                                       40
<PAGE>
ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS

     The  following  discussion  and analysis should be read in conjunction with
our financial statements and the related notes included elsewhere in this annual
report.

     This  discussion  may  contain  forward-looking statements based on current
expectations  that  involve  risks and uncertainties. Our actual results and the
timing  of  selected  events  could  differ materially from those anticipated in
these forward-looking statements as a result of several factors, including those
set  forth  in  "Item  3. Key Information - Risk Factors" above and elsewhere in
this  annual  report.

OVERVIEW

     We  are  an  Australian-based,  globally  focused,  biotechnology  company
committed  to the discovery, development and commercialization of small molecule
therapeutics  for  the  treatment  of  cancer  and  other  serious  diseases.

     We  have  two cancer product candidates are PI-88 and PI-166 under clinical
development.  PI-88,  our lead candidate, is currently being trialed in multiple
Phase  II  clinical trials for solid cancer tumors. Following a meeting with the
FDA  in April 2006 we have plans to accelerate the development of PI-88. The FDA
recommended  that  we  submit  a Special Protocol Assessment (SPA) detailing the
Phase III clinical development plan to support regulatory approval. Depending on
the trial results of our current Phase II HCC program we will advance to a Phase
III  HCC  program  commencing  in  mid  2007.

     PI-166,  our  second  oncology product candidate, is in a Phase Ib clinical
trial  for  unresectable  primary  liver  cancer.

     Our  drug  discovery  research  program  has  identified  a  portfolio  of
therapeutic  targets  that  play key roles in cancer and other serious diseases,
and  we  are  designing,  synthesizing  and  screening  small molecule compounds
directed  at  these  targets.  This  research program was partially funded by an
AusIndustry  START  grant  until June 2005. In August 2005 we were successful in
being awarded a further AusIndustry grant known as a Commercial Ready Grant that
will continue to partially fund this program for the three years to August 2008.

     We  operate  a  cGMP  certified  pilot manufacturing facility that provides
contract  manufacturing  services to the biotechnology industry earning revenues
on  a fee for service basis. The facility manufactures PI-88 and prepares PI-166
for  all  clinical  trials  to  date.

     As  part  of our focused strategy toward drug discovery and development, we
divested  our  life  sciences  division  in  November  2003 and intend to pursue
selective  strategic  alliances to complete product development and register our
product  candidates.

     We  have incurred significant losses since our inception and as of June 30,
2006,  our  accumulated  deficit  was  approximately  $48.7 million. We devote a
substantial  portion  of  our


                                       41
<PAGE>
financial resources to fund the development of our two cancer product candidates
and our drug discovery research efforts. We expect to incur additional operating
losses  for  at least the next several years as we accelerate our drug discovery
research  and  conduct  additional  clinical  trials  with PI-88 and PI-166, and
advance  into later stages of development. We may need to raise additional funds
in  the  future  to  continue  our  operations.

     Our  operations  have historically been financed by the issuance of capital
stock  because  it  is  generally  difficult to fund pharmaceutical research via
borrowings  due  to  the  lack  of  revenues to service debt and the significant
inherent  uncertainty  as  to  results  of this research and the timing of those
results.

CRITICAL ACCOUNTING POLICIES

     The following discussion and analysis of our operating and financial review
and  prospects are based upon our financial statements, which have been prepared
in  accordance  with  U.S.  generally  accepted  accounting  principles.  These
accounting  principles require us to make certain estimates and assumptions that
can  affect the reported amounts of assets and liabilities as of the date of the
financial  statements,  as  well as the reported amounts of revenue and expenses
during  the  periods  presented.  Based  on  the  nature  of our operations, our
accounting  policies  do  not  require  difficult,  subjective or highly complex
judgments  and  therefore  our  reported  amounts  are  not  subject to material
variation  based  on changes in assumptions. Our significant accounting policies
are  described  in  Note  1  to  the  financial  statements.

DISCONTINUED  OPERATIONS

     On  November  11,  2003,  we  entered  into an agreement to divest our Life
Sciences  business.  This sale was consummated on November 28, 2003. The results
of  operations  for  the  2004  fiscal years from our Life Sciences business are
presented  in  the  statement  of  operations  as  discontinued  operations.


                                       42
<PAGE>
ITEM 5.A.     OPERATING RESULTS

     YEARS ENDED JUNE 30, 2006, 2005 AND 2004

     The functional currency for the Company's operations is Australian dollars.
The  translation  from  Australian  dollars  into  U.S. dollars is performed for
balance  sheet  accounts using current exchange rates in effect at balance sheet
date and for revenue and expense accounts using the average exchange rate during
the  period.

     The  following  table  shows  the  movement  in  the average exchange rates
between  fiscal  2004 and 2005, and fiscal 2005 and 2006. These average exchange
rates  have been used to translate Australian dollar revenue and expense amounts
into  U.S.  dollars.

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------
                                                             YEARS ENDED JUNE 30,
----------------------------------------------------------------------------------------
                                                            2004       2005         2006
------------------------------------------------------  --------  ---------  -----------
<S>                                                     <C>       <C>        <C>
Average Australian dollar to U.S. dollar exchange rate  $0.71385  $0.75352   $  0.74783
------------------------------------------------------  --------  ---------  -----------
Movement in exchange rate from prior year                         $0.03967   $ (0.00569)
------------------------------------------------------  --------  ---------  -----------
% movement in exchange rate from prior year                            5.6%       (0.8%)
----------------------------------------------------------------------------------------
</TABLE>

     Revenue  from  Operations

     Our  revenue from sales and provision of services for fiscal 2004, 2005 and
2006  is  as  follows  (in  thousands):

<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
                                                             YEARS ENDED JUNE 30,
------------------------------------------------------------------------------------
                                                             2004    2005       2006
---------------------------------------------------------  ------  ------  ---------
<S>                                                        <C>     <C>     <C>
Sale of life science research products                     $1,097  $    -  $       -
---------------------------------------------------------  ------  ------  ---------
Revenue from provision of contract manufacturing services   1,394   1,076        677
---------------------------------------------------------  ------  ------  ---------
TOTAL REVENUE FROM SALES AND PROVISION OF SERVICES         $2,491  $1,076  $     677
------------------------------------------------------------------------------------
</TABLE>

     With the disposal of our Life Sciences division in November 2003 we derived
all of our revenues solely from the provision of contract manufacturing services
in  fiscal  years  2005  and  2006.

     For the year ending June 30, 2004 we derived revenue from the following two
sources:

     -    The  sale  of  life  science  research  products;  and
     -    The  provision  of  contract  manufacturing  services

     For  the  fiscal  year  ended  June  30,  2006  revenues  from  contract
manufacturing  services  decreased  $399,000 to $677,000 a decline of 37.1% from
the  prior  year. This is primarily due to the manufacturing division's priority
being the optimization and validating the PI-88 manufacturing process along with
manufacturing  sufficient  quantities  of  PI-88 for our clinical trial needs. A
manufacturing  contract,  from which we derived $425,000 in revenue for the year
ended  June  30,  2005,  was  cancelled  part  way through that year. Due to the
manufacturing  division's  focus  being on PI-88 this contract was not replaced.


                                       43
<PAGE>
     For the fiscal year ended June 30, 2005 total sales decreased $1,415,000 to
$1,076,000  a  decline  of 56.8% from the prior year. In the prior year the Life
Sciences  division  contributed $1,097,000 to operating revenues. Excluding Life
Science,  operating  revenues  were  down  by $318,000, or 22.8% year on year to
$1,076,000.  As  in  the current fiscal year this decline is attributable to our
Contract Manufacturing division concentrating on the production of PI-88 for our
clinical  trial  program  over  the  pursuit  of  external  revenue  generating
contracts.

     Due  to  the  completion  of  PI-88  scale-up and optimization work we have
recently  recommenced  actively  pursuing  manufacturing contracts from external
customers.  Whilst  we  cannot  be  certain  that  we will be able to secure new
manufacturing  contracts  we  expect  an increase in revenues in the fiscal year
ended  June  30,  2007  from  the  Manufacturing  division.

     We ultimately expect to derive additional revenue from the out-licensing of
our  product  candidates  currently  under  development  in return for milestone
payments  and  royalties  on  commercial  sales.

     Research and Development Expenses

     Our  research  and development expenses for compounds under development and
discovery  are  as  follows  (in  thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------
                                             YEARS, ENDED JUNE 30
--------------------------------------------------------------------
                                              2004    2005      2006
-----------------------------------------  -------  ------  --------
<S>                                        <C>      <C>     <C>
PI-88                                      $ 1,155  $1,029  $  1,157
-----------------------------------------  -------  ------  --------
PI-166                                          46      63        47
-----------------------------------------  -------  ------  --------
Drug discovery                               1,294   1,064     1,251
-----------------------------------------  -------  ------  --------
General research and development expenses      566     556       697
-----------------------------------------  -------  ------  --------
TOTAL RESEARCH AND DEVELOPMENT EXPENSES    $ 3,061  $2,712  $  3,152
--------------------------------------------------------------------
</TABLE>

     Costs  for  PI-88 and PI-166, our two oncology compounds under development,
include  external  direct  costs  in relation to the conduct of long-term animal
toxicity  studies  and  Phase  I and II clinical studies. Examples of such costs
include  principal  investigators fees, patient recruitment fees, patient scans,
data monitoring charges as well as our personnel costs for preclinical, clinical
and  regulatory  activities  associated  with  preparing  these  compounds  for
registration  with  the  FDA  and  TGA or similar agencies. Drug discovery costs
include  our  personnel and associated costs incurred in relation to this effort
as  well  as external sponsored research costs. General research and development
expenses include research and development management personnel costs and general
laboratory  costs  that  cannot  be allocated to a specific compound or our drug
discovery  effort.  Prior to July 1, 2000, our accounting records did not record
research  and development costs by project. Since July 1, 2000 cumulative direct
external  costs  incurred  on  PI-88,  PI-166 and drug discovery are $5,905,000,
$220,000  and  $5,726,000  respectively.

     The  current  year's investment in our research and development initiatives
increased  16.2%  from  the  prior  year  to  $3,152,000  primarily  due  to the
following:
     -    Expenditure  incurred  in  preparing  for  potential  PI-88  Phase III
          development  including,  regulatory  and  additional  animal  studies
          ($276,000),  a  project  to  put  in  place  appropriate


                                       44
<PAGE>
          chemistry,  manufacturing  and  control  procedures  in  relation  to
          the  Phase  III  manufacture  of  PI-88  ($195,000)  and  a project to
          scale-up  and  optimize the first step of the manufacturing process of
          PI-88  to  enable  the  Company  to  manufacture  sufficient Phase III
          quantities  of  this  material  ($98,000).
     -    Net expenditure  increasing  $136,000  year-on-year  on  our  PI-88
          Phase  II trial in combination with the chemotherapy agent dacarbazine
          in patients with metastatic melanoma. This trial commenced in May 2005
          and  during  the  course of the year we completed recruitment into the
          lead-in phase. This trial is being co-funded by our strategic alliance
          partners,  Medigen Biotechnology Corporation. During the course of the
          year  they  contributed  $186,000  to the costs of running this trial;
     -    Net expenditure  on  our  drug  discovery  program  increased $187,000
          year  on  year  primarily due to an increased head-count following the
          award  of  the  AusIndustry  Commercial  Ready  grant.  This  grant
          contributed $569,000 to the costs incurred in relation to this program
          during  the  financial  year  ended  June  30,  2006.

Somewhat  off-setting  the  above  increases  in expenditures were the following
decreases:
     -    Expenditure  on  our  PI-88  Phase  II  mono-therapy  trial  with
          patients  with  advance  melanoma  decreasing  $286,000  as this trial
          completed  during  the  prior  reporting  period;
     -    Expenditure  on  the  PI-88  Phase  II  mono-therapy  trial  with
          patients  with  advanced  melanoma  decreasing  $144,000  as  patient
          recruitment  concluded  in  February  2006;

     In  fiscal  2005 the investment in our research and development initiatives
decreased  by  $304,000  or  9.9%  to $2,757,000 primarily due to the following:
     -    Expenditure  on  our  PI-88  clinical  development  program decreasing
          $81,000  to  $1,074,000  due  to the completion of patient recruitment
          into  the  Phase I/II trial in patients with advanced melanoma and the
          Phase  I  trial at the University of Colorado Cancer Center in Denver,
          Colorado, in combination with docetaxel (Taxotere) during fiscal 2004.
          This  was  off-set somewhat by an increase in expenditure on the Phase
          II  trial  in  patients  with  non-small  cell  lung  cancer due to an
          increase  in  patient recruitment and the commencement of the Phase II
          trial  in  patients  with  advanced  melanoma  in  combination  with
          dacarbazine.
     -    Expenditure  on  our  drug  discovery  program  declined  $230,000
          primarily  due  to  the  sponsored research contract with the Griffith
          University  glycomics  program  having  completed  during fiscal 2004.

     We  expect our research and development expenses to increase in fiscal 2007
primarily  due  to  costs  currently  being incurred in planning for a Phase III
trial  of  PI-88  in  post-resection  HCC.  This  trial is currently expected to
commence  in mid calendar year 2007. The additional costs being incurred include
additional  long-term  animal toxicity studies and the manufacture of sufficient
doses  of  PI-88  for  our  Phase  II  and  III  clinical  trial  needs.

     Our  lead  drug  candidates, PI-88 and PI-166 are currently in Phase II and
Phase  I  clinical trials respectively. Many drugs in human clinical trials fail
to  demonstrate  the  desired  safety  and efficacy characteristics. Even if our
drugs  progress  successfully  through  initial  human testing, they may fail in
later  stages  of  development.  Regulatory agencies, including the FDA and TGA,
regulate  many  aspects  of a product candidate's life cycle, including research
and  development  and  pre


                                       45
<PAGE>
clinical  and  clinical  testing.  We  or the regulatory authorities may suspend
clinical trials at any time on the basis that the participants are being exposed
to  unacceptable  health  risks. Completion of clinical trials depends on, among
other  things,  the  number of patients available for enrollment in a particular
trial,  which  is  a  function  of  many factors, including the availability and
proximity  of  patients with the relevant condition. We rely on third parties to
conduct  clinical  trials,  which  may  result in delays and failure to complete
trials  if  the  third parties fail to perform or meet applicable standards. Our
drug  discovery  efforts  are  still  in  the  research  phase  and have not yet
commenced pre-clinical development, which means they have not yet been tested on
humans.  We  will need to commit significant time and resources to develop these
product  candidates.

     Our  products  will  only  be  successful  if:

     -    our product  candidates  are  developed  to  a  stage that will enable
          us  to  commercialize  them  or  sell  related  marketing  rights  to
          pharmaceutical  companies;

     -    we are  able  to  commercialize  product  candidates  in  clinical
          development  or  sell  the  marketing  rights  to  third  parties; and

     -    our  product  candidates,  if  developed,  are  approved.

     We  depend on the successful completion of these goals in order to generate
significant  revenues.  We  also  enter  into  collaboration  agreements for the
development  and  commercialization of our product candidates. We cannot control
the  amount  and  timing  of  resources  our  collaborators  devote  to  product
candidates,  which  may also result in delays in the development or marketing of
our  products.

     Because of these risks and uncertainties, we cannot accurately predict when
or  whether  we  will  successfully  complete  the  development  of  our product
candidates  or  the  ultimate  product  development  cost.

     Without revenue generated from commercial sales, we anticipate that funding
to  support  our  ongoing  research,  development  and  general  operations will
primarily  come  from  public  equity financings, collaborations, milestones and
licensing  opportunities  from  future  collaborations.

     Rentals on Operating Leases

     Rentals on operating leases increased 81.4% over 2005 to $166,000 in fiscal
2006 as we relocated our corporate offices due to space constraints at our Darra
manufacturing  facility.  We  expect rentals and associated occupancy costs will
increase  marginally  in  fiscal  2007  as we entered the lease on the corporate
offices  part  way  through  fiscal  2006.

     Selling, General and Administrative Costs

     Selling,  general  and administrative expenses decreased $74,000 or 2.5% in
fiscal  2006  to  $2,880,000  compared  with  $2,954,000  for  fiscal  2005  and
$2,617,000  for  fiscal  2004.  In  Australian dollars (the Company's functional
currency) the decrease in selling, general and administrative expenses was 1.7%.


                                       46
<PAGE>
     Selling,  general  and  administrative costs increased $337,000 or 12.9% in
fiscal  2005  to  $2,954,000  compared  with  $2,617,000  for  fiscal  2004.  In
Australian  dollars (the Company's functional currency) the increase in selling,
general and administrative expenses was 6.9%. This increase was primarily due to
the  following  factors:  an increase of $61,000 in fees paid to consultants and
advisors  with  the  appointment of a clinical and regulatory consultant, and an
advisor  to  assist  with  out-licensing  PI-88;  an  increase  of  $85,000  in
remuneration  paid  to  executive  and  non-executive  directors; an increase of
$29,000  in  stock  exchange  listing  fees  and  share registry fees due to the
issuance of additional ordinary shares, and an increase of $24,000 in travel and
accommodation  expenditure  incurred  on  attending  conferences  and  meetings
associated  with  our  efforts  to  out-license  PI-88.

     We  expect  selling, general and administrative costs to increase in fiscal
2007  as  we  have  engaged  consultants  to  assist with planning the Phase III
clinical  development  of  PI-88.

     Other Costs of Operations

     Other  costs  of  operations  increased $301,000 to $698,000 in fiscal 2006
following  an increase of $318,000 in fiscal 2005 over fiscal 2004.  These costs
are  the  un-recovered overheads of our Contract Manufacturing division that are
not  recovered  against  cost of external sales and increased in fiscal 2006 and
2005, as contract manufacturing revenues decreased with the division focusing on
the  optimization  and  scale-up  of  the  PI-88  manufacturing  process.

     The  costs  are  primarily  salaries  and wages, and overheads of our Darra
manufacturing  facility that are not allocated to research and development costs
or  cost  of  sales.

     Depreciation expense

     Depreciation  expense  decreased  $31,000  in  fiscal  2006  to  $398,000.
Depreciation  expense  decreased  $35,000  in  fiscal  2005  from fiscal 2004 to
$429,000.  These decreases in depreciation are  due primarily to assets becoming
fully depreciated. Depreciation expense is expected to decline further in fiscal
2007 as assets continue to be fully depreciated and depreciation on our recently
acquired  plant  and  equipment  and  estimated  future  capital  expenditure
requirements  will  not  be  sufficient  to  off-set  that  decline.

     Other  Income  (Expenses)

     We  realized  total  net other income of $1,423,000 in fiscal 2006 compared
with  $1,257,000 in fiscal 2005 and $1,079,000 in fiscal 2004. The components of
Other  Income  (Expenses)  as  shown  in  our  statements of operations included
elsewhere  in  this  annual  report  are  (in  thousands):

<TABLE>
<CAPTION>
------------------------------------------------
                        YEARS ENDED JUNE 30,
------------------------------------------------
                       2004     2005        2006
------------------  -------  -------  ----------
<S>                 <C>      <C>      <C>
Interest income        475      618         824
------------------  -------  -------  ----------
Interest expense       (12)     (13)        (11)
------------------  -------  -------  ----------
Grant income           596      578         569
------------------  -------  -------  ----------
Other income            20       74          41
------------------  -------  -------  ----------
TOTAL OTHER INCOME  $1,079   $1,257   $   1,423
------------------------------------------------
</TABLE>


                                       47
<PAGE>
     Interest  income  received varies from year to year depending on the amount
of  cash  we  have  available to invest and the interest rate prevailing at that
time. The Company raised an additional net $11.0 million from the sale of equity
during  fiscal  2005,  this significantly increased the total funds available to
invest in fiscal year 2006. As a result interest income received increased 33.3%
to  $824,000.

     Grant  income  relates  to  the  funding  we receive for our drug discovery
program under the AusIndustry START and Commercial Ready grants. The AusIndustry
START  grant  expired  on  June  30, 2005. We applied, and were granted, another
AusIndustry  grant  known  as  a  Commercial  Ready  grant that will continue to
partially  fund  our drug discovery program for the three years beginning August
2005.  Grant  income in the 2004 and 2005 financial years was received under the
START  grant,  whereas  the  2006 grant income was received under the Commercial
Ready  grant.  Both  grants  are  based  on  a  50%  re-imbursement  of eligible
expenditure, and therefore are directly related to level of expenditure incurred
on  this  program.  Grant  income  fell $9,000 in fiscal 2006 as the Start grant
completed  on  June  30, 2005 and the Commercial Ready grant commenced in August
2005  resulting  in less than 11 months of program expenditures being claimable.

     Income  received from the Start grant fell $18,000 in fiscal 2005 a drop of
3%  due to a decrease in program expenditure. We expect grant income to increase
slightly  over  the levels of the last two fiscal years as we expect expenditure
on  this program to increase. As with the START grant the Commercial Ready grant
is  based  on  a  50% re-imbursement of eligible expenditure. The amount of this
grant  is  capped  at  A$3.39  million.

     In fiscal 2007 we expect to derive rental income from sub-letting part of
our corporate offices as we recently entered into a sub-lease contract.

     Income  Taxes

     As  at  June  30, 2006, we had net tax loss carry forwards of approximately
$57.4 million, resulting in a deferred tax asset of approximately $17.4 million.
We  had  net tax loss carry forwards of $54.5 million as at June 30, 2005. Since
re-coupment  of  the  carried  forward  tax  loss is not more likely than not, a
valuation  allowance  has  been  established  to offset in full the deferred tax
asset  resulting  in  a  net  deferred  asset  of  $nil.

ITEM 5.B.     LIQUIDITY AND CAPITAL RESOURCES

     Cash  and cash equivalents held as at June 30, 2006, 2005 and 2004 amounted
to  $11.6  million,  $17.9  million  and  $9.9  million  respectively.


                                       48
<PAGE>
     Sources of Liquidity

     Since  inception,  we have financed our operations primarily through public
and  private  sales of equity securities totaling approximately $60.0 million in
net  proceeds.  As  at  June  30,  2006,  cash  and  cash  equivalents  totaled
approximately  $11.6  million  and consisted primarily of highly liquid interest
bearing  investments, typically bank bills and investment grade commercial paper
with maturities of three months or less. Investments are made in accordance with
a  Board  approved  Investment  Policy. We believe that these investments do not
constitute any material market risk exposure. All cash and cash equivalents held
at  June  30,  2006  were  in  Australian  dollars.

     Cash Flows from Operating Activities

     We  expended approximately $4.9 million in cash and cash equivalents during
the  twelve  months ended June 30, 2005 to finance our net operating activities.
This  compares  to  $4.0  million  and  $3.8  million  fiscal  2005  and  2004,
respectively.  The  increase  of  $900,000  in  net  cash  expended on operating
activities  in  fiscal  2006 over fiscal 2005 was primarily due to receipts from
customers declining $470,000 with the decline in contract manufacturing revenues
and  a  $592,000  increase in payments to suppliers and employees, off-set by an
increase  in interest receipts of $193,000. The increase in net cash expended on
operating  activities  in  fiscal 2005 over fiscal 2004 was primarily due to the
Life  Sciences  division  contributing  positive  cash flows in fiscal 2004. The
disposal  of the Life Sciences division during fiscal 2004 reduced both receipts
from  customers  and  payments  to  suppliers  and  employees  in  fiscal  2005.

     Cash  Flows  from  Investing  Activities

     In  fiscal  2006  and 2005 cash out-flows from investing activities totaled
$849,000  and  $157,000  respectively.  The  increase  in fiscal 2006 related to
primarily  to  items  of  plant  &  equipment  purchased  to  scale-up the PI-88
manufacturing  process.  In  fiscal  2004 net cash from investing activities was
positive,  and  totaled  $721,000,  due  to  proceeds  from the sale of the Life
Sciences  division.

     Cash  Flows  from  Financing  Activities

     Net  cash  provided  by  financing activities in 2006 of $75,000 relates to
proceeds  from  the exercise of employee options. Net cash provided by financing
activities in 2005 of $11.0 million reflected the receipt of $4.9 million in net
proceeds  through the exercise of bonus options granted to our shareholders on a
one for eight pro rata basis in November 2003; $1.9 million in net proceeds from
an  Australian  placement  to  institutional  investors  being  the shortfall of
options  not exercised by the expiry date of May 31, 2005; and $4.2 million from
the  exercise  of options granted to directors, employees and advisors. Net cash
provided  by  financing activities in 2004 of $4.7 million included $3.6 million
in net proceeds under an Australian placement to institutional and sophisticated
investors  and $1.1 million from the exercise of options granted to shareholders
and  directors  and  employees  in  November  2003.

     Funding  Requirements

     We  currently  have  no  material  commitments  for  capital  expenditures.

     We  expect to incur substantial future commitments in light of our oncology
clinical  program


                                       49
<PAGE>
and  our  drug  discovery  program.  We  are  presently  funding  three Phase II
multi-center clinical trials of PI-88 and one Phase Ib clinical trial of PI-166.
We have plans to commence a Phase III multi-center, multi-country clinical trial
of  PI-88  in  post-resection  HCC  patients  within  the  next  12  months.

     Excluding  the costs of a PI-88 Phase III clinical trial we expect to incur
net costs of $2.35 million over the next two years on our current PI-88 clinical
development  program  by  which  time all current trials are anticipated to have
completed.  In  addition we expect to incur $113,000 on our current PI-166 Phase
Ib  trial.

     We  are  currently planning a Phase III clinical trial, including the trial
design,  the  number  of  patients to be recruited and the countries and centers
that  will  be involved. The expected costs to complete this trial will be known
when  the  trial  protocol  design is finalised and we have appointed a contract
research  organisation  to  assist  with  the  conduct  of  this  multi-center,
multi-country  trial.

     Drug  discovery  is  partially  funded  by  a  A$3.39  million  AusIndustry
Commercial  Ready  grant.  This grant is for three years commencing August 2005.
Over  this period the Company's contribution to this program is expected to also
be  A$3.39  million.

     Our future cash requirements will depend on a number of factors, including:
the  design  of the Phase III clinical trial of PI-88 in post-resection HCC, the
scope and results of preclinical studies and clinical trials, continued progress
of our research and development programs, including our in-licensing activities,
our  ability  to  successfully  expand  our  contract  manufacture services; our
ability  to generate revenue from the commercialization of PI-88, PI-166 and our
drug  discovery  platform,  and  the  availability  of  other  financing.

     Based  upon  current  and  expected levels of cash expenditures, we believe
that our existing cash and investments resources, approximately $8.98 million at
November  30,  2006, will be adequate to satisfy the requirements of our current
and planned operations through September 2007. Thereafter, to the extent that we
are  unable to generate cash from our operating or commercialization activities,
we  will  be  required  to seek additional funding through the public or private
sale  of  debt  or equity securities. We may require additional financing before
such  time  and  we  cannot  be  certain that we will have access to the capital
markets  for  the  sale  of  our  securities 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.

ITEM 5.E.     OFF-BALANCE SHEET ARRANGEMENTS

     We  have not entered into any off-balance sheet transactions, agreements or
other  contractual  arrangements  (including  contingent  obligations)  with any
unconsolidated  entity  that  have or are reasonably likely to have a current or
future  effect  on  our  financial  condition,  changes in financial conditions,
revenues  or expenses, results of operations, liquidity, capital expenditures or
capital  resources.


                                       50
<PAGE>
ITEM 5.F.     TABULAR DISCLOSURE OF AGGREGATE CONTRACTUAL OBLIGATIONS

     As  of June 30, 2006, we have known contractual obligations and commitments
of  $3,418,000.  Of  this  amount  $2,574,000  relates  to  sponsored  research
commitments  and  estimates  to complete current trials of PI-88 and PI-166. The
remaining  $844,000  relates  to  the  following:  our  current  operating lease
obligations  including  the  lease  of our premises ($344,000), repayment of our
insurance  premium  funding  ($318,000) and other commitments ($182,000) most of
which  relates  to  payment  obligations  under  various consulting and advisory
agreements.

     The  following  table  sets forth our aggregate contractual obligations for
the  three  years  following  June  30,  2006  (in  thousands):

<TABLE>
<CAPTION>
--------------------------------------------------------------------
                                           PAYMENTS DUE BY PERIOD
--------------------------------------------------------------------
CONTRACTUAL OBLIGATIONS                 TOTAL    < 1 YEAR  1-3 YEARS
-------------------------------------  --------  --------  ---------
<S>                                    <C>       <C>       <C>
Operating leases                            344       173        171
-------------------------------------  --------  --------  ---------
Sponsored research and clinical trial
obligations and commitments               2,574     2,018        556
-------------------------------------  --------  --------  ---------
Insurance premium funding                   318       318          -
-------------------------------------  --------  --------  ---------
Other commitments                           182       182          -
-------------------------------------  --------  --------  ---------
TOTAL                                     3,418     2,691        727
--------------------------------------------------------------------
</TABLE>

     We do not have any contractual obligations that extend beyond the next
three years.


                                       51
<PAGE>
ITEM 6.     DIRECTORS, SENIOR MANAGMENT AND EMPLOYEES

ITEM 6.A.   DIRECTORS AND SENIOR MANAGEMENT

     The following table sets forth certain information about our directors and
executive officers:

<TABLE>
<CAPTION>
NAME                    AGE  POSITION
----------------------  ---  ----------------------------------------------
<S>                     <C>  <C>
Stephen Chang            57  Executive Chairman
----------------------  ---  ----------------------------------------------
T. Justus Homburg        50  Managing Director
----------------------  ---  ----------------------------------------------
Prof. John R. Zalcberg   54  Non-Executive Director (1)
----------------------  ---  ----------------------------------------------
Patrick O. Burns         69  Non-Executive Director (1), (2)
----------------------  ---  ----------------------------------------------
Dr. Malvin L. Eutick     57  Non-Executive Director (1), (2)
----------------------  ---  ----------------------------------------------
Dr. Stanley S.C. Chang   50  Non-Executive Director
----------------------  ---  ----------------------------------------------
Dr. Anand Gautam         46  Vice President, Research and Development
----------------------  ---  ----------------------------------------------
Sarah J. Meibusch        29  Director, Business Development
----------------------  ---  ----------------------------------------------
Linton W. P. Burns       41  Chief Financial Officer and Company Secretary
----------------------  ---  ----------------------------------------------
Gregory M. Orders        49  General  Manager Manufacturing
----------------------  ---  ----------------------------------------------
</TABLE>

_____________
(1)  Member of Audit Committee
(2)  Member of Remuneration Committee
_____________

     STEPHEN  CHANG  is a founding Director and has served as Chairman from 1989
to 1994 and again since 1999. From 2000 to 2001, Mr. Chang served as chairman of
Medigen  Biotechnology  Corporation.  Mr.  Chang  holds  a  B.Sc.  in mechanical
engineering  from  the National Taiwan College of Marine Science and Technology.
There  is  no  family  relationship  between  Mr.  Chang  and Dr. Stanley Chang.

     T. JUSTUS HOMBURG has served as our Managing Director since March 2006. His
background includes over a decade in new technology commercialisation, strategic
planning,  corporate  development and general management with Monsanto. Prior to
joining  the  Company in January 2006 Mr Homburg spent three years as the CEO of
the  start-up  biotechnology  company,  Chirogen Pty Ltd, based in Melbourne. Mr
Homburg  holds  an  MBA from the University of Washington with degrees from Iowa
State  University,  Southern Illinois University, and The University of Utrecht.

     PROFESSOR  JOHN R. ZALCBERG, M.D., PH.D. joined as a Non-Executive Director
in May 1995. He is Professor/Director of the Division of Haematology and Medical
Oncology  at the Peter MacCallum Cancer Institute in Melbourne, Australia. Among
his  numerous  professional positions, Prof. Zalcberg served as President of the
Clinical  Oncology  Society  of  Australia;  is the Chairman of the Australasian
Gatrointestinal  Trials  Group;  and  a member of the National Colorectal Cancer
Care  Surgery  Working  Party.

     PATRICK O. BURNS was appointed a Non-Executive Director in March 1999. From
1997,  Burns  has  also  been  a member of the Board of Directors of Synbiotics,
which specialises in animal health care, and Annovis, Inc a speciality chemicals
company  and  a  Senior  Advisor  to  AcrossFrontiers  International, Inc. He is
currently  a  non-executive  director  of  ChemGenex  Pharmaceuticals  Ltd,  an
Australian  listed  biotechnology  company;  vice  chairman  of  Euclid  Systems


                                       52
<PAGE>
Corporation,  a  private  eye  care  company; the chairman of Stable Eyes, Inc a
biotechnology  company in the eye care field and an advisor to a number of early
stage technology companies. Mr. Burns holds an B.A. in Government from Dartmouth
College  and  an L.L.B. from Harvard Law School. There is no family relationship
between  Mr.  Burns  and  Mr. Linton W. P. Burns our Company Secretary and Chief
Financial  Officer.

     DR. MALVIN L. EUTICK, PH.D. was appointed a Non-Executive Director in March
1999.  He is a director of both TUTA Healthcare and Pharmalab. He has had a long
association  with  the  biotechnology  industry and was awarded the Medal of the
Order  of  Australia  for  services  to the industry in 1995. Dr. Eutick holds a
B.Sc.  and  a  Ph.D.  in  biochemistry from the University of Sydney, Australia.

     DR.  STANLEY  CHANG,  M.D., PH.D. was appointed a Non-Executive Director in
February  2001,  and  is  the  chief  executive officer and managing director of
Medigen  Biotechnology  Corporation,  a  Taiwan-based biotechnology company. Dr.
Chang  holds  an  M.D.  from  the  College  of  Medicine  at the National Taiwan
University and a Ph.D. from the Department of Surgery, University College London
Medical  School  at the University of London, United Kingdom. There is no family
relationship  between  Dr.  Chang  and  Mr.  Stephen  Chang,  our  Chairman.

     DR.  ANAND  GAUTAM  PH.D.  was  appointed  Vice  President,  Research  and
Development  in  September  2005. Prior to joining us Dr Gautam has held several
positions  with  biotechnology  companies  including Pharmexa, Denmark as Senior
Vice  President  of Research, and Chief Scientific Officer of Coridon Pty Ltd an
Australian  based  biotechnology  company. Dr. Gautam completed his Ph.D. at the
University  of  London  in  1990  followed by post-doctoral training at Stanford
University,  California,  USA.

     SARAH  J.  MEIBUSCH  joined  us  in  2003  as  Business Development Manager
following  a  similar  role  at  Pyxis  Genomics,  Inc,  a  private  USA  based
biotechnology  company.  Ms.  Meibusch  was  promoted  to  Director,  Business
Development  in  June  2005. She holds a Bachelor degree in Agricultural science
from  the  University  of Queensland and a Master of Professional Studies degree
from  Cornell  University,  USA.

     LINTON  W.  P.  BURNS  was  appointed  Chief  Financial Officer and Company
Secretary  in August 2004. Prior to joining us, Mr. Burns spent 5 years as chief
financial  officer  and  company  secretary for ASX listed biotechnology company
BresaGen  Limited.  Preceding  that  role  Mr. Burns was the New Zealand general
manager  for  the  information  solutions company, Equifax Ltd. Prior to that he
held  senior  financial  positions  with  Equifax  in  Australia  and the United
Kingdom.  Mr.  Burns holds a Bachelor of Arts in Accountancy from the University
of  South  Australia,  Adelaide,  Australia  and  is  a member of the Australian
Institute  of  Chartered  Accountants.

     GREGORY M. ORDERS joined us in April 2001 as Quality Assurance Manager, and
served  as  the  Acting  General  Manager of Contract Services from October 2001
until  August  2002,  at  which  time  he was appointed General Manager Contract
Manufacturing.  From  1995 to 2001, Mr. Orders held various positions in quality
assurance  and pharmaceutical manufacture for Sigma Pharmaceuticals Pty. Ltd, an
Australian-based  contract  pharmaceutical  manufacturer.  From 1993 to 1995, he
worked at the virology and bacteriology laboratories of Fernz Corporation, a New
Zealand  manufacturer  of  interferon  tablets.  Mr.  Orders holds a B.Sc. and a
Masters  in  molecular  science  from


                                       53
<PAGE>
LaTrobe  University  in  Melbourne,  Australia.

ALTERNATE  DIRECTOR

     EUGENE  CHENG was appointed the alternate director for Dr. Stanley Chang in
March 2003. He is currently the chief operating officer of Medigen Biotechnology
Corporation.  Prior  to  joining  Medigen  Mr.  Cheng  was a partner of E-telint
Capital Partners, a Silicon Valley based venture capital firm. Mr. Cheng was the
president of Advanced Semiconductor Engineering, Inc., a publicly held Taiwanese
corporation  and  one  of  the  largest  global  providers  of  semiconductor
manufacturing services. Mr. Cheng has also occupied various management positions
with Acer Inc., a publicly held Taiwanese corporation and one of the world's top
branded  PC  vendors.  Mr.  Cheng  holds a B.E. in chemical engineering from the
Chung  Yuan  College of Science and Engineering, Chung Li, Taiwan, and an M.B.A.
from  the  Management  School of the National Sun Yat-sen University, Kaohsiung,
Taiwan.

     Our  executive officers are appointed by, and serve at the pleasure of, our
board  of  directors.  There  are no family relationships among our directors or
executive  officers. No director has a contractual right to serve as a member of
our  board  of  directors.

ITEM 6.B.     COMPENSATION

     The  following  table  sets  forth  certain  information  concerning  the
compensation  that we paid to our directors and our five most highly compensated
executive  officers,  both  individually  and as a group, during the fiscal year
ended  June  30,  2006:

<TABLE>
<CAPTION>
                                                                    Annual Compensation
                                           -----------------------------------------------------------------------
                                                     Directors'   Superannuation   Benefits &   Stock
Name and Principal Position                 Salary      Fees     Contributions     Allowances  Options     TOTAL
-----------------------------------------  --------  ----------  ----------------  ----------  --------
                                             (1)                        (2)                      (3)
                                           --------
<S>                                        <C>       <C>         <C>               <C>         <C>       <C>
Stephen Chang
  Chairman and Executive Director          221,003            -            22,750           -        -     243,753
T. Justus Homburg
  Executive Director and Managing
  Director (4)                             101,350            -             6,511           -   17,092     124,953
Lewis J. Lee
  Executive Director and Managing
  Director (5)                             199,681            -            16,504      14,150        -     230,335
Prof. John R. Zalcberg
  Non-Executive Director                         -       36,877             3,319           -        -      40,196
Patrick O. Burns
  Non-Executive Director                         -       40,196                 -           -        -      40,196
Dr. Malvin L. Eutick
  Non-Executive Director                         -       36,877             3,319           -        -      40,196
Dr. Stanley S.C. Chang
  Non-Executive Director                         -       40,196                 -           -        -      40,196
Linton W. P. Burns
  Chief Financial Officer and Company
  Secretary                                129,018            -            11,612           -   17,934     158,564
Gregory M. Orders
  General Manager Contract Manufacturing    74,786            -             6,730           -        -      81,516


                                       54
<PAGE>
Dr. Anand Gautam
  Vice President, Research and
  Development (6)                           84,663            -             7,620           -        -      92,282
Sarah Meibusch
  Director, Business Development            74,773            -             6,730           -        -      81,503
All directors and executive officers
    as a group (13 persons)                885,274      154,146            85,094      14,150   35,026   1,173,690
</TABLE>

_______________
     (1)  No part  of  the  compensation  shown  was paid pursuant to a material
          bonus  or  profit-sharing  plan.
     (2)  We are  obligated  to  contribute  to  various superannuation plans to
          provide  pension,  retirement or similar benefits under the Australian
          Superannuation  Guarantee  Legislation.  Contributions  are  at  set
          percentages  of  salaries and wages. We have no responsibility for the
          administration or performance of the superannuation plans. We have not
          established  any  superannuation  plans.
     (3)  During  the  2006  fiscal  year  stock options were granted to certain
          executive  officers  under the terms of their contracts of employment.
          The  options  were  issued  free  of  charge. Each option entitles the
          holder  to subscribe for one fully paid ordinary share in the Company.
          The  estimated  value  of  these  options is calculated at the date of
          grant  using  the  Black-Scholes  option  pricing  model.
     (4)  Mr. Homburg  was  appointed  Chief  Operating  Officer in January 2006
          and  was  promoted to Chief Executive Officer and Managing Director in
          March  2006.
     (5)  Mr.  Lee  resigned  in  March  2006.
     (6)  Dr  Gautam  was  appointed  in  September  2005.

ITEM 6.C.     BOARD PRACTICES

     We  currently  have  six directors. Our constitution provides that at least
one-third  of  our  directors (except our managing director) must retire at each
annual  general  meeting  of  shareholders.  As  a result, only a portion of our
board  of  directors  will be elected each year.  Mr. Stephen Chang, Dr. Stanley
Chang  and  Mr.  P  Burns  were re-elected at our 2004 annual general meeting of
shareholders.  Prof.  J.  Zalcberg and Dr. M. Eutick were re-elected at our 2005
annual  general  meeting  of  shareholders.

     No  termination  benefits  are  provided  to directors other than statutory
superannuation.

     AUDIT  COMMITTEE.  Our  audit committee currently consists of Dr. M. Eutick
(Chair),  Mr.  P.  Burns,  and Prof. J. Zalcberg, all of whom are non-management
members  of  our  board  of directors. The authority and responsibilities of our
audit  committee  are  set  forth  in  its  charter  and  includes:

     -    The appointment,  compensation,  retention,  and  oversight  of  the
          work  of  the  independent  auditors  who report directly to the audit
          committee;

     -    The approval  of  all  audit  and  non-audit engagements and fees with
          the  independent  auditors;

     -    The authority  to  engage,  without  board  approval,  independent
          legal  counsel and other advisors, at the Company's expense, as deemed
          necessary  to  carry  out  its  duties;


                                       55
<PAGE>
     -    Reviewing  and  monitoring  the  framework  of  our  internal controls
          and  the  objectivity  of  our  financial  reporting;

     -    Oversight  of  the  adequacy  and  effectiveness  of  the  Company's
          internal controls over financial reporting and disclosure controls and
          procedures;

     -    Reviewing,  prior  to  filing,  our  unaudited  interim  or  audited
          annual  financial statements and discussing the statements and reports
          with  our  management  and  the  independent  auditors,  including any
          significant  adjustments,  management  judgments  and  estimates,  new
          accounting  policies  and  disagreement  with  management;

     -    Reviewing  and  discussing  with  management  the  Company's  interim
          and  year-end  earnings  press  releases  prior  to  the release being
          issued;  and

     -    Establishing  and  reviewing  procedures  for  complaints  received by
          us  regarding  accounting  matters.

     REMUNERATION  COMMITTEE.  Our  remuneration committee currently consists of
Dr.  M.  Eutick and Mr. P. Burns, who are non-management members of our board of
directors.  The  function  of  our  remuneration  committee  includes:

     -    Reviewing  and,  as  it  deems  appropriate, recommending to our board
          of  directors,  policies,  practices  and  procedures  relating to the
          compensation  arrangements  for  management  and  other  personnel,
          including  the  granting  of  options  under  our  option  plans;

     -    Establishing  and  reviewing  general  compensation  policies with the
          objective  to  attract  and  retain superior talent, reward individual
          performance  and  achieve  our  financial  goals;  and

     -    Advising  and  consulting  with  our  executive  officers  regarding
          managerial  personnel  and  development.


                                       56
<PAGE>
ITEM  6.D.     EMPLOYEES

     The  number  of  persons,  including  executive  directors, employed by the
Company,  as  of  June 30, 2006, 2005 and 2004, broken down by activity is shown
below.

<TABLE>
<CAPTION>
                                         AS OF JUNE 30,
                                   2004       2005      2006
<S>                                <C>        <C>       <C>
Management and administration         10         9        13
Research and development              17        17        17
Sales and marketing                    -         -         -
Production and operations             13        15        14
TOTAL                                 40        41        44
</TABLE>

     All our management and administration and sales and marketing employees and
8  of  our research and development employees are based at our corporate offices
in  Toowong,  Queensland,  Australia.  The  remaining employees are based at our
facility  in Darra, Queensland, Australia. None of our employees are represented
by  a  labor  union, nor have we experienced work stoppages. We believe that our
relations  with  our  employees  are  good.

ITEM  6.E.     SHARE  OWNERSHIP

     The  following  table  sets forth, for each director or senior executive of
the Company, their interest in the ordinary shares of the Company (including the
interests  of  their immediate families and persons connected with them) and the
percentage  of  the  Company's  outstanding  share  capital  represented by such
ownership  interests  as  of  December  xx,  2006.

<TABLE>
<CAPTION>
                                                                              NUMBER OF
                                                                           ORDINARY SHARES
                                                          PERCENTAGE OF       ISSUABLE
                                       NUMBER OF ISSUED  ISSUED ORDINARY     PURSUANT TO
NAME                                   ORDINARY SHARES      SHARES (1)         OPTIONS
-------------------------------------  ----------------  ----------------  ---------------
<S>                                    <C>               <C>               <C>
Stephen Chang                                   736,424              1.8%                -
T. Justus Homburg                                25,000                *           530,000
Prof. John R. Zalcberg                           15,849                *                 -
Patrick O. Burns                                    500                *                 -
Dr. Malvin L. Eutick                             15,000                *                 -
Dr. Stanley S.C. Chang                                                                   -
Anand Gautam                                          -                -                 -
Sarah J. Meibusch                                     -                -                 -
Linton W. P. Burns                                3,000                *            33,000
Gregory M. Orders                                     -                -                 -
All directors and executive officers
  As a group (10 persons)                       795,773             1.96%          563,000
</TABLE>

*     Represents less than 1%.

(1)     Based on 40,594,293 issued ordinary shares as of December 6, 2006.


                                       57
<PAGE>
OPTION PLANS

     The  following  director and employee option plans were in existence during
the fiscal year ending June 30, 2006. The plans are overseen by the Remuneration
Committee  which  determines  the  terms  under  which  eligible individuals may
participate.

     In  accordance  with Australian law, we will not grant any option if, after
such  issuance,  the  number of options issued to non-executive employees during
the  previous  five  years  whether  or  not  exercised  and  which have not yet
terminated  or  expired  would exceed 5% of the then total number of outstanding
ordinary  shares. In accordance with Australian Stock Exchange Listing Rules all
grants of options to directors require the prior approval from our shareholders.

     In  October  2000, our board of directors approved an employee option plan.
All  our employees and our executive and non-executive directors are eligible to
participate  in  the plan. As approved by our shareholders in November 2000, all
grants  of options under the plan to employees who are not directors may be made
without  shareholder  approval. The plan also provides that the minimum exercise
price  must  be  A$4.00 ($2.76) per share for initial grants under the plan and,
thereafter,  must  equal  the  greater of A$4.00 ($2.76) or 125% of the weighted
average  market  price  of our ordinary shares as quoted on the Australian Stock
Exchange  for  the  ten business days prior to the option grant. During the 2006
fiscal  year  a  total  of  350,000  options to purchase ordinary shares expired
unexercised  on  December  22,  2005  and options to purchase a total of 152,820
ordinary  shares  expired  unexercised  on  February 28, 2006. As of December 5,
2006,  there  are  no  outstanding  options  under  this  plan.

     In  November  2004,  our  shareholders  approved the directors and employee
option incentive plan. All our directors and all employees, whether full time or
part  time, are eligible to participate in this plan. The minimum exercise price
of  options  granted  under this plan shall not be less than the average closing
share  price  as  recorded on the Australian Stock Exchange in the five business
days  preceding  the  grant  of those options. The expiry date of options issued
under  this  plan  can  not  exceed  10 years from the date of grant. During the
fiscal  year  ended June 30, 2006 options to purchase a total of 63,000 ordinary
shares were issued under this plan. These options were issued free of charge and
had  a  weighted  average exercise price of $2.28. Since June 30, 2006 a further
147,000 options were issued under this plan at a weighted average exercise price
of  $2.12.  As of December 5, 2006 there were outstanding options to purchase an
aggregate  of  172,500  ordinary  shares  under  this  plan.


                                       58
<PAGE>
ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

ITEMS 7.A.     MAJOR SHAREHOLDERS

     The  table  below  shows  all holders who, to the Company's knowledge, own,
directly  or  indirectly,  5%  or  more  of the Company's ordinary shares, as of
December  2,  2004,  December 13, 2005, and December 6, 2006 each being the most
recent  practicable  date  before  reporting  for  the  last three fiscal years.

<TABLE>
<CAPTION>
                                            2004               2005               2006
-----------------------------------  -----------------  -----------------  -----------------
                                                  % OF               % OF               % OF
                                          # OF  ISSUED       # OF  ISSUED       # OF  ISSUED
NAME AND ADDRESS                        SHARES  SHARES     SHARES  SHARES     SHARES  SHARES
-----------------------------------  ---------  ------  ---------  ------  ---------  ------
<S>                                  <C>        <C>     <C>        <C>     <C>        <C>
SAC Capital Associates LLC
PO Box 58 Victoria House, The
Valley, Anguilla, BW1                      N/A                N/A          2,802,828    6.90
-----------------------------------  ---------  ------  ---------  ------  ---------  ------
Manifest Capital Management Pty
Ltd
Level 7, 139 Macquarie Street,
Sydney NSW 2000                            N/A          2,655,286    6.55  3,538,260    8.72
-----------------------------------  ---------  ------  ---------  ------  ---------  ------
AMP Limited
Level 24, 33 Alfred Street, Sydney
NSW 2000                                   N/A                N/A          2,975,268    7.33
-----------------------------------  ---------  ------  ---------  ------  ---------  ------
Medigen Biotechnology
Corporation
Building F, 14F, No.3, Yuancyu St,
Nangang District, Taipei City 115,
Taiwan (ROC)                         1,961,350    5.50  1,911,350    4.71  1,411,350    3.48
--------------------------------------------------------------------------------------------
</TABLE>

     As  of  December 5, 2006, a total of 3,055,939 ordinary shares (or 7.53% of
the  total  number  of  our ordinary shares then outstanding) were held by eight
holders with registered addresses in the United States. Because certain of these
ordinary  shares were held by brokers or other nominees, the number of record or
registered holders in the U.S. is not representative of the number of beneficial
holders  in  the  U.S.  or  of  the  residence  of  the  beneficial  holders.

     To  the  best of our knowledge, we are not owned or controlled, directly or
indirectly,  by  another  corporation, by any foreign government or by any other
natural  or  legal  persons severally or jointly, and we disclaim control by the
companies,  entities or individuals listed in the table above. We do not know of
any  arrangements  in  place  that  could  result  in a change in control of our
company.

ITEM 7.B.     RELATED PARTY TRANSACTIONS

     Except  as disclosed herein and elsewhere in this annual report, there were
no  material  transactions  to  which  we  were  a party and in which any of our
directors, executive officers or major shareholders (or any of their affiliates,
associates  or  enterprises)  were  involved  since  July  1,  2005.

     None  of our directors, executive officers or major shareholders (or any of
their  affiliates,  associates  or  enterprises)  was indebted to us at any time
since  July  1,  2005.


                                       59
<PAGE>
ITEM 8.     FINANCIAL INFORMATION

ITEM 8.A.     FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION

     Our  audited  financial  statements  and related notes for our fiscal years
ended  June  30,  2004, 2005 and 2006 are contained on pages F-1 through F-23 of
this  annual  report.

EXPORT SALES

     The following table indicates the percent of revenues derived from export.

<TABLE>
<CAPTION>
                              FOR THE YEARS ENDED JUNE 30,
                              2004        2005        2006
<S>                           <C>         <C>         <C>
Contract manufacture          18.2%       13.8%       7.7%
</TABLE>

     The  percentage  of  contract manufacturing revenues derived from customers
outside  Australia  fluctuates as these contracts are typically adhoc in nature.

     In  fiscal  2006 we derived 76.2% of our total revenues from one Australian
based  customer.  In fiscal 2005 we derived 78.3% of our total revenues from two
Australian  based  customers.  A  contract with one of these customers completed
during  fiscal  2005.  In  fiscal  2005  we earned $425,000 in revenue from this
contract,  or  39.5% of total revenue (2004: $786,000 in revenue, being 56.3% of
total  revenue).

LEGAL PROCEEDINGS

     None.

DIVIDEND POLICY

     We  have  never  declared cash dividends on our ordinary shares and have no
present  intention  of  declaring such cash dividends in the foreseeable future.
Our  board  of  directors  will  not  be  able  to  recommend the payment of any
dividends  until  we  make  a profit. Future profitability will depend on future
earnings  and our working capital requirements. Our board of directors currently
intends  to  reinvest  income in the continued development and operations of our
business. We expect to continue to generate operating losses on our research and
development  projects  until  products arising from our research and development
activities  are successfully commercialized. Factors beyond our control, such as
market  competition,  exchange  rate fluctuations and changing government policy
may  also  affect  profitability  and  our  capacity  to  pay  dividends.

ITEM 8.B.     SIGNIFICANT CHANGES

     Except  as disclosed elsewhere in this annual report, no significant change
has  occurred since the date of the annual financial statements included in this
annual  report.


                                       61
<PAGE>
ITEM 9.     THE OFFER AND LISTING

ITEM 9.C.     MARKETS

     The  principal  non-United States trading market for our ordinary shares is
the  Australian  Stock  Exchange, or the ASX, under the code "PGL". Our ordinary
shares  are  also  quoted  on the Nasdaq Capital Market under the symbol "PGLA".

PRICE RANGE OF ORDINARY SHARES

     AUSTRALIAN STOCK EXCHANGE (ASX)

     The  following  table  sets  forth the high and low closing sales prices in
Australian  dollars and the trading volume of our ordinary shares as reported on
the  ASX  during  the  periods  indicated:

<TABLE>
<CAPTION>
                                        TRADING
                        HIGH    LOW      VOLUME
                       ------  ------  ----------
<S>                    <C>     <C>     <C>
Yearly Data:
-----------
  Fiscal year 2002. .  A$2.02  A$0.75   5,385,169
  Fiscal year 2003. .    1.25    0.50   3,310,777
  Fiscal year 2004. .    3.76    0.72  25,976,500
  Fiscal year 2005. .    6.22    2.04  23,242,125
  Fiscal year 2006. .    4.04    2.35  24,427,032
Quarterly Data:
--------------
  First Quarter 2004.    3.45    1.49  10,320,200
  Second Quarter 2004 .  3.76    2.75   7,832,200
  Third Quarter 2004. .  4.70    3.32   5,403,285
  Fourth Quarter 2004 .  6.22    4.35   6,891,832
  First Quarter 2005.    4.55    2.90   4,363,820
  Second Quarter 2005 .  3.66    2.04   6,583,188
  Third Quarter 2005.    3.14    2.35   3,476,989
  Fourth Quarter 2005 .  3.34    2.58   5,536,055
  First Quarter 2006.    3.64    2.65   6,525,938
  Second Quarter 2006 .  4.04    2.70   8,888,050
  Third Quarter 2006. .  3.00    2.52   3,336,609
Monthly Data:
------------
  June 2006 . . . . . .  3.34    2.70   1,862,615
  July 2006 . . . . . .  3.00    2.70     919,138
  August 2006 . . . . .  2.86    2.60   1,124,696
  September 2006. . . .  2.94    2.52   1,292,775
  October 2006. . . . .  3.55    2.78   1,405,038
  November 2006 . . . .  3.99    3.40   3,452,022
</TABLE>


                                       62
<PAGE>
NASDAQ CAPITAL MARKET

     The  following  table  sets  forth the high and low closing sales prices in
United  States dollars and the trading volume of our ordinary shares as reported
on  the  NASDAQ  Capital  Market  during  the  periods  indicated:

<TABLE>
<CAPTION>
                                       TRADING
                       HIGH    LOW     VOLUME
                       -----  -----  -----------
<S>                    <C>    <C>    <C>
Yearly Data:
-----------
  Fiscal year 2002. .  $0.99  $0.41  $   948,645
  Fiscal year 2003. .   0.88   0.30    2,478,639
  Fiscal year 2004. .   3.24   0.51   18,534,500
  Fiscal year 2005. .   4.71   1.60    4,411,100
  Fiscal year 2006. .   3.15   1.71    1,628,400
Quarterly Data:
--------------
  First Quarter 2004.   3.11   1.12    7,084,100
  Second Quarter 2004   3.24   1.75    5,415,100
  Third Quarter 2004.   3.29   2.31    1,205,500
  Fourth Quarter 2004   4.71   3.15    1,822,000
  First Quarter 2005.   3.48   2.33      778,900
  Second Quarter 2005   2.70   1.60      604,700
  Third Quarter 2005    2.35   1.71      454,400
  Fourth Quarter 2005   2.50   1.86      289,900
  First Quarter 2006.   2.60   1.95      384,100
  Second Quarter 2006   3.15   2.05      500,000
  Third Quarter 2006.   2.19   1.81      147,000
Monthly Data:
------------
  June 2006 . . . . .   2.57   2.05       68,100
  July 2006 . . . . .   2.16   2.01       60,500
  August 2006 . . . .   2.19   1.95       50,500
  September 2006. . .   2.10   1.81       36,000
  October 2006. . . .   2.74   1.91       60,600
  November 2006 . . .   3.10   2.61      292,900
</TABLE>

     On  December  6,  2006,  the  closing  sales  price  in U.S. Dollars of the
ordinary  shares  as reported on the ASX and the NASDAQ Capital Market was $3.03
and  $2.91,  respectively.


                                       63
<PAGE>
ITEM 10.     ADDITIONAL INFORMATION

ITEM 10.B.     MEMORANDUM AND ARTICLES OF ASSOCIATION

     The following description of our ordinary shares, including brief summaries
of  the  rights  of  our  shareholders  as  conferred  by  our  constitution and
Australian law, and certain matters respecting directors, is not complete and is
qualified  by reference to Australian law and our constitution. Our constitution
may  be  inspected  and copied at the Public Reference Section of the Securities
and  Exchange  Commission  at  450  Fifth  Street, N.W., Washington, D.C. 20549.

     COMPLIANCE WITH NASDAQ RULES

     NASDAQ  corporate  governance rules require that we disclose the exemptions
that  we  have  obtained,  and  rely  on,  from  compliance with existing NASDAQ
corporate  governance  rules.  Under  our  Constitution  and consistent with the
Australian  Corporations  Act,  the  quorum  required for an ordinary meeting of
shareholders  consists  of at least three shareholders, represented in person or
by  proxy.  Under  the  NASDAQ  Marketplace  Rules, a NASDAQ listed-company must
provide  for  a  quorum  that  in  no  case  shall  be  less than 33 1/3% of the
outstanding  shares  of  the company's common voting stock. Pursuant to a letter
from  NASDAQ  in 1997, NASDAQ granted us an exemption from such NASDAQ rule. Our
quorum  requirement  is in accordance with Australian law and generally accepted
business  practices in Australia. We also obtained from NASDAQ an exemption from
NASDAQ Marketplace Rule 4350(i) concerning shareholder approval of certain share
plans,  although  we  have  not  to  date  relied  on  such  exemption.

     In  a  letter  to  NASDAQ dated June 2005 from our home country (Australia)
legal  counsel  we  advised  that pursuant to NASDAQ Marketpace Rule 4350(a)(1),
Progen  will  follow certain governance practices of its home country in lieu of
the comparable NASDAQ requirement under NASDAQ Marketplace Rule 4350(c)(1) which
provides  that  a  majority  of  the  Board  of  directors  must be comprised of
independent  directors.  Progen does not currently comply with this requirement.
We  have six members on the Board, three of whom are considered independent. The
Principles of Good Corporate Governance and Best Practice Recommendations (BPRs)
released by the Australian Stock Exchange (ASX) recommend that a majority of the
board  should  be independent. However, current practice in Australia recognises
that  the BPRs are guidelines only. If a company considers that a recommendation
is  not  appropriate to its particular circumstances, it has the flexibility not
to  adopt  it.


                                       64
<PAGE>
Item  10.C.     Material  Contracts

     Information  about material contracts, other than contracts entered into in
the  ordinary  course  of  business,  to  which we are a party and which we have
entered  into  during  the  two immediately preceding fiscal years are disclosed
above  in  "Item  4.  Information  on  the  Company".

ITEMS  10.D.     EXCHANGE  CONTROLS

     In  the  early  1980s,  the  Australian  Government  began  a  program  of
deregulation of the Australian financial sector. This led to the introduction of
competition  from  foreign  banks and, perhaps more notably, the deregulation of
foreign  exchange controls. Deregulation has been at the forefront of Australian
Government  policy  since the early 1980's and, except as discussed below, there
are  no  laws  or regulations in Australia that restrict the export or import of
capital  or  affect  the remittance of dividends or other payments to holders of
our  ordinary  shares  who are nonresidents of Australia, subject to withholding
taxes  under  Australian  law  with  respect to remittances of dividends (to the
extent the taxes on the dividends are not paid by us) and interest payments. See
"Taxation"  below.

     THE  FOREIGN  ACQUISITIONS  AND  TAKEOVERS  ACT  1975

     The Foreign Acquisitions and Takeovers Act 1975 is an act of the Parliament
of  the Commonwealth of Australia which seeks to regulate overseas investment in
Australia.  By  and  large,  the  Government's  policy  is  to encourage foreign
investment  provided  that  it  is  consistent  with the needs of the Australian
community.  Although  restrictions are applied in certain areas, in the majority
of  industry  sectors, proposals are approved unless they are judged contrary to
the  national  interest.  The  Act  requires  compulsory notification of certain
proposed acquisitions of Australian assets and makes other proposed acquisitions
and  arrangements  subject  to  prohibition  or divestiture after they have been
examined  and  found  to  be  contrary  to  the  national  interest.

     THE  FINANCIAL  TRANSACTIONS  REPORTS  ACT  1988

     The  Financial Transactions Reports Act 1988 is an act of the Parliament of
the  Commonwealth  of  Australia,  designed to facilitate the administration and
enforcement  of  Australia's  revenue  laws.  It  provides  for the reporting of
certain  financial transactions and transfers, including the export or import of
currency  exceeding  A$10,000  to  the  Cash  Transactions  Reporting  Agency.

     THE  INCOME  TAX  ASSESSMENT  ACT  OF  1936  AND  THE INCOME TAX ASSESSMENT
     ACT  OF  1997  (COLLECTIVELY,  THE  "TAX  ACT")

     The  Tax  Act  is  the  principal  law  of  the  Commonwealth of Australia,
concerning the collection and administration of taxes (except goods and services
tax).  Under  the  Tax  Act, overseas residents are obliged to pay income tax in
Australia  on  income  derived  from  Australian  sources.

ITEM  10.E.     TAXATION

     The  following  is a summary of the current tax laws of the U.S. (including
the Internal Revenue Code of 1986, as amended, its legislative history, existing
and  proposed regulations thereunder, published rulings and court decisions) and
Australia  as  they  relate  to  us  and  our


                                       65
<PAGE>
shareholders, including United States and other non-Australian shareholders. The
summary  is based upon laws and relevant interpretations thereof in effect as of
the  date of this annual report, all of which are subject to change, possibly on
a  retroactive  basis.  The  discussion  does  not  address  any aspects of U.S.
taxation other than federal income taxation or any aspects of Australian taxtion
other  than  federal income taxation, inheritance taxation, stamp duty and goods
and  services  tax.

     Prospective  purchasers of ordinary shares are advised to consult their own
tax  advisors  with  respect  to  the  specific  tax consequences to them of the
purchase,  ownership  and  disposition  of  ordinary  shares,  including,  in
particular,  the  effect  of  any  foreign,  state  or  local  taxes.

     AUSTRALIAN  TAX  CONSEQUENCES

     Non-Australian  residents  are  liable  to  pay  tax on income derived from
Australian  sources.  The  mechanism by which that tax is paid (for nonresidents
who  have  no  permanent  establishment  in Australia or where the income is not
connected with a permanent establishment) is known as withholding tax. Dividends
paid  by  a  resident  Australian  company to a resident of the United States of
America  are  subject  to  withholding  tax  at  the  rate  of  15%. The rate of
withholding  tax  on  dividends is normally 30%, but since the United States has
concluded  a  double tax treaty agreement with Australia, the rate is reduced to
15%.  It should be noted, however, that under Section 128B(3) of the Tax Act, to
the  extent  that  dividends  paid  to nonresidents have been franked (generally
where  a  company  pays  tax itself), such dividends are exempt from withholding
tax. Franked dividends is the expression given to dividends when the profits out
of  which those dividends are paid have been taxed in our hands. Accordingly, an
Australian  company  paying  fully  franked  dividends  to  a nonresident is not
required  to  deduct any withholding tax. Dividends on which withholding tax has
been  paid  are  not  subject to any further Australian tax. In other words, the
withholding  tax  represents  the  final Australian tax liability in relation to
those  dividends.

     The pertinent provisions of the double tax treaty between Australia and the
United States provide that dividends are primarily liable for tax in the country
of  residence of the beneficial owner. However, the source country, in this case
Australia,  may  also tax them, but in such case the tax will be limited to 15%.
Where  the  beneficial  owner  is a United States resident company that holds at
least  10% of us, the tax will be limited to 5%. The 15% limit does not apply to
dividends  derived  by  a  resident  of  the  United States of America who has a
permanent  establishment  or fixed base in Australia, if the holding giving rise
to  the dividends is effectively connected with that establishment or base. Such
dividends  are  taxed  in  the  normal  way  as  business profits or independent
personal  services  income  as  the  case  may  be.

     We  have  not  paid  any  cash  dividends since our inception and we do not
anticipate  the  payment  of  cash  dividends  in  the  foreseeable  future.
Additionally,  we  expect  to  incur  additional operating losses until products
arising  from  our  research  and  development  programs  are  successfully
commercialized.  See  "Item  8.A.  Financial  Statements  and  Other  Financial
Information-Dividend  Policy."

     Capital  gains tax in Australia is payable on real gains over the period in
which  the  shares  have  been held, that is, the difference between the selling
price  and  the  original cost price. The cost price is indexed for inflation if
the  shares have been held for more than one year, and individual taxpayers can,
with  respect  to shares held for more than one year, elect to forego indexation
of  the


                                       66
<PAGE>
cost  base  in  exchange  for  being  taxed on 50% of the realized gain. Capital
losses  are  available  as  deductions  but  only  against  other capital gains.

     STAMP  DUTY

     Any  transfer  of  shares through trading on the ASX and NASDAQ, whether by
Australian  residents  or  foreign  residents, are not be subject to stamp duty.

     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.

     U.S.  FEDERAL  INCOME  TAXATION

     As  used  below, a "U.S. Holder" is a beneficial owner of an ordinary share
that  is,  for U.S. federal income tax purposes, (i) a citizen or resident alien
individual  of  the United States, (ii) a corporation (or an entity treated as a
corporation)  organized under the law of the United States, any State thereof or
the District of Columbia, (iii) an estate the income of which is subject to U.S.
federal  income  tax without regard to its source or (iv) a trust if (1) a court
within  the U.S. is able to exercise primary supervision over the administration
of  the  trust,  and  one or more U.S. persons have the authority to control all
substantial  decisions of the trust, or (2) the trust was in existence on August
20,  1996  and  properly elected to continue to be treated as a U.S. person. For
purposes  of  this  discussion,  a "non-U.S. Holder" is a beneficial owner of an
ordinary  share  that  is (i) a nonresident alien individual, (ii) a corporation
(or an entity treated as a corporation) created or organized in or under the law
of  a country other than the U.S. or a political subdivision thereof or (iii) an
estate  or  trust  that  is  not  a  U.S.  Holder.

     TAXATION  OF  DIVIDENDS

     U.S. Holders. In general, subject to the passive foreign investment company
rules  discussed  below,  a  distribution on an ordinary share will constitute a
dividend  for  U.S.  federal  income  tax  purposes  to the extent made from the
Company's  current  or accumulated earnings and profits as determined under U.S.
federal  income  tax principles. If a distribution exceeds the Company's current
and  accumulated  earnings  and  profits,  it  will  be treated as a non-taxable
reduction  of basis to the extent of the U.S. Holder's tax basis in the ordinary
share  on  which  it is paid, and to the extent it exceeds that basis it will be
treated  as  capital  gain. For purposes of this discussion, the term "dividend"
means  a  distribution  that  constitutes a dividend for U.S. federal income tax
purposes.

     The  gross  amount of any dividend on an ordinary share (which will include
the  amount  of  any  Australian taxes withheld) will be subject to U.S. federal
income  tax  as foreign source dividend income. The amount of a dividend paid in
Australian  dollars  will  be  its  value  in  U.S.  dollars  based


                                       67
<PAGE>
on the prevailing spot market exchange rate in effect on the day the U.S. Holder
receives  the  dividend.  Any  gain  or  loss  realized on a conversion or other
disposition  of  Australian  dollars  generally  will  be treated as U.S. source
ordinary  income  or  loss.  Any Australian withholding tax will be treated as a
foreign  income  tax  eligible  for  credit against a U.S. Holder's U.S. federal
income  tax  liability,  subject  to generally applicable limitations under U.S.
federal  income  tax law. For purposes of computing those limitations separately
under  current  law for specific categories of income, a dividend generally will
constitute  foreign  source "passive income" or, in the case of certain holders,
"financial services income." You should consult your tax adviser with respect to
the  determination  of  the foreign tax credit limitation, as the relevant rules
are  complex  and  are scheduled to change in future years. A foreign tax credit
may  not be allowed for withholding tax imposed in respect of certain short-term
or  hedged  positions  in  an  ordinary  share.  Alternatively,  any  Australian
withholding  tax  may be taken as a deduction against taxable income. A dividend
will  not  be  eligible  for  the  corporate  dividends  received  deduction.

     Subject  to  certain  exceptions  for  short-term  and  hedged positions, a
dividend an individual receives on an ordinary share before January 1, 2009 will
be  subject  to  a  maximum  tax  rate  of  15%  if the dividend is a "qualified
dividend."  A  dividend on an ordinary share will be a qualified dividend if (i)
either (a) the ordinary shares are readily tradable on an established securities
market  in  the  U.S.  or  (b)  the  Company  is  eligible for the benefits of a
comprehensive income tax treaty with the U.S. that the Secretary of the Treasury
determines  is  satisfactory  for  purposes  of these rules and that includes an
exchange of information program, and (ii) the Company was not, in the year prior
to the year the dividend was paid, and is not, in the year the dividend is paid,
a  passive foreign investment company ("PFIC"), foreign personal holding company
("FPHC")  or  foreign investment company ("FIC"). The ordinary shares are listed
on  the NASDAQ Capital Market. It is not clear whether that listing will qualify
them  as  readily  tradable  on  an  established securities market in the United
States.  However,  the  Treaty satisfies the requirements of clause (i)(b), and,
although  the matter is not free from doubt, the Company believes that it should
be  a  resident  of  Australia  entitled to the benefits of the Treaty. However,
because  the  facts relating to the Company's entitlement to the benefits of the
Treaty  can change over time, there can be no assurance that it will be entitled
to  the  benefits  of  the  Treaty  for any taxable year. Based on the Company's
audited  financial  statements  and  relevant  market  and shareholder data, the
Company  believes  it  was  not  a PFIC, FPHC or FIC for U.S. federal income tax
purposes for its June 30, 2006 taxable year. In addition, based on the Company's
audited  financial  statements  and its current expectations regarding the value
and  nature  of  its  assets, the sources and nature of its income, and relevant
market  and  shareholder  data, the Company does not anticipate becoming a PFIC,
FPHC  or  FIC for its June 30, 2007 taxable year. Effective for taxable years of
foreign  corporations  beginning  after December 31, 2004, the rules relating to
FPHCs and FICs are repealed. However, as described in the section below entitled
"Passive  Foreign Investment Company Rules," if the Company was a PFIC in a year
while  a U.S. Holder held an ordinary share, and if the U.S. Holder has not made
a  qualified electing fund election effective for the first year the U.S. Holder
held  the  ordinary  share, the ordinary share remains an interest in a PFIC for
all future years or until such an election is made. The Internal Revenue Service
takes the position that that rule will apply for purposes of determining whether
an  ordinary share is an interest in a PFIC in the year a dividend is paid or in
the  prior  year, even if the Company does not satisfy the tests to be a PFIC in
either of those years. Even if the Company has not been a PFIC in any prior year
and is not currently a PFIC, because the composition of the Company's income and
assets  will  vary  over  time,  there  can  be no assurance that it will not be
considered  a  PFIC  for  any


                                       68
<PAGE>
taxable  year. The U.S. Treasury has announced its intention to promulgate rules
pursuant  to which holders of stock of non-U.S. corporations, and intermediaries
though  whom the stock is held, will be permitted to rely on certifications from
issuers  to establish that dividends are treated as qualified dividends. Because
those  procedures  have not yet been issued, it is not clear whether the Company
will  be  able  to  comply with them. Special limitations on foreign tax credits
apply  to  dividends  subject  to the reduced rate of tax. Holders shares should
consult  their  own  tax  advisers  regarding  the  availability  of the reduced
dividend  tax  rate  in  the  light  of  their  own  particular  circumstances.

     Non-U.S. Holders. A dividend paid to a non-U.S. Holder of an ordinary share
will  not  be  subject  to  U.S.  federal  income  tax  unless  the  dividend is
effectively  connected  with  the  conduct  of trade or business by the non-U.S.
Holder within the U.S.(and is attributable to a permanent establishment or fixed
base  the  non-U.S.  Holder  maintains  in  the U.S. if an applicable income tax
treaty  so requires as a condition for the non-U.S. Holder to be subject to U.S.
taxation  on  a  net income basis on income from the ordinary share). A non-U.S.
Holder  generally will be subject to tax on an effectively connected dividend in
the  same  manner  as  a  U.S.  Holder.  A corporate non-U.S. Holder may also be
subject  under  certain circumstances to an additional "branch profits tax," the
rate  of  which  may  be  reduced  pursuant  to an applicable income tax treaty.

     TAXATION  OF  CAPITAL  GAINS

     U.S.  Holders.  Subject  to  the  passive  foreign investment company rules
discussed  below, on a sale or other taxable disposition of an ordinary share, a
U.S.  Holder  will  recognize  capital  gain  or  loss in an amount equal to the
difference  between  the  U.S. Holder's adjusted basis in the ordinary share and
the  amount  realized  on the sale or other disposition, each determined in U.S.
dollars.  Any gain a U.S. Holder recognizes generally will be U.S. source income
for  U.S.  foreign  tax credit purposes, and, subject to certain exceptions, any
loss  generally  will  be  a U.S. source loss. If an Australian tax is paid on a
sale  or  other  disposition  of  an  ordinary  share,  the generally applicable
limitations  under U.S. federal income tax law on crediting foreign income taxes
may  preclude  a  U.S.  Holder  from  obtaining  a  foreign  tax  credit for the
Australian  tax.

     In  general,  any  adjusted  net capital gain of an individual in a taxable
year  ending  before January 1, 2009 is subject to a maximum tax rate of 15%. In
later  years, the maximum tax rate on the net capital gain of an individual will
be  20%.  The  deductibility  of  capital  losses  is  subject  to  limitations.

     Non-U.S.  Holders.  A  non-U.S.  Holder will not be subject to U.S. federal
income  tax  on  gain  recognized  on a sale or other disposition of an ordinary
share  unless (i) the gain is effectively connected with the conduct of trade or
business  by  the  non-U.S.  Holder  within  the  U.S.(and  is attributable to a
permanent  establishment or fixed base the non-U.S. Holder maintains in the U.S.
if  an  applicable income tax treaty so requires as a condition for the non-U.S.
Holder  to  be subject to U.S. taxation on a net income basis on income from the
ordinary  share), or (ii) in the case of a non-U.S. Holder who is an individual,
the  holder  is  present in the U.S. for 183 or more days in the taxable year of
the  sale  or  other  disposition  and  certain  other  conditions  apply.  Any
effectively  connected  gain  of a corporate non-U.S. Holder may also be subject
under  certain  circumstances to an additional "branch profits tax," the rate of
which  may  be  reduced  pursuant  to  an  applicable  income  tax  treaty.


                                       69
<PAGE>
PASSIVE  FOREIGN  INVESTMENT  COMPANY  RULES

     A  special  set  of  U.S.  federal  income  tax  rules applies to a foreign
corporation that is a PFIC for U.S. federal income tax purposes. As noted above,
based  on  the  Company's  audited  financial statements and relevant market and
shareholder data, the Company believes it was not a PFIC for U.S. federal income
tax  purposes  for  its  June  30,  2006 taxable year. In addition, based on the
Company's  audited  financial  statements and its current expectations regarding
the  value  and  nature of its assets, the sources and nature of its income, and
relevant market and shareholder data, the Company does not anticipate becoming a
PFIC  for  its  June  30,  2007  taxable  year.

     In  general,  a  foreign corporation is a PFIC if at least 75% of its gross
income  for  the taxable year is passive income or if at least 50% of its assets
for  the  taxable  year produce passive income or are held for the production of
passive  income. In general, passive income for this purpose means, with certain
designated exceptions, dividends, interest, rents, royalties (other than certain
rents  and  royalties  derived  in  the  active  conduct  of trade or business),
annuities,  net  gains from dispositions of certain assets, net foreign currency
gains,  income  equivalent to interest, income from notional principal contracts
and  payments  in  lieu  of  dividends.  The  determination of whether a foreign
corporation  is a PFIC is a factual determination made annually and is therefore
subject  to  change.  Subject  to  exceptions pursuant to certain elections that
generally  require  the  payment  of tax, once stock in a foreign corporation is
stock  in a PFIC in the hands of a particular shareholder that is a U.S. person,
it  remains  stock  in  a  PFIC  in  the  hands  of  that  shareholder.

     If  the  Company  treated  as  a  PFIC,  contrary  to  the tax consequences
described  in "U.S. federal Income Tax Considerations-Taxation of Dividends" and
"-U.S.  federal  Income  Tax  Considerations-Taxation of Capital Gains" above, a
U.S.  Holder  that  does  not  make  an election described in the succeeding two
paragraphs  would  be  subject  to  special  rules  with respect to (i) any gain
realized  on  a  sale  or  other  disposition  of an ordinary share and (ii) any
"excess  distribution"  by  the  Company  to  the  U.S.  Holder  (generally, any
distribution  during a taxable year in which distributions to the U.S. Holder on
the  ordinary  share exceed 125% of the average annual taxable distributions the
U.S.  Holder  received  on the ordinary share during the preceding three taxable
years  or, if shorter, the U.S. Holder's holding period for the ordinary share).
Under  those  rules,  (i)  the  gain  or  excess distribution would be allocated
ratably  over  the U.S. Holder's holding period for the ordinary share, (ii) the
amount allocated to the taxable year in which the gain or excess distribution is
realized  would  be taxable as ordinary income and (iii) the amount allocated to
each prior year, with certain exceptions, would be subject to tax at the highest
tax  rate  in effect for that year, and the interest charge generally applicable
to  underpayments  of tax would be imposed in respect of the tax attributable to
each  of  those  years. A U.S. Holder who owns an ordinary share during any year
the  Company  is  a  PFIC  must  file  Internal  Revenue  Service  Form  8621.

     The  special  PFIC rules described above will not apply to a U.S. Holder if
the  U.S.  Holder  makes  a timely election to treat the Company as a "qualified
electing  fund"  ("QEF") in the first taxable year in which the U.S. Holder owns
an  ordinary  share  and  the Company is a PFIC and if the Company complies with
certain  reporting  requirements.  Instead,  a shareholder of a QEF generally is
currently taxable on a pro rata share of the Company's ordinary earnings and net
capital  gain  as  ordinary  income  and  long-term  capital gain, respectively.
Neither  that  ordinary  income  nor  any actual dividend from the Company would
qualify for the 15% maximum tax rate on dividends described above if the Company
is a PFIC in the taxable year the ordinary income is realized or the dividend is
paid  or  in  the  preceding  taxable  year.  The Company has not yet determined
whether,  if  it


                                       70
<PAGE>
is  a PFIC, it would make the computations necessary to supply U.S. Holders with
the  information needed to report income and gain pursuant to a QEF election. It
is,  therefore,  possible  that U.S. Holders would not be able to make or retain
that  election  in  any  year  the  Company  is  a PFIC. Although a QEF election
generally cannot be revoked, if a U.S. Holder made a timely QEF election for the
first  taxable  year it owned an ordinary share and the Company is a PFIC (or is
treated  as  having  done  so  pursuant  to  any  of certain elections), the QEF
election  will not apply during any later taxable year in which the Company does
not  satisfy the tests to be a PFIC. If a QEF election is not made in that first
taxable  year, an election in a later year generally will require the payment of
tax  and  interest,  and  in  certain circumstances the election may cease to be
available  at  a  later  date.

     In  lieu  of  a  QEF  election,  a  U.S.  Holder of stock in a PFIC that is
considered  marketable  stock  could elect to mark the stock to market annually,
recognizing  as  ordinary  income  or  loss  each  year  an  amount equal to the
difference  as of the close of the taxable year between the fair market value of
the  stock  and  the  U.S. Holder's adjusted basis in the stock. Losses would be
allowed  only  to  the  extent of net mark-to-market gain previously included in
income  by  the  U.S.  Holder under the election for prior taxable years. A U.S.
Holder's  adjusted  basis  in the ordinary share will be adjusted to reflect the
amounts included or deducted with respect to the mark-to-market election. If the
mark-to-market  election  were made, the rules set forth in the second preceding
paragraph  would not apply for periods covered by the election. A mark-to-market
election  will not apply during any later taxable year in which the Company does
not  satisfy  the  tests  to  be  a PFIC. In general, the ordinary share will be
marketable  stock if they are traded, other than in de minimis quantities, on at
least  15 days during each calendar quarter. However, there is no certainty that
the  shares  will  be  considered  "marketable  stock"  for  these  purposes.

     INFORMATION  REPORTING  AND  BACKUP  WITHHOLDING

     Dividends  paid  on,  and  proceeds  from the sale or other disposition of,
ordinary  shares  to  a  U.S.  Holder  generally  may  be subject to information
reporting  requirements  and may be subject to backup withholding at the rate of
28%  unless  the U.S. Holder provides an accurate taxpayer identification number
or  otherwise  establishes  an  exemption.  The amount of any backup withholding
collected  from  a  payment to a U.S. Holder will be allowed as a credit against
the  U.S.  Holder's  U.S.  federal income tax liability and may entitle the U.S.
Holder  to  a  refund, provided certain required information is furnished to the
Internal  Revenue  Service.

     A non-U.S. Holder generally will be exempt from these information reporting
requirements  and  backup  withholding  tax  but  may be required to comply with
certain  certification  and  identification procedures in order to establish its
eligibility  for  exemption.

     THE  DISCUSSION  ABOVE IS NOT INTENDED TO CONSTITUTE A COMPLETE ANALYSIS OF
ALL  TAX  CONSIDERATIONS APPLICABLE TO AN INVESTMENT IN ORDINARY SHARES. HOLDERS
AND  POTENTIAL  HOLDERS  SHOULD  CONSULT THEIR TAX ADVISER(S) CONCERNING THE TAX
CONSEQUENCES  RELEVANT  TO  THEM  IN  THEIR  PARTICULAR  SITUATION.


                                       71
<PAGE>
ITEM  11.     QUANTITATIVE  AND  QUALITATIVE  DISCLOSURES  ABOUT  MARKET  RISK

     The primary objective of our investment activities is to preserve principal
and, at the same time, maximize income without significantly increasing risk. At
June  30,  2006,  our  cash  and  cash equivalents consisted primarily of highly
liquid  investments  with  maturities  of  three months or less. We believe that
these  investments  do  not  constitute  any  material  market  risk  exposure.

     In  fiscal  2006 the majority of our operating expenses were denominated in
Australian  dollars.  From  time  to  time,  in  order to reduce our exposure to
foreign  currency  exchange  rate  risks,  we buy and hold foreign currencies to
cover our operating expenses denominated in those currencies. We also, from time
to  time, attempt to hedge our currency exchange risk. At June 30, 2006, we were
not  a  party  to  any  foreign  currency  hedging or other derivative financial
instruments.

     The  Australian  dollar  is  our  functional  currency.  Our  assets  and
liabilities  are translated into U.S. dollars at the exchange rate prevailing on
the  balance  sheet  date,  and  our  revenues,  expenses,  gains and losses are
translated  into  U.S.  dollars  at  the  average exchange rate for the relevant
period.  In  general,  fluctuations  between  the U.S. dollar and the Australian
dollar  may  affect  our  operating  results  as  reported  in  U.S.  dollars.


                                       72
<PAGE>
ITEM  12.     DESCRIPTION  OF  SECURITIES  OTHER  THAN  EQUITY  SECURITIES

     Not applicable.


                                       73
<PAGE>
                                     PART II

ITEM 13.     DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES

     None.

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

     None.

ITEM 15.     CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

     An evaluation as of June 30, 2006 was carried out under the supervision and
with  the  participation  of  the  Company's  management,  including  its  Chief
Executive  Officer  and its Chief Financial Officer, of the effectiveness of the
design  and  operation  of  the Company's disclosure controls and procedures, as
defined  in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934.
Based  on  that  evaluation,  the  Company's  Chief  Executive Officer and Chief
Financial  Officer  concluded  that  the  design  and operation of the Company's
disclosure  controls  and  procedures  are  effective to ensure that information
required to be disclosed in the reports that the Company files and submits under
the Exchange Act is (i) recorded, processed, summarized and reported as and when
required  and  (ii)  accumulated  and  communicated to management, including the
Chief  Executive  Officer and Chief Financial Officer, to allow timely decisions
regarding  required disclosure as of the end of the Company's most recent fiscal
year.  No  changes  in  the Company's internal controls over financial reporting
occurred  during  the period covered by this report that materially affected, or
are reasonably likely to materially affect, the Company's internal controls over
financial  reporting.

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Not applicable.

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

     Not applicable.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     In  connection  with the audits of our fiscal years ended June 30, 2006 and
2005,  Ernst  &  Young,  the  Company's independent auditors, informed our audit
committee that they consider the following matters represent material weaknesses
in  the  operation  of  our  internal  control  over  financial  reporting:

     -    The  financial  statement  close  process  and  knowledge  of US GAAP.

     In  order  to  address  the  weakness  in  our  knowledge  of  US GAAP, and
consistent  with  the


                                       74
<PAGE>
program  implemented last year, our senior finance staff have attended, and will
continue  to attend, targeted US GAAP and SEC reporting courses and subscribe to
additional  information publications and updates of SEC and US GAAP releases and
rule  changes  and  of  information about the requirements of the Public Company
Accounting  Oversight  Board.  We will also consider mitigating this weakness by
conferring  and/or  hiring  outside  accounting  advisers  with  respect  to the
technical  requirements  applicable  to  our  financial  statements.

LIMITATIONS  ON  THE  EFFECTIVENESS  OF  CONTROLS

     Our  management,  including  our  managing  director  and  chief  financial
officer,  does  not  expect  that  our disclosure controls and procedures or our
internal  control  over  financial  reporting  will  assure that all appropriate
information  will,  in  fact,  be  communicated  to  management  to allow timely
decisions to be made or prevent all error and fraud. A control system, no matter
how  well  conceived  and  operated,  can provide only reasonable, not absolute,
assurance  that  the objectives of the control system are met. Additionally, the
design  of  a  control  system  must  reflect  the  fact that there are resource
constraints,  and  the  benefit of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of  fraud,  if  any,  within  the company have been detected or that our control
system will operate effectively under all circumstances. Moreover, the design of
any  system  of  controls  is  based  in part upon certain assumptions about the
likelihood  of future events, and there can be no assurance that any design will
succeed  in  achieving  its  stated goals under all potential future conditions.

ITEM  16.     [RESERVED]

ITEM  16A.    AUDIT  COMMITTEE  FINANCIAL  EXPERT

     The Company's board of directors has determined that audit committee member
Mr.  P.  Burns is an audit committee financial expert as defined under the rules
and  regulations  of  the  Securities  and  Exchange  Commission.

ITEM 16B.     CODE OF ETHICS

     We have adopted a code of ethics that applies to our executive directors
and chief financial officer. A copy of this Code of Ethics is available on the
Company's website at www.progen.com.au.
                     -----------------

     No  waivers  to this Code of Ethics were granted to our executive directors
or  chief  financial  officer  during  the  fiscal  year  ended  June  30, 2006.


                                       75
<PAGE>
ITEM 16C.     PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The aggregate fees and expenses for professional services rendered by our
principal accountant, Ernst & Young, for the audit of our annual financial
statements for the years ended June 30, 2005 and 2006 and for other listed
services rendered in those years are set forth in the following table:

<TABLE>
<CAPTION>
------------------------------------------
                            2005      2006
----------------------  --------  --------
<S>                     <C>       <C>
Audit Fees              $129,040  $116,288
----------------------  --------  --------
Audit-Related Fees (1)         -         -
----------------------  --------  --------
Tax Fees (2)                   -         -
----------------------  --------  --------
All Other Fees (3)             -         -
----------------------  --------  --------
TOTAL FEES              $129,040  $116,288
------------------------------------------
</TABLE>

(1)  There  were  no  assurance  and  related services rendered by our principal
     accountant  related  to  the  performance  of  the  audit  or review of our
     financial  statements which have not been disclosed under audit fees above.

(2)  There  were  no  professional services rendered by our principal accountant
     for  tax  compliance,  tax  advice  or  tax  planning.

(3)  There  were  no  other  professional  services  rendered  by  our principal
     accountant.

AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

     All audit and non-audit services performed by our independent auditors must
be specifically pre-approved by our audit committee. Consistent with this
policy, for the year ended June 30, 2006, all audit and non-audit services
initiated by Ernst & Young were pre-approved by our audit committee.

ITEM 16D.     EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

     Not  applicable.

ITEM 16E.     PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
              PURCHASERS

     Not applicable.

                                    PART III

ITEM 17.     FINANCIAL STATEMENTS

     Not Applicable.


                                       76
<PAGE>
ITEM 18.     FINANCIAL STATEMENTS

     FINANCIAL STATEMENTS - INDEX TO FINANCIAL STATEMENTS

<TABLE>
<CAPTION>
<S>                                                                            <C>
     Report of Independent Registered Public Accounting Firm. . . . . . . . .  F-1
     Balance Sheets as of June 30, 2005 and 2006. . . . . . . . . . . . . . .  F-2
     Statements of Income for the years ended June 30, 2004, 2005 and 2006. .  F-3
     Statements of Changes in Stockholders' Equity for the years
     ended June 30, 2004, 2005 and 2006 . . . . . . . . . . . . . . . . . . .  F-4
     Statements of Cash Flow for the years ended June 30, 2004, 2005 and 2006  F-6
     Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . .  F-8 through
                                                                               F- 23
</TABLE>

ITEM 19.     EXHIBITS

<TABLE>
<CAPTION>
Exhibit Number   Description
--------------   -----------
<S>              <C>
4(b)(iv)(1)      2004 addendum to Lease 2806 Ipswich Road Darra *
4(b)(iv)(2)      2005 Lease 16 Benson Street Toowong *
4(c)(1)          Employment agreement dated  between Progen Industries Limited and T
                 Justus Homburg (1)
4(c)(2)          Employment agreement dated August 5, 2004 between Progen Industries
                 Limited and Linton Burns *
4(c)(3)          Progen Industries Limited Directors and Employee Option Incentive Plan
                 Rules for the directors and employees incentive scheme approved by a
                 resolution of shareholders at the annual general meeting of the Company
                 held on November 30, 2004 *
12.1             Certification of T. Justus Homburg under Rule 13a-14(a) (1)
12.2             Certification of Linton W. P. Burns under Rule 13a-14(a) (1)
13               Certification of T. Justus Homburg and Linton W. P. Burns under Section
                 1350 of Chapter 63 of Title 18 of the United States Code (1)
</TABLE>

*     Incorporated by reference to exhibits filed with the Annual Report on Form
20-F, filed on December 20, 2004.
(1)  Filed herewith


                                       77
<PAGE>
                                   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.

                                        PROGEN INDUSTRIES LIMITED

                                        By: /s/ T. Justus Homburg
                                            ------------------------------
                                            T. Justus Homburg
                                            Managing Director

Dated:  December 21, 2006


                                       78
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


THE BOARD OF DIRECTORS AND SHAREHOLDERS OF PROGEN INDUSTRIES LIMITED

We  have audited the accompanying balance sheets of Progen Industries Limited as
of  June  30,  2006  and  2005, and the related statements of income, changes in
stockholders'  equity,  and cash flows for each of the three years in the period
ended  June  30,  2006. 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 the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements  are free of material misstatement. We were not engaged to perform an
audit  of  the  Company's  internal control over financial reporting. Our audits
included  consideration  of internal control over financial reporting as a basis
for  designing  audit  procedures that are appropriate in the circumstances, but
not  for  the  purpose  of  expressing  an  opinion  on the effectiveness of the
Company's  internal control over financial reporting. Accordingly, we express no
such  opinion.  An  audit  also  includes  examining,  on a test basis, evidence
supporting  the  amounts  and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
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 Progen Industries Limited at
June 30, 2006 and 2005, and the results of its operations and its cash flows for
each  of  the  three years in the period ended June 30, 2006, in conformity with
U.S.  generally  accepted  accounting  principles.


Ernst & Young
Brisbane, Australia
December 19, 2006


--------------------------------------------------------------------------------
                                      F-1
<PAGE>
<TABLE>
<CAPTION>
PROGEN  INDUSTRIES  LIMITED


BALANCE SHEETS                                                  (U.S. DOLLARS)
------------------------------------------------------------------------------

                                                           JUNE 30,
                                                          2005           2006
<S>                                               <C>            <C>
ASSETS:
CURRENT ASSETS:
  Cash and cash equivalents                       $ 17,851,895   $ 11,588,471
  Accounts receivable                                  184,912        112,781
  Prepaid expenses                                      29,459        327,860
                                                  -------------  -------------

TOTAL CURRENT ASSETS                                18,066,266     12,029,112
                                                  -------------  -------------

NON-CURRENT ASSETS:
  Restricted term deposits                               9,906         63,291
  Property and equipment - net                         692,083      1,066,482
                                                  -------------  -------------

TOTAL NON-CURRENT ASSETS                               701,989      1,129,773
                                                  -------------  -------------

TOTAL ASSETS                                      $ 18,768,255   $ 13,158,885
                                                  =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
  Accounts payable                                $    885,352   $    922,748
  Accrued employee benefits                            190,305        193,661
  Deferred grant income                                      -         53,461
                                                  -------------  -------------

TOTAL CURRENT LIABILITIES                            1,075,657      1,169,870
                                                  -------------  -------------

NON-CURRENT LIABILITIES:
  Accrued employee benefits                             88,177         55,579
  Deferred grant income                                      -         37,965
  Asset retirement obligation                           81,797        103,084
                                                  -------------  -------------

                                                       169,974        196,628
                                                  -------------  -------------

TOTAL LIABILITIES                                    1,245,631      1,366,498
                                                  -------------  -------------

COMMITMENTS AND CONTINGENCIES                                -              -

STOCKHOLDERS' EQUITY:
Capital stock, ordinary shares, no par value;
40,556,793 and 40,589,793 issued and outstanding
in 2005 and 2006 respectively                       59,907,735     60,017,537

Accumulated deficit                                (43,508,429)   (48,735,611)

Accumulated other comprehensive income               1,123,318        510,461
                                                  -------------  -------------

TOTAL STOCKHOLDERS' EQUITY                          17,522,624     11,792,387
                                                  -------------  -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $ 18,768,255   $ 13,158,885
                                                  =============  =============
</TABLE>

See accompanying notes to financial statements.


--------------------------------------------------------------------------------
                                      F-2
<PAGE>
<TABLE>
<CAPTION>
PROGEN  INDUSTRIES  LIMITED


STATEMENTS OF INCOME                                                             (U.S. DOLLARS)
-----------------------------------------------------------------------------------------------

                                                                 YEARS ENDED JUNE 30,
                                                              2004          2005          2006
<S>                                                    <C>           <C>           <C>
REVENUE FROM SERVICES                                  $ 1,394,589   $ 1,076,308   $   676,975

COST OF SERVICES                                           373,266       253,276        34,080

COST OF OPERATIONS:

  Research and development                               3,061,120     2,712,427     3,151,595
  Selling, general and administrative expenses           2,616,728     2,953,886     2,879,906
  Depreciation                                             463,456       428,891       398,043
  Other costs of operations                                 79,344       397,416       697,915
  Rentals on operating leases                               78,583        91,329       165,715
                                                       ------------  ------------  ------------

  TOTAL COST OF OPERATIONS                               6,299,231     6,583,949     7,293,174
                                                       ------------  ------------  ------------

LOSS FROM OPERATIONS                                    (5,277,908)   (5,760,917)   (6,650,279)
                                                       ------------  ------------  ------------

OTHER INCOME (EXPENSES):

  Interest income                                          474,589       617,822       824,596
  Interest expense                                         (12,437)      (12,923)      (10,938)
  Grant income                                             596,522       577,756       568,665
  Other income                                              20,113        29,948        40,774
                                                       ------------  ------------  ------------

TOTAL OTHER INCOME                                       1,078,787     1,212,603     1,423,097
                                                       ------------  ------------  ------------

NET LOSS FROM CONTINUING OPERATIONS                     (4,199,121)   (4,548,314)   (5,227,182)

DISCONTINUED OPERATIONS

  Income from operations of Life Sciences division
  (including profit on disposal of $486,402)               654,666             -             -
                                                       ------------  ------------  ------------

NET LOSS                                               $(3,544,455)  $(4,548,314)  $(5,227,182)
                                                       ============  ============  ============

NET LOSS PER ORDINARY SHARE (BASIC AND DILUTED)

  Continuing operations                                $     (0.13)  $     (0.13)  $     (0.13)
  Discontinued operations                              $      0.02             -             -
                                                       ------------  ------------  ------------

NET LOSS PER ORDINARY SHARE (BASIC AND DILUTED)        $     (0.11)  $     (0.13)  $     (0.13)
                                                       ============  ============  ============

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING USED IN
THE CALCULATION OF NET LOSS PER SHARE                   32,675,867    35,709,343    40,560,782
                                                       ============  ============  ============
</TABLE>

See accompanying notes to financial statements.


--------------------------------------------------------------------------------
                                      F-3
<PAGE>
<TABLE>
<CAPTION>
PROGEN  INDUSTRIES  LIMITED


STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY                                                         (U.S. DOLLARS)
--------------------------------------------------------------------------------------------------------------------

                                                                                           ACCUMULATED
                                               NUMBER OF                                         OTHER
                                                ORDINARY                  ACCUMULATED    COMPREHENSIVE
                                                  SHARES        AMOUNT        DEFICIT    INCOME (LOSS)         TOTAL
                                              ----------  ------------  -------------  ---------------  ------------
<S>                                           <C>         <C>           <C>            <C>              <C>
BALANCE - JUNE 30, 2003                       30,099,223  $44,153,011   $(35,415,660)  $     (232,409)  $ 8,504,942
Other comprehensive income:
Translation adjustment                                 -            -              -          257,098       257,098
                                                                                                        ------------
Net loss                                               -            -     (3,544,455)               -    (3,544,455)
                                                                                                        ------------
Comprehensive loss                                     -            -              -                -    (3,287,357)
Issuance of ordinary shares                    3,800,000    3,797,682              -                -     3,797,682
Share issue costs                                      -     (190,467)             -                -      (190,467)
Options issued under the Directors and
Employees Incentive Scheme (2003) and
exercised by directors and employees             199,756      356,489              -                -       356,489

Options issued under the 2003 Prospectus and
exercised by shareholders                        422,086      753,266              -                -       753,266
                                              ----------  ------------  -------------  ---------------  ------------
BALANCE - JUNE 30, 2004                       34,521,065  $48,869,981   $(38,960,115)  $       24,689   $ 9,934,555

Other comprehensive income:
Translation adjustment                                 -            -              -        1,098,629     1,098,629
                                                                                                        ------------
Net loss                                               -            -     (4,548,314)               -    (4,548,314)
                                                                                                        ------------
Comprehensive loss                                     -            -              -                -    (3,449,685)
Issuance of ordinary shares                    1,219,015    2,296,380              -                -     2,296,380
Share issue costs                                      -     (349,259)             -                -      (349,259)
Options issued under the Directors and
Employees Incentive Scheme (2003) and
exercised by directors and employees           1,528,211    2,878,844              -                -     2,878,844
Options issued under the 2003 Prospectus and
exercised by shareholders                      2,588,502    4,876,220              -                -     4,876,220
Options issued to an advisor and exercised       700,000    1,318,660              -                -     1,318,660
Fair value of options issued to a consultant           -       16,909              -                -        16,909
</TABLE>

See accompanying notes to financial statements.


--------------------------------------------------------------------------------
                                      F-4
<PAGE>
<TABLE>
<CAPTION>
PROGEN  INDUSTRIES  LIMITED


STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (CONTINUED)                                             (U.S. DOLLARS)
--------------------------------------------------------------------------------------------------------------------

                                                                                           ACCUMULATED
                                               NUMBER OF                                         OTHER
                                                ORDINARY                  ACCUMULATED    COMPREHENSIVE
                                                  SHARES        AMOUNT        DEFICIT    INCOME (LOSS)         TOTAL
                                              ----------  ------------  -------------  ---------------  ------------
<S>                                           <C>         <C>           <C>            <C>              <C>
BALANCE - JUNE 30, 2005                       40,556,793  $ 59,907,735  $(43,508,429)  $    1,123,318   $17,522,624
Other comprehensive income:
Translation adjustment                                 -             -             -         (612,857)     (612,857)
                                                                                                        ------------
Net loss                                               -             -    (5,227,182)               -    (5,227,182)
                                                                                                        ------------
Comprehensive loss                                                                                       (5,840,039)
Options issued under the Directors and
Employees Incentive Scheme (2004) and
exercised by employees                            33,000        74,776             -                -        74,776
Fair value of options issued to employees              -        35,026             -                -        35,026
                                             -----------  ------------  -------------  ---------------  ------------

BALANCE - JUNE 30, 2006                       40,589,793    60,017,537   (48,735,611)         510,461    11,792,387
                                             ===========  ============  =============  ===============  ============
</TABLE>

The functional currency for the Company's operations is Australian dollars.  The
translation  from  Australian dollars into U.S. dollars is performed for balance
sheet  accounts using current exchange rates in effect at balance sheet date and
for  revenue  and  expense  accounts  using the average exchange rate during the
period.  The  gains  or  losses  resulting from such translation are included in
stockholders'  equity.

See accompanying notes to financial statements.


--------------------------------------------------------------------------------
                                      F-5
<PAGE>
<TABLE>
<CAPTION>
PROGEN  INDUSTRIES  LIMITED


STATEMENTS OF CASH FLOWS                                                        (U.S. DOLLARS)
----------------------------------------------------------------------------------------------

                                                                    YEARS ENDED
                                                                      JUNE 30,
                                                             2004          2005          2006
<S>                                                   <C>           <C>           <C>
OPERATING ACTIVITIES:

Receipts from customers                               $ 2,922,447   $ 1,575,552   $   934,679
Payments to suppliers and employees                    (7,611,601)   (6,637,662)   (7,237,475)
Receipt of government grant                               447,181       455,905       626,878
Interest received                                         474,589       617,822       810,799
Interest paid                                             (12,437)      (12,923)      (10,963)
Other operating cash receipts                               2,115             -             -
                                                      ------------  ------------  ------------

NET CASH - OPERATING ACTIVITIES                        (3,777,706)   (4,001,306)   (4,876,082)
                                                      ------------  ------------  ------------

INVESTING ACTIVITIES:
Proceeds from sale of property and equipment               17,998         6,029             -
Proceeds from sale of discontinued operation              838,622             -             -
Purchase of restricted term deposits                            -             -       (55,106)
Purchase of property and equipment                       (135,577)     (163,357)     (793,623)
                                                      ------------  ------------  ------------

NET CASH - INVESTING ACTIVITIES                           721,043      (157,328)     (848,729)
                                                      ------------  ------------  ------------

FINANCING ACTIVITIES:
Proceeds from share issues                              3,797,682     2,296,380             -
Share issue costs                                        (190,467)     (349,259)            -
Proceeds from exercise of options                       1,109,755     9,073,724        74,776
                                                      ------------  ------------  ------------

NET CASH - FINANCING ACTIVITIES                         4,716,970    11,020,845        74,776
                                                      ------------  ------------  ------------

EFFECT OF EXCHANGE RATE ON CASH AND CASH EQUIVALENTS      223,507     1,104,028      (613,389)
                                                      ------------  ------------  ------------

NET INCREASE/(DECREASE) IN CASH AND CASH
EQUIVALENTS                                             1,883,814     7,966,239    (6,263,424)

CASH AND CASH EQUIVALENTS AT BEGINNING OF
YEAR                                                    8,001,842     9,885,656   $17,851,895
                                                      ------------  ------------  ------------

CASH AND CASH EQUIVALENTS AT END OF YEAR              $ 9,885,656   $17,851,895   $11,588,471
                                                      ============  ============  ============
</TABLE>

See accompanying notes to financial statements.


--------------------------------------------------------------------------------
                                      F-6
<PAGE>
<TABLE>
<CAPTION>
PROGEN  INDUSTRIES  LIMITED


STATEMENTS OF CASH FLOWS                                                                   (U.S. DOLLARS)
---------------------------------------------------------------------------------------------------------

                                                                             YEARS ENDED
                                                                               JUNE 30,
                                                                        2004          2005          2006
<S>                                                              <C>           <C>           <C>
RECONCILIATION OF OPERATING LOSS AFTER INCOME TAX TO NET CASH
USED IN OPERATING ACTIVITIES:

  Operating loss after income tax                                $(3,544,455)  $(4,548,314)  $(5,227,182)
  Proceeds from sale of discontinued operation                      (838,622)            -             -

  Non-cash items:
  Depreciation                                                       463,720       428,891       398,043
  (Gain) / loss on sale of property and equipment                     (2,115)        9,852             -
  Cost of share options                                                    -             -        34,878
  Other non cash items                                                     -        11,335       (18,079)

  Net change in operating assets and liabilities:

  (Increase)/decrease in operating assets:
    Accounts receivable                                              149,077       162,000        65,954
    Prepaid expenses                                                 (50,119)       92,475      (306,911)
    Inventory                                                        568,467             -             -

  Increase/(decrease) in operating liabilities:
    Accounts payable                                                (559,621)     (261,152)       76,268
    Accrued employee benefits                                         35,962        21,810       (18,011)
    Deferred revenue                                                       -             -        93,646
    Asset retirement obligation                                            -        81,797        25,312
                                                                 ------------  ------------  ------------

  NET CASH USED IN OPERATING ACTIVITIES                          $(3,777,706)  $(4,001,306)  $(4,876,082)
                                                                 ============  ============  ============
</TABLE>

See accompanying notes to financial statements.


--------------------------------------------------------------------------------
                                      F-7
<PAGE>
PROGEN  INDUSTRIES  LIMITED


1.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES

ORGANIZATION  AND  NATURE  OF  OPERATIONS
Progen  Industries  Limited  ("Progen"  or  the  "Company")  was incorporated in
Queensland,  Australia  on  September  26,  1989 and became an Australian public
company  on  March  8,  1991.

Progen  is  a  biotechnology company committed to the discovery, development and
commercialization of small molecule therapeutics for the treatment of cancer and
other  serious diseases.  The Company's lead product candidate, PI-88, is one of
a  new  class of multi-functional, multi-targeted cancer therapeutics inhibiting
both  angiogenesis,  or  tumor  promoting  factors  such as Vascular Endothelial
Growth  Factor, Fibroblast Growth Factor 1, Fibroblast Growth Factor 2, and also
heparanase,  an  enzyme  implicated  in  metastasis  (tumor  spread).  PI-88  is
currently  in  Phase  II clinical development with four Phase II clinical trials
ongoing  in  the  U.S., Australia and Taiwan under an active Investigational New
Drug  application,  or IND, with the United States Food and Drug Administration,
or  FDA.

Progen's  second  oncology  product  candidate,  PI-166, is undergoing a Phase I
clinical  trial in patients with inoperable primary liver cancer (hepatocellular
carcinoma  or  HCC).  PI-166  is  a novel combination of an active small organic
chemical  molecule  and  a  delivery  vehicle  that  directs  the  active  drug
constituent  at  the  tumor  site.  PI-166  is  being  developed  for  potential
application in the treatment of advanced hepatocellular carcinoma (primary liver
cancer).

Through  the  Company's  internal  drug  discovery research program and academic
collaborations,  Progen  is  developing  small  molecule  drug  candidates  that
modulate  the  interaction  between  carbohydrates  (sugars) and disease-related
protein targets as potential therapeutics for cancer and other serious diseases.
The  Company's  research  team  and  academic  collaborators  have  identified a
portfolio  of  heparan  sulfate  binding proteins that are involved in different
diseases, and Progen is now designing, synthesizing and screening small molecule
compounds  that  disrupt  heparan  sulfate  binding.

We  have  no therapeutic products currently available for sale and do not expect
to have any therapeutic products commercially available for sale for a period of
years,  if  at all. These factors indicate that our ability to continue research
and  development  activities  is dependent upon the ability of our management to
obtain  additional  financing  as  required.

Our  principal  executive  offices  are  located  at  16 Benson Street, Toowong,
Queensland  4066,  Australia.  The  Company  also  maintains  and  operates  an
approximate  11,200  square  foot  fully-integrated  pharmaceutical raw material
manufacturing  facility  in  leased  premises  at  Darra,  a suburb of Brisbane,
Australia.  The  facility  has  the  capability  to  develop  and  manufacture
therapeutic  products  for  worldwide  markets  and  consists  of  15  modular
laboratories.

BASIS  OF  PRESENTATION
These  financial  statements have been prepared in accordance with United States
generally accepted accounting principles ("U.S. GAAP") and are presented in U.S.
dollars.

CASH  AND  CASH  EQUIVALENTS
Cash  and  cash  equivalents  comprise  cash  at bank and in hand and short-term
deposits  with an original maturity of three months or less. For the purposes of
the  cash  flow  statement,  cash  includes cash and cash equivalents as defined
above,  net  of  outstanding  drafts.

RESTRICTED  TERM  DEPOSITS
As at June 30, 2006, we held restricted term deposits amounting to $63,291 under
bank  guarantees  relating  to  the  Company's  leased  premises.

ACCOUNTS  RECEIVABLE
Trade  debtors  are  carried  at  amounts  due.  The  collectibility of debts is
assessed  at  balance  date  and  specific  provision  is  made for any doubtful
accounts.


--------------------------------------------------------------------------------
                                      F-8
<PAGE>
PROGEN  INDUSTRIES  LIMITED


1.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

PROPERTY  AND  EQUIPMENT  AND  DEPRECIATION
Property  and  equipment are stated at cost, net of accumulated amortization and
depreciation.  Property  and  equipment are depreciated on a straight-line basis
over  the  estimated  useful  lives  of  the  assets. Leasehold improvements are
amortized on a straight-line basis over the shorter of the estimated life of the
asset  or  the  term  of  the  lease.

Classes  of  property  and  equipment  and  related useful lives are as follows:

<TABLE>
<CAPTION>
                                         ESTIMATED
     ASSET                              USEFUL LIFE
                                           YEARS
<S>                                     <C>
     Machinery and equipment               5-10
     Furniture and fixtures                3-10
     Leasehold improvements                3- 6
</TABLE>

REVENUE  RECOGNITION
The  Company  generates  revenue  principally  from  the  provision  of contract
manufacturing  services.

Revenue  is  recognised  when the four basic criteria of revenue recognition are
met:  (1)  a  contractual agreement exists; (2) services have been rendered; (3)
the  fee is fixed or determinable; and (4) collectibility is reasonably assured.
For  each  source  of revenue Progen complies with the above revenue recognition
criteria  in  the  following  manner:

     -    A  sale  is recorded when goods have been delivered to and accepted by
          the  customer pursuant to a fixed price sales order, collectibility of
          the  selling price is reasonably assured and the associated risks have
          passed to the customer. The Company grants no refund or return rights.

     -    Revenues  from  services  rendered  are  recognized  as the service is
          performed,  and  no additional services or products are required to be
          provided.

GOVERNMENT  GRANT  INCOME
Government  grants,  which  support  the  Company's research efforts in specific
projects, generally provide for reimbursement of approved costs incurred.  Grant
receipts  are  recognised as income when research and development expenditure to
which the particular grant relates has been incurred.  Advance payments received
are  classified  as  deferred  income  until  earned.

RESEARCH  AND  DEVELOPMENT  EXPENDITURE
Research  and  development  costs  are charged as an expense when incurred. Such
costs  include  direct  salaries,  patient  recruitment  fees, contract research
costs,  laboratory  expenses, rent, utilities and certain related administrative
expenses.

PATENTS
Costs  associated with filing, maintaining, defending and protecting patents for
which  no  future benefit is reasonably assured are expensed as selling, general
and  administrative  costs  when  incurred.

STOCK-BASED  COMPENSATION
The  Company  currently  sponsors  stock option plans. Prior to July 1, 2005 the
Company  accounted  for  its  stock  option  plans in accordance with Accounting
Principles  Board  Opinion  No. 25: Accounting for Stock Issued to Employees and
related interpretations ("APB 25") and adopted the disclosure-only provisions of
Statement  of  Financial  Accounting  Standards  ("SFAS") No. 123 Accounting for
Stock-Based  Compensation  ("SFAS  123").  Under  APB 25, the Company recognized
compensation  expense  for  stock option grants on the date of the grant only if
the  current  market  price of the underlying stock exceeded the exercise price.
Unearned  compensation  expense  was charged against operations ratably over the
vesting  period  of  the  options. For disclosure purposes under SFAS 123, stock
options  were  valued  at  the  measurement  date using the Black-Scholes option
valuation  model and compensation costs were recognized ratably over the vesting
period.

Effective  July  1,  2005,  the  Company  adopted  the  requirements of SFAS 123
(revised  2004),  Share-Based  Payments  ("SFAS  123R")  using  the  "modified
prospective"  method  thereby recognising the compensation cost in the financial
statements  for  all  share-based payments granted after that date, and based on
the  requirements  of  SFAS  123,  for  all unvested awards granted prior to the
effective  date  of  SFAS  123R.


--------------------------------------------------------------------------------
                                      F-9
<PAGE>
PROGEN  INDUSTRIES  LIMITED


1.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

STOCK-BASED  COMPENSATION  (CONTINUED)
The  Company  currently  utilizes a standard option pricing model to measure the
fair  value  of  stock  options  granted  to  employees.

Options  granted  to  consultants  and  other non-employees are accounted for in
accordance  with  Emerging Issues Task Force consensus No 98-18, "Accounting for
                                                                  --------------
Equity  Instruments that are issued to Other than Employees for Acquiring, or in
--------------------------------------------------------------------------------
Connection with  Selling  Goods or Services", and valued using a standard option
---------------------------------------------
pricing  model.

Compensation  cost for stock options granted to non-employees is measured at the
fair  value  of  stock  options  as calculated using a standard option valuation
model  and  are  expensed  over  the  period  in  which  the  options  vest.

The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock  based  employee  compensation for the years ended June 30, 2004 and 2005:

<TABLE>
<CAPTION>
                                                     2004          2005
<S>                                              <C>           <C>
          Net Loss, as reported                  $(3,544,455)  $(4,548,314)

          Add: Total stock-based employee
          compensation expense determined
          under fair value based method for all
          awards                                    (424,027)      (53,086)

                                                 ------------  ------------
          Pro forma net loss                     $(3,968,482)  $(4,601,400)
                                                 ============  ============

          Net loss per share
            Basic - as reported                  $     (0.11)  $     (0.13)
            Basic - pro forma                    $     (0.12)  $     (0.13)

            Diluted - as reported                $     (0.11)  $     (0.13)
            Diluted - pro forma                  $     (0.12)  $     (0.13)
</TABLE>

Actual stock compensation expense included in net loss as reported and
determined under APB 25 was nil for 2004 and 2005.

NET  LOSS  PER  SHARE
Basic and diluted net loss per share has been calculated by dividing net loss by
the  weighted  average  ordinary  shares  outstanding  during  the  periods.

Stock options have not been included in the computation of net loss per share in
the  periods  presented  as  their  effect  is  anti-dilutive.  For  additional
disclosures  regarding  stock  options  see  Note  12.

FOREIGN  CURRENCY  TRANSACTIONS
Foreign currency transactions are initially remeasured to Australian currency at
the  rate  of exchange at the date of the transaction. At the balance sheet date
amounts  payable  and  receivable  in  foreign  currencies  are  remeasured  to
Australian  currency  at  rates  of  exchange  current  at  that date. Resulting
exchange  differences  are  included  in  earnings.

FOREIGN  CURRENCY  TRANSLATION
The  Australian dollar is the functional currency for the Company. Balance sheet
amounts (other than equity accounts) denominated in Australian dollars have been
translated  into  United  States  dollars  using  the year end rate of exchange.
Operating  results  denominated  in Australian dollars have been translated into
U.S.  dollars using the average rate of exchange. Equity accounts are translated
at  historic rates. Gains or losses resulting from such translation are included
as  a  component  of  comprehensive  income  /  (loss).


--------------------------------------------------------------------------------
                                      F-10
<PAGE>
PROGEN  INDUSTRIES  LIMITED


1.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

ACCOUNTING  ESTIMATES
The  preparation  of  financial statements in conformity with U.S. GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets  and  liabilities  and disclosure of contingent assets and liabilities at
the  date  of  the  financial  statements and the reported results of operations
during  the reporting period.  Actual results could differ from those estimates.
Accounting  estimates  have  been  applied  to  calculate  accruals for employee
entitlements,  asset  retirement  obligations,  and  expenses  for  stock-based
compensation.

FINANCIAL  INSTRUMENTS
The  fair  values of financial instruments, including cash and cash equivalents,
accounts  receivable, and accounts payable, approximate their carrying value due
to  their  short  term  nature.  Refer  to  Note  15  for  further  details.

INVESTMENTS
Investments  in  which  the  Company  has  the  ability  to exercise significant
influence  are accounted for in accordance with APB No 18. "The Equity Method of
                                                            --------------------
Accounting for Investments in Common Stock". Under the equity method the Company
------------------------------------------
records  its  share  of  the  earnings  or  losses  of an investee in the income
statement  and an investment in common stock in the balance sheet. The Company's
investment  in  associates  is  not  reduced below zero where the Company has no
obligation  to  fund  liabilities  beyond  its  initial  investment.

ACCRUALS  FOR  EMPLOYEE  ENTITLEMENTS
The Company accrues compensated absences and related benefits as current charges
to  earnings  when  the  following criteria are met: (i) the employee's right to
receive compensation for the future absences is attributable to services already
performed by the employee; (ii) the employee's right to receive the compensation
for the future absences is vested, or accumulates; (iii) it is probable that the
compensation  will  be  paid;  and (iv) the amount of compensation is reasonably
estimable.

IMPAIRMENT
Pursuant  to guidance established in SFAS 144, "Accounting for the Impairment or
                                                --------------------------------
Disposal  of  Long-Lived Assets", the Company evaluates if long lived assets are
-------------------------------
impaired  whenever  indicators  of  impairment are present. Management considers
assets  to  be  impaired if the carrying value exceeds the future projected cash
flows  from  related  operations (undiscounted and without interest charges). If
impairment  is  deemed  to exist, the assets will be written down to fair value.
Management  also  re-evaluates  the periods of amortization to determine whether
subsequent  events  and circumstances warrant revised estimates of useful lives.

Management  also  re-evaluates  the periods of amortisation to determine whether
subsequent  events  and circumstances warrant revised estimates of useful lives.
The  Company  did  not deem any of its long-lived assets to be impaired, and for
the  years  ended  June  30,  2006,  2005  and  2004  no impaired adjustment was
recorded.

ASSET  RETIREMENT  OBLIGATIONS
In  January  2003, the Financial Accounting Standards Board ("FASB") issued SFAS
143,  "Accounting  for  Asset  Retirement  Obligations". SFAS 143 requires legal
       -----------------------------------------------
obligations associated with the retirement of long-lived assets to be recognized
at  their  fair  value  at  the  time the obligations are incurred. Upon initial
recognition  of  a  liability,  the costs are capitalized as part of the related
long-lived  asset  and  allocated  to expense over the useful life of the asset.
Changes  in asset retirement estimates are capitalized as part of the long-lived
asset and expensed prospectively over the useful life of the asset. The discount
rate used when estimating the fair value of the asset retirement obligation is a
credit-adjusted  risk-free  interest rate with the same expected maturity as the
removal  obligation.

INCOME  TAXES
The  Company  accounts  for  income  taxes under the provisions of SFAS No. 109:
Accounting  for  Income  Taxes  ("SFAS  109").  SFAS 109 requires recognition of
deferred tax assets and liabilities for the estimated future tax consequences of
events  attributable  to  differences  between  the financial statement carrying
amounts  of  existing  assets  and liabilities and their respective tax bases as
well  as  operating loss and tax credit carry forwards.  Deferred tax assets and
liabilities  are  measured  using enacted tax rates expected to apply to taxable
income  in  the  years  in  which those temporary differences are expected to be
recovered  or  settled.  The  effect of deferred tax assets and liabilities of a
change  in tax rates is recognized in the income statement in the period that it
includes  the  enactment  date.  Valuation allowances are established when it is
more  likely  than  not  that some or all of the deferred tax assets will be not
realized.


--------------------------------------------------------------------------------
                                      F-11
<PAGE>
PROGEN  INDUSTRIES  LIMITED


1.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

COMPARATIVES
Where  necessary, comparative figures have been adjusted to conform with changes
in  presentation  in  the  current  year.

RECENT  ACCOUNTING  PRONOUNCEMENTS
Accounting  Changes  and  Error  Corrections
In  May  2005,  the  FASB  issued  SFAS  No.  154,  Accounting Changes and Error
                                                    ----------------------------
Corrections, a replacement of APB Opinion No. 20 and FASB Statement No. 3 ("SFAS
-----------
154").  SFAS  154  provides  guidance  on  the  accounting  for and reporting of
accounting  changes,  including  changes in principle, accounting estimates, and
the  reporting  entity,  as  well as, corrections of errors in previously issued
financial  statements.  SFAS 154 requires retrospective application of voluntary
changes  in accounting principle to prior period financial statements, unless it
is  impracticable  to  do so. SFAS 154 also provides that a change in accounting
estimate  that  is affected by a change in accounting principle is accounted for
as  a  change  in  estimate.  SFAS  154  carries forward from APB 20, Accounting
                                                                      ----------
Changes,  the  reporting for a correction of an error, a change in the reporting
-------
entity,  and  the  requirement  to  justify  a  voluntary  change  in accounting
principle  on  the  basis of preferability. SFAS 154 is effective for accounting
changes  and corrections of errors made in fiscal years beginning after December
15, 2005 with early adoption permitted for accounting changes and corrections of
errors  made  in  fiscal years beginning after the date SFAS 154 was issued. The
Company  plans to adopt this pronouncement in fiscal year beginning July 1, 2006
and does not believe the adoption of SFAS 154 will have a material effect on the
financial  statements.

Uncertainty  in  Income  Taxes
In July 2006, the FASB issued FASB Interpretation ("FIN") No. 48, Accounting for
                                                                  --------------
Uncertainty  in  Income Taxes, an interpretation of SFAS No. 109, Accounting for
-----------------------------
Income  Taxes  ("FIN 48").  FIN 48 creates a single model to address uncertainty
in  tax  positions  and clarifies the accounting for income taxes by prescribing
the  minimum  recognition  threshold  a  tax position is required to meet before
being  recognized  in the financial statements. FIN 48 also provides guidance on
derecognition,  measurement,  classification, interest and penalties, accounting
in  interim  periods,  disclosure,  and  transition. In addition, FIN 48 clearly
scopes  out  income taxes from SFAS No. 5, Accounting for Contingencies.  FIN 48
applies  to  all  tax positions related to income taxes subject to SFAS No. 109.
This  includes  tax positions considered to be "routine" as well as those with a
high  degree of uncertainty. The guidance contained in FIN 48 is also applicable
to pass-through entities, non-taxable entities, and entities whose tax liability
is  subject  to  100  percent  credit  for  dividends  paid. FIN 48 utilizes the
following two-step approach for evaluating tax positions: recognition (step one)
and  measurement (step two). Step one occurs when an enterprise concludes that a
tax  position,  based solely on its technical merits, is more-likely-than-not to
be  sustained  on  examination.  Step two is only addressed if step one has been
satisfied.  Under step two, the tax benefit is measured as the largest amount of
benefit,  determined  on  a  cumulative  probability  basis,  which  is
more-likely-than-not  to  be realized on ultimate settlement. Derecognition of a
tax  position  that  was  previously  recognized  would  occur  when  a  company
subsequently  determines  that  a  tax  position  no  longer  meets  the
more-likely-than-not threshold of being sustained. FIN 48 specifically prohibits
the  use  of  a  valuation  allowance  as  a substitute for derecognition of tax
positions.  FIN  48  requires  expanded  disclosures,  including  a tabular roll
forward  of the beginning and ending aggregate unrecognized tax benefits as well
as  specific  detail  related  to  tax  uncertainties for which it is reasonably
possible  the  amount of unrecognized tax benefit will significantly increase or
decrease  within  twelve  months.  These disclosures are required at each annual
reporting  period,  unless a significant change occurs in an interim period. FIN
48  is effective for fiscal years beginning after December 15, 2006. The Company
plans to adopt this pronouncement in fiscal year beginning July 1, 2007 and does
not  believe the adoption of FIN 48 will have a material effect on the financial
statements.

Fair  Value  Measurements
In  September 2006, the FASB issued SFAS No. 157, Fair Value Measurements ("SFAS
                                                  -----------------------
157").  SFAS  157  provides  enhanced  guidance  for using fair value to measure
assets  and  liabilities  and  also responds to investors' requests for expanded
information  about  the extent to which companies measure assets and liabilities
at  fair  value,  the  information used to measure fair value, and the effect of
fair  value  measurements on earnings. SFAS 157 applies whenever other standards
require  (or permit) assets or liabilities to be measured at fair value and does
not  expand the use of fair value in any new circumstances. Under SFAS 157, fair
value  refers  to  the  price that would be received to sell an asset or paid to
transfer  a  liability  in an orderly transaction between market participants in
the  market  in  which  the  reporting  entity transacts. SFAS 157 clarifies the
principle that fair value should be based on the assumptions market participants


--------------------------------------------------------------------------------
                                      F-12
<PAGE>
PROGEN  INDUSTRIES  LIMITED


1.     SUMMARY  OF  SIGNIFICANT  ACCOUNTING  POLICIES  (CONTINUED)

RECENT  ACCOUNTING  PRONOUNCEMENTS  (CONTINUED)
would  use  when  pricing the asset or liability.  In support of this principle,
SFAS  157  establishes  a  fair value hierarchy that prioritizes the information
used  to  develop  those assumptions. The fair value hierarchy gives the highest
priority  to  quoted  prices  in  active  markets  and  the  lowest  priority to
unobservable  data.  Under SFAS 157, fair value measurements would be separately
disclosed  by  level  within the fair value hierarchy. SFAS 157 is effective for
financial  statements issued for fiscal years beginning after November 15, 2007.
The  Company plans to adopt this pronouncement in fiscal years beginning July 1,
2008  and  does not believe the adoption of SFAS 157 will have a material effect
on  the  financial  statements.

2.     CONCENTRATIONS  OF  CREDIT  RISK

Financial instruments which potentially subject the Company to concentrations of
credit  risk  consist  principally  of  cash  and  cash equivalents and accounts
receivable. The Company invests cash and cash equivalents which are not required
for  immediate  operating  needs,  and  for  its investment trading program with
various  high  credit  quality  financial institutions located in Australia. The
Company  extends  credit  to  its customers which results in accounts receivable
arising  from  its  normal  business  activities.  The  Company does not require
collateral from its customers or investees, but routinely assesses the financial
strength of its customers and, based upon factors surrounding the credit risk of
its  customers,  believes  that  its  receivable credit risk exposure is limited
given  there  is  no  concentration  of  customers.

3.     ACCOUNTS  RECEIVABLE

Accounts  receivable  consists  of  the  following:

<TABLE>
<CAPTION>
                                                 JUNE 30,
                                           -------------------
                                                2005      2006
<S>                                        <C>        <C>
Amounts receivable from trade customers    $  11,335  $  1,100
Interest receivable                           75,119    58,504
Amounts receivable from related parties       32,424    35,405
Accrued other receivables                     66,034    17,772
                                           ---------  --------
                                           $ 184,912  $112,781
                                           =========  ========
</TABLE>

Amounts  receivable  from  related parties have the same terms and conditions as
amounts  receivable  from  trade  customers,  which are non-interest bearing and
generally  on  30  day  terms  (see  Note  9).

4.     INVESTMENTS  ACCOUNTED  FOR  USING  THE  EQUITY  METHOD

Effective  May  31,  2000,  Progen  entered  into  an  agreement  with  Medigen
Biotechnology Corporation ('MBC'), a company incorporated in Taiwan, in relation
to the co-development and commercialisation of PI-88 (the 'Alliance Agreement').
Under  the  Alliance Agreement, MBC will fund and conduct, at no cost to Progen,
several  Phase  II  clinical  trials  in  respect  of PI-88. These trials are in
addition  to the trials to be undertaken by Progen. In return MBC is entitled to
receive  15%  of  Progen's  future  PI-88  revenues  generated  from  cancer and
cardiovascular diseases. In addition, MBC has the right to negotiate the funding
and  conduct  of  several  Phase  III  clinical  trials.  In accordance with the
Alliance  Agreement,  Progen  is  to  supply PI-88 to MBC free of charge for the
designated  trials and provide technical know-how to assist MBC with the conduct
of  the trials. During the current year, Progen provided 5,911 vials of PI-88 to
Medigen  at  a  total  cost  to  the  Company  of  $98,000.

In  connection  with  the Alliance Agreement under a separate Share Subscription
Agreement  on  November  6,  2000,  the  Company  issued 2.75 million fully paid
ordinary  shares to MBC at an issue price of $2.09 per share. In addition, under
the  Alliance Agreement Progen was issued 19.9% of MBC's issued common equity at
no cost and with certain anti-dilution rights. As at June 30, 2006, and June 30,
2005  Progen holds 15,176,525 common shares in MBC. The Company accounts for the
investment  in  MBC  under  the  equity  method  of  accounting.

On  April  28,  2005,  Progen  and MBC agreed to amend the terms of the Alliance
Agreement  in that Progen agreed to waive the requirement for MBC to conduct one
of  the Phase II trials outlined in the Alliance Agreement. In return MBC agreed
to  fund  50%,  up  to  A$1 million, of the recently initiated Phase II melanoma
clinical  trial (PI-88 in combination with dacarbazine). Due to recurring losses
subsequent  to  our  initial  investment  in  MBC,  the  carrying  value of this
investment  as  of  June  30,  2006  and  2005  is  $nil.


--------------------------------------------------------------------------------
                                      F-13
<PAGE>
PROGEN  INDUSTRIES  LIMITED


5.     PROPERTY  AND  EQUIPMENT

Property  and  equipment  consists  of  the  following:

<TABLE>
<CAPTION>
                                                              JUNE 30,
                                                     --------------------------
                                                            2005          2006
<S>                                                  <C>           <C>
          Machinery and equipment                    $ 3,454,666   $ 3,361,475
          Furniture and fixtures                         342,318       257,523
          Leasehold improvements                         534,304       574,544
                                                     ------------  ------------

                                                       4,331,288     4,193,542
          Accumulated depreciation and amortization   (3,639,205)   (3,127,060)
                                                     ------------  ------------

          PROPERTY AND EQUIPMENT, NET                $   692,083   $ 1,066,482
                                                     ============  ============
</TABLE>

Depreciation  expense  related  to  property and equipment amounted to $463,456,
$428,891,  and  $398,043  for  the  years  ended  June  30, 2004, 2005, and 2006
respectively.

6.     DISCONTINUED  OPERATIONS

On  November  11,  2003, Progen announced the sale of the Company's Life Science
business segment to Global Science and Technology Ltd (GST), a subsidiary of New
Zealand  based  EBOS  Ltd.

The  decision  to  dispose  of the division was based on the Company strategy to
focus  on  core  R&D  activities where most potential shareholder value resides.

Under the terms of the contract, Progen paid out all employee entitlements prior
to the employees being transferred to GST, settled outstanding accounts payable,
and  collected  accounts  receivable  due on settlement date. These payments and
receipts  are  recognised  in  the  results  for  the  year ended June 30, 2004.

The  sale  was  completed  on  November  28,  2003.

FINANCIAL  PERFORMANCE  INFORMATION  OF  THE  LIFE SCIENCE DIVISION FOR THE YEAR
ENDED  2004:

<TABLE>
<CAPTION>
<S>                                                <C>
          Proceeds for sale of business            $  838,622
                                                   ===========

          Revenue from ordinary activities          1,096,897
          Expenses from ordinary activities          (928,636)
          Profit on disposal of business activity     486,405
                                                   -----------
          Profit before income tax                    654,666
          Income tax                                        -
                                                   -----------
          INCOME FROM DISCONTINUED OPERATIONS      $  654,666
                                                   ===========
</TABLE>


--------------------------------------------------------------------------------
                                      F-14
<PAGE>
PROGEN  INDUSTRIES  LIMITED


7.     INCOME  TAXES

At  June  30,  2006  the  Company  had  net operating tax loss carry-forwards of
approximately  $57,360,000  (2005:  $54,463,000)  which are indefinite as to use
unless it is unable to comply with the recognition criteria for carrying forward
tax  losses under Australian taxation laws.  The Company also has capital losses
for which no deferred tax asset is recognized on the balance sheet that arose in
Australia of $721,000 (2005: $721,000) and are available indefinitely for offset
against  future  capital gains of a similar nature subject to continuing to meet
relevant  statutory  tests.  As  a  result of these tax loss carry-forwards, the
Company  has  significant deferred tax assets, however due the Company's lack of
earnings  history,  realization  of these deferred tax assets is not more likely
than  not,  therefore  the  deferred  tax  assets  have  been  fully offset by a
valuation  allowance.

The  change  in  the  valuation  allowance  and  the corresponding change in the
deferred  tax  asset  amounted  to  $869,000, $2,989,000, and $1,434,000 for the
years  ended  June  30,  2006,  2005  and  2004  respectively.

The  tax  loss  carry-forward  can  be  reconciled  as  follows:

<TABLE>
<CAPTION>
                                                    2005         2006
<S>                                          <C>          <C>
Opening tax loss carry-forward               $44,504,000  $54,463,000
Current year tax loss                          5,408,000    5,422,000
Effect of foreign currency translation         4,551,000   (2,525,000)
                                             -----------  ------------

Gross tax loss                               $54,463,000  $57,360,000
                                             ===========  ============
</TABLE>

DEFERRED  INCOME  TAX
Deferred  income  tax  at  June  30  relates  to  the  following:

<TABLE>
<CAPTION>
                                                                   2005           2006
<S>                                                        <C>            <C>
Deferred tax liabilities
Current deferred tax liabilities
Interest on short-term investments                              (22,860)       (17,551)
                                                           -------------  -------------
Deferred tax liabilities                                        (22,860)       (17,551)
                                                           -------------  -------------

Deferred tax assets
Current deferred tax asset
Sundry creditors and accruals                                    44,958         63,545
Employee benefits                                                65,380         60,085
Noncurrent deferred tax asset
Depreciation                                                    140,970        172,066
Employee benefits                                                18,440         15,021
Asset retirement obligation                                           -         29,934
Sec 40-880 costs                                                 98,298         67,712
Patent costs                                                     65,532         69,888
Losses available for offset against future taxable income    16,144,282     16,963,202
                                                           -------------  -------------
Gross deferred tax asset                                     16,577,860     17,441,453
Valuation allowance                                         (16,555,000)   (17,423,902)
Deferred tax asset                                               22,860         17,551
                                                           -------------  -------------

Net deferred income tax assets                             $          0   $          0
                                                           =============  =============
</TABLE>

Reconciliation  of  income tax expense attributable to continuing operations and
income  tax  expense  resulted  from  applying the statutory tax rate to pre-tax
income  from  continuing  operations:

<TABLE>
<CAPTION>
                                            2004          2005         2006
<S>                                     <C>           <C>           <C>
Tax at  30% Australian tax rate         $ 1,063,336   $ 1,364,494   $1,568,155
Permanent differences:
  Non deductible items                      (64,036)      (31,189)     (65,078)
  Additional deductions                           -       237,064      162,918
Effect of foreign exchange translation      434,700     1,418,631     (796,995)
                                        ------------  ------------  -----------
Net tax loss                              1,434,000     2,989,000      869,000
Change in valuation allowance            (1,434,000)   (2,989,000)    (869,000)
                                        ------------  ------------  -----------
Tax expense                             $         0   $         0   $        0
                                        ============  ============  ===========
</TABLE>

The  Company's deferred income tax balance and the difference between income tax
computed  at  the  Australian statutory rate and income tax expense is primarily
the  result  of  tax  losses  carry-forward.


--------------------------------------------------------------------------------
                                      F-15
<PAGE>
PROGEN  INDUSTRIES  LIMITED


8.     ACCOUNTS  PAYABLE

Accounts  payable  consists  of  the  following:

<TABLE>
<CAPTION>
                                                    JUNE 30,
                                               -------------------
                                                    2005      2006
<S>                                            <C>        <C>
          Trade accounts payable               $ 672,450  $745,275
          Accrued employee benefits and taxes    212,902   177,473
                                               ---------  --------
                                               $ 885,352  $922,478
                                               =========  ========
</TABLE>

9.     RELATED  PARTY  DISCLOSURES

Stanley  Chang,  a  director  of  Progen,  was  the  Chairman and CEO of Medigen
Biotechnology Company (MBC) during the years ended June 30, 2004, 2005 and 2006.

During  the  2005 and 2006 financial years, Progen transacted with MBC under the
terms  of  the  Alliance  Agreement  (refer note 4). Progen charged MBC $185,838
(2005:  $44,654) in relation to its 50% contribution to the costs of PI-88 Phase
II  trial  in  combination  with  dacarbazine.  At  June 30, 2006 $35,405 (2005:
$32,424)  is  included  in trade and other receivables. During the current year,
Progen  provided  5,911 vials of PI-88 to Medigen at a total cost to the Company
of  $98,000.

During  the 2004, 2005 and 2006 financial years Progen purchased goods totalling
$4,457,  $nil  and  $nil  respectively  from companies associated with Dr Malvin
Eutick,  a  director  of  Progen  Industries  Limited.

During  the  2004, financial year MBC exercised 406,261 options received through
the  one  for eight shareholder bonus option issue. Total proceeds received from
MBC  amounted  to  A$1,015,652.

10.     ASSET  RETIREMENT  OBLIGATION

In  accordance  with  the  lease  agreement  terms, the Company must restore its
leased  premises  situated  at  Darra,  Brisbane  and Toowong, Brisbane to their
original  condition  at  the  end of the lease term. Accretion expense of $7,427
related  to  2006 (2005: $7,353) is recorded in Other costs of operations within
the  Statements of Income. Because of the long-term nature of the liability, the
greatest  uncertainty  in  estimating  the  provision  is  the  costs  that will
ultimately be incurred. The obligation has been calculated using a discount rate
of  10%.

<TABLE>
<CAPTION>
                                                               JUNE 30,
                                                               2005      2006
<S>                                                       <C>        <C>
          ASSET RETIREMENT OBLIGATIONS
          Balance at the beginning of the financial year  $       -  $ 81,797
          Liabilities incurred during the financial year     74,444    17,417
          Accretion expense                                   7,353     7,427
          Effect of foreign exchange translation                  -    (3,557)
                                                          ---------  ---------
          Balance at the end of the financial year        $  81,797  $103,084
                                                          =========  =========
</TABLE>

11.     COMMITMENTS  AND  CONTINGENCIES

(a)  EXPENDITURE  COMMITMENTS

Sponsored  Research  Agreement
In 2006, the Company signed another sponsored research agreement with the
Australian National University. The terms of this agreement state that the
Company is to fund research in quarterly amounts of $47,646 until February 2007.
The committed value of this agreement for the next financial year is $111,172.

Insurance  Premium
In  July  2006,  the Company signed an agreement to fund the Company's insurance
premiums  for  the  year  ended June 30, 2007. The terms of this agreement state
that  the  amount  funded is to be repaid in twelve equal instalments of $26,453
including  finance  charges  (2005:  nine  equal  instalments  of  $45,465).


--------------------------------------------------------------------------------
                                      F-16
<PAGE>
PROGEN  INDUSTRIES  LIMITED


11.     COMMITMENTS AND CONTINGENCIES (CONTINUED)

Consultant Agreements
During  the  2006  financial  year,  Progen  entered  into  various  consultant
agreements  with a committed value of $21,653 for the next financial year (2005:
$287,208).

Purchases
At  the end of the 2006 financial year, Progen ordered goods and services with a
total  value  of  $160,788  which had not been delivered by June 30, 2006 (2005:
$15,532).

The  total  remaining  commitment  payable in respect of the above agreements at
June  30,  2006  and  2005  are  as  follows:

<TABLE>
<CAPTION>
                                                                        JUNE 30,
                                                                       2005      2006
<S>                                                               <C>        <C>
          Payable not later than one year:
          Sponsored Research Agreement                            $  44,414  $111,172
          Consultant Agreements                                     287,208    21,653
          Insurance Premium                                         409,185   317,436
          Purchases                                                  15,532   160,788
                                                                  ---------  --------
          Total not later than one year                             756,339   611,049
          Payable later than one and not longer than five years:          -         -
                                                                  ---------  --------
          Total expenditure commitments                           $ 756,339  $611,049
                                                                  =========  ========
</TABLE>

(b)  LEASE  EXPENDITURE  COMMITMENTS

Operating  leases
The operating lease commitments include leases of the buildings of the Company's
principal  offices  in Toowong, a suburb of Brisbane, Queensland, Australia, and
of  manufacturing  facilities  in  Darra,  also  a suburb in Brisbane. The lease
agreement  in  Toowong  is  for a three-year period beginning December 15, 2005,
with  an  option  to renew for an additional three years. Under the terms of the
Toowong  lease agreement, the rental payments are subject to annual review based
on  the  movement  in  the consumer price index or 4%, whichever is greater. The
Darra  lease agreement expires in March 2007, with an option to extend the lease
for  a  further  two years. Under the terms of the Darra lease agreement, rental
payments  are  subject  to  annual  review based on the movement in the consumer
price  index.

During  the  fiscal  years  ended June 30, 2004, 2005 and 2006, rent expense was
$78,583,  $91,329  and  $165,715  respectively.

The  total  minimum  annual  rentals  under  non-cancellable  operating  leases
subsequent  to  June  30,  2006  are  as  follows:

<TABLE>
<CAPTION>
                    YEAR ENDING
                    JUNE 30,
<S>                                   <C>
                    2007              $173,030
                    2008               113,900
                    2009                56,940
                                      --------

                    Total             $343,870
                                      ========
</TABLE>

(c) CLINICAL TRIALS

At  June  30,  2006,  the  Company  had  anticipated  expenditure commitments of
$2,463,357 (2005: $1,475,232) in relation to the clinical trials currently being
undertaken  for  PI-88  and PI-166. These commitments are forecast to become due
and  payable  as follows: $1,907,021 not later than one year, and $556,336 later
than  one  year  and  not later than five years, however that may vary depending
upon  the  rate  of  patient  recruitment.

These  costs  are  included  in  research  and  development expense as incurred.


--------------------------------------------------------------------------------
                                      F-17
<PAGE>
PROGEN  INDUSTRIES  LIMITED


11.     COMMITMENTS AND CONTINGENCIES (CONTINUED)

(d)  OTHER

Effective  May  31,  2000,  Progen entered into an agreement with MBC, a related
party  (see  Note 9), in relation to the co-development and commercialisation of
PI-88  (the  "Alliance  Agreement").  Under the terms of the Alliance Agreement,
Progen indemnifies MBC fully and effectively against any losses, costs, actions,
claims, demands, expenses, judgements, court orders or other liabilities arising
directly or indirectly out of or in connection with any claim made or threatened
against  MBC  by a third party arising from or concerning PI-88 that prevents or
interferes  with MBC's conduct of their Phase II and further clinical trials, if
any.

12.     STOCK  OPTION  PLANS

All  options  are  granted  in  stock  trading  on the Australian Stock Exchange
('ASX'),  have  an  Australian  exercise  price  and  are  exercisable  only  in
Australian  dollars.

EMPLOYEE  COMPENSATION  PLANS

EMPLOYEE  OPTION  PLAN  PRE  OCTOBER  2003
The  Progen  Board  of  Directors adopted an employee option plan on October 24,
2000  ("2000 Plan").  Both employees and non-executive directors are eligible to
participate.  This option plan stipulates that the initial issue of options will
have an exercise price of A$4.00 ($2.76) and thereafter a minimum exercise price
of  the  greater  of  A$4.00  ($2.76)  and a price equal to 125% of the weighted
average  price  of  the  Company's shares quoted on the ASX for 10 business days
before  the  date of grant of the options; all options vest between one and four
years  after the date of grant, options may carry performance related conditions
as  determined  at the Board's discretion and expire five years from the date of
grant.

There  were  no  options granted under this plan during the years ended June 30,
2006,  2005  and  2004.

As  at  June 30, 2006, there were nil options outstanding that were issued under
this  plan, with 350,000 expired unexercised on December 22, 2005, and a further
152,820  expired  unexercised  on  February  28,  2006.

DIRECTORS AND EMPLOYEES INCENTIVE SCHEME
In October 2003, the Company's shareholders approved the directors and employees
incentive  scheme  ("2003  Plan")  under which a total of 1,800,000 options were
granted,  having an exercise price of $1.77 and under the terms of this plan all
options  vest  immediately  at  grant  date  and  expired  on  May  31,  2005.

During  2005, a further 32,000 options were granted to employees under the terms
of  this plan. These options were issued for nil consideration, vest immediately
and  have  an  exercise  price  of  $2.78.  These options expired unexercised on
February  28,  2006.

As  at  June 30, 2006, there were nil options outstanding that were issued under
this  plan.

DIRECTORS  AND  EMPLOYEES  OPTION  INCENTIVE  SCHEME
In  2004  the Company's shareholders approved the directors and employees option
incentive  scheme  ("2004  Plan").  All our directors and all employees, whether
full  time  or  part time, are eligible to participate in this plan. The minimum
exercise  price  of  options  granted under this plan shall not be less than the
average  closing share price as recorded on the Australian Stock Exchange in the
five  business  days  preceding  the  grant of those options. The expiry date of
options  issued  under this plan can not exceed 10 years from the date of grant.

During  2006, 63,000 (2005: 33,000) options were granted under the terms of this
plan. These options were issued for nil consideration, vest immediately and have
a  weighted  average  exercise  price  of  $2.28.

As  at  June  30,  2006,  there were 30,000 options outstanding that were issued
under  this  plan.

The following table summarises the movements in options outstanding to directors
and  employees  as  of  June  30,  2006,  2005  and  2004:


--------------------------------------------------------------------------------
                                      F-18
<PAGE>
PROGEN  INDUSTRIES  LIMITED


12.     STOCK  OPTION  PLANS  (CONTINUED)

<TABLE>
<CAPTION>
                                     NUMBER OF       WEIGHTED        NUMBER        WEIGHTED
                                      OPTIONS         AVERAGE      OF OPTIONS       AVERAGE
                                    OUTSTANDING   EXERCISE PRICE   EXERCISABLE  EXERCISE PRICE
<S>                                 <C>           <C>              <C>          <C>
Options outstanding, June 30, 2003    1,168,220   $          3.03    1,168,220  $          3.03
- granted                             1,800,000   $          1.77
- forfeited                                   -                 -
- expired                              (239,400)  $          3.10
- exercised                            (199,756)  $          1.77
                                    ------------
Options outstanding, June 30, 2004    2,529,064   $          2.23    2,529,064  $          2.23
- granted                                65,000   $          2.97
- forfeited                             (26,000)  $          2.10
- expired                              (472,033)  $          3.75
- exercised                          (1,528,211)  $          1.77
                                    ------------
Options outstanding, June 30, 2005      567,820   $          2.27      567,820  $          2.27
- granted                                63,000   $          2.28
- forfeited                             (22,000)  $          2.78
- expired                              (545,820)  $          2.25
- exercised                             (33,000)  $          2.31
                                    ------------
Options outstanding, June 30, 2006       30,000   $          2.26       30,000  $          2.26
</TABLE>

The  weighted  average  grant-date  fair value of each option granted during was
$0.56  (2005: $0.82, 2004: $0.24). The weighted average grant-date fair value of
each  option  vested  during 2006 was $0.56 and forfeited during 2006 was $0.81.
The  total  intrinsic  value at grant date of options exercised during the years
ended  June  30,  2004,  2005,  and  2006,  was nil. The total fair value of the
options  vested  during  2006  was  $35,026  (2005:  $53,086,  2004:  $424,027).

The  following  table summarises information about director and employee options
outstanding  at  June  30,  2006:

<TABLE>
<CAPTION>
     EXERCISE PRICE   OPTIONS               OUTSTANDING                EXERCISABLE
                               WEIGHTED AVERAGE     WEIGHTED      NUMBER OF     WEIGHTED
                                  REMAINING          AVERAGE       OPTIONS       AVERAGE
                               CONTRACTUAL LIFE  EXERCISE PRICE              EXERCISE PRICE
<S>                   <C>      <C>               <C>              <C>        <C>

         $2.26        30,000     2.4 years           $2.26        30,000         $2.26
</TABLE>

The aggregate intrinsic value of options outstanding and exercisable at June 30,
2006  is  nil.

BONUS OPTIONS
In  December  2003,  shareholders  were  issued one bonus option for every eight
shares  registered  on  the record date of November 28, 2003. These options were
issued  under  a  Prospectus  dated  November 19, 2003. Each bonus option has an
exercise  price  of $1.81 and entitles the holder to subscribe for one share for
each  option  until  May  31,  2005.

During  fiscal  2005,  2,588,502 shareholder options were exercised resulting in
the  issue  of  2,588,502  ordinary  shares.

OPTIONS ISSUED TO NON-EMPLOYEES
Compensation  cost for stock options granted to non-employees is measured at the
fair  value  of stock options as calculated using an option pricing model and is
expensed  over  the  period  in  which  the  options  vest.


--------------------------------------------------------------------------------
                                      F-19
<PAGE>
PROGEN  INDUSTRIES  LIMITED


12.     STOCK  OPTION  PLANS  (CONTINUED)

In  November 2003, the Company's corporate advisors to the November 2003 private
placement  of  3.8  million  shares were granted stock options to purchase up to
700,000  shares  of  Progen's  common  stock  at  an exercise price of $1.77 per
option. These options vested on grant date and were exercised during fiscal year
2005.  The grant date fair value of per option was estimated to be $0.23 and the
total  intrinsic  value  at  grant  date  of  options  exercised  was  nil.

The  fair  value  of  these options was estimated to be $163,555 using an option
pricing  model  with  the  following assumptions: dividend yield of 0%; expected
volatility  of  70.9%; risk free interest rate of 5.39%; and an expected life of
1.6  years. Accordingly, a non-cash amount of $163,555 has been recorded against
contributed  equity which was offset by the cost to raise capital which was also
recorded  to  equity.

As  at  June 30, 2006, there were nil options outstanding that were issued under
this  plan.

CONSULTANTS AND ADVISORS OPTION INCENTIVE PLAN
In  February  2005,  the  directors'  of  Progen Industries Limited approved the
Progen  Consultants  and  Advisors  Option  Incentive  Plan. During 2005, 22,500
options  were issued under the terms of this plan. These options were issued for
nil  consideration,  are  fully  vested and have an exercise price of $3.27. The
grant  date  fair  value  for  each  option  was $0.94. An amount of $16,909 was
recorded  in  selling,  general and administrative expenses in relation to these
options.  The  expiry date for these options is December 23, 2006. The intrinsic
value of the 22,500 non-employee options outstanding and exercisable at June 30,
2006  is  nil.

At June 30, 2006, the Company has reserved shares of new common stock for future
issuance  as  follows:

<TABLE>
<CAPTION>
<S>                                                      <C>
          Directors and employees incentive plan 2004      30,000
          Non-employee options                             22,500
                                                         --------
          Total                                            52,500
                                                         ========
</TABLE>

OTHER  INFORMATION
Effective July 1, 2005, the Company adopted the requirements of  SFAS 123R using
the  "modified  prospective" method thereby recognising the compensation cost in
the  financial  statements for all share-based payments granted after that date,
and  based on the requirements of SFAS 123 for all unvested awards granted prior
to  the  effective  date of SFAS 123R. In accordance with the provisions of SFAS
123R,  $35,026  was recorded in selling, general and administrative expenses for
total  stock-based  compensation  expense  in  2006.

As  a  result  of adopting SFAS 123(R) on July 1, 2005 the Company's loss before
income  taxes  and  net  loss  for the year ended June 30, 2006 are both $35,026
higher  than  if  it had continued to account for share-based compensation under
APB  25.  Basic  and diluted loss per share for the year ended June 30, 2006 was
$0.001  higher  than if the Company had continued to account for the share-based
compensation  under  APB 25. The adoption of SFAS 123R had no effect on the cash
flow  statement.

Prior  to  July  1, 2005, the Company adopted the disclosure only alternative of
SFAS  123  for  employee options granted which requires that proforma results be
presented  as  if  stock  based  compensation were recorded at the fair value of
options granted. This compensation, determined using an option pricing model, is
expensed  over  the  vesting  periods  of  each  option  grant.  The  pro  forma
compensation  expense  was  calculated to be $53,086 for the year ended June 30,
2005  (2004:  $424,027).

The fair value of all options granted to employees, directors and consultants in
2004,  2005  and 2006 were computed at the date of grant using an option pricing
model  with  the  following  weighted  average  assumptions:

<TABLE>
<CAPTION>
                                    2004        2005        2006
<S>                                 <C>         <C>         <C>
     Risk Free Interest Rate        5.39%       5.29%       5.16%
     Expected Dividend Yield        0.00%       0.00%       0.00%
     Expected Lives (years)         1.60        1.04        2.30
     Expected Volatility            70.9%       51.9%       56.0%
</TABLE>

The  option  pricing model was developed for use in estimating the fair value of
non-traded  options,  which  have  no  vesting  restrictions  and  are  fully
transferable.  In  addition, option valuation models require the input of highly
subjective  assumptions  including  the expected stock price volatility. Because
the  Company's  employee  stock


--------------------------------------------------------------------------------
                                      F-20
<PAGE>
PROGEN  INDUSTRIES  LIMITED


12.     STOCK  OPTION  PLANS  (CONTINUED)

options  have  characteristics  significantly  different  from  those  of traded
options,  and because changes in the subjective input assumptions can materially
affect the fair value estimate, in management's opinion, the existing models may
not  necessarily  provide  a  reliable  single  measure of the fair value of its
employee  stock  options.

Using  the  option  pricing  model,  the  weighted-average fair value of options
granted  was  $0.55  in  2006,  $0.80  in  2005  and  $0.24  in  2004.

When  the  stock  options  are  exercised,  new  shares  will  be  issued.

13.     SEGMENT  DISCLOSURES

The  Company  is  organized  based  on the products and services that it offers.
Under  this  organizational  structure,  there  are two reportable segments: (i)
research  and  development and (iii) manufacturing. The research and development
segment  is  focussed  on  the development of PI-88 and PI-166 as well as a drug
discovery  effort  that  is  partially funded by an AusIndustry Commercial Ready
Grant.  This  grant  is  for  three  years  commencing  August  2005.

The  manufacturing  segment  is  involved  with  the  provision  of  contract
manufacturing services to cGMP standards for various human clinical, therapeutic
product,  and  veterinary  pharmaceutical trials, as well as non-cGMP bioproduct
contract  manufacturing  services.  The  manufacturing  segment  also  provides
bioprocess  technology  development  services.

The  Company  views  certain  other revenues and expenses, particularly selling,
general  and  administration  costs,  as  not  belonging  to  any one reportable
segment.  As  a  result,  the  Company  has  aggregated  these  items  into  an
"Other"  non-segment  line, as permitted by SFAS 131 "Disclosures about Segments
                                                      --------------------------
of  an  Enterprise  and  Related  Information."
----------------------------------------------

The  Company  also  views  certain  other  assets,  particularly  cash  and cash
equivalents,  and investments as not belonging to any one reportable segment. As
a  result,  the  Company  has aggregated these items into an "Other" non-segment
line,  as  permitted  by  SFAS  131.

The  accounting  policies  of  the Company's reportable segments are the same as
those  described  in  Note  1  "Summary of Significant Accounting Policies". The
Company  evaluates  the performance of its segments based on each segment's loss
from  continuing  operations.

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2006
                                          RESEARCH &
                                          DEVELOPMENT    MANUFACTURING      TOTAL
<S>                                      <C>            <C>              <C>
  Sales to external customers            $          -   $      676,975   $   676,975
  Grant income                                568,665                -       568,665
  Depreciation                                164,297          204,643       368,940

  Net loss                                 (2,791,378)        (312,773)   (3,104,150)
  Interest income                                   -                -       824,596
  Interest expense                                  -                -       (10,938)
  Other non-segment other income                                              40,774
  Other non-segment expenses                                              (2,977,464)
                                                                         ------------
  Consolidated net loss before tax from
  continuing operations                                                  $(5,227,182)
                                                                         ============

  Total assets for reportable segments        571,863          655,430     1,227,293
  Other assets                                                            11,931,592
  Consolidated assets                                                    $13,158,885
                                                                         ============

  Purchase of long lived assets
  for reportable segments                     241,267          397,922       639,189
  Other purchases                                                            136,529
  Total purchases                                                        $   775,718
                                         ============================================
</TABLE>


--------------------------------------------------------------------------------
                                      F-21
<PAGE>
PROGEN  INDUSTRIES  LIMITED


13.     SEGMENT DISCLOSURES (CONTINUED)

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2005
                                            RESEARCH &
                                            DEVELOPMENT   MANUFACTURING      TOTAL
<S>                                        <C>            <C>             <C>
  Sales to external customers              $          -   $    1,076,308  $ 1,076,308
  Grant income                                  577,756                -      577,756
  Depreciation                                  168,380          242,687      411,067

  Net income/(loss)                          (2,333,081)         133,766   (2,199,315)
  Interest income                                     -                -      617,822
  Interest expense                                    -                -      (12,923)
  Other non-segment other income                                               29,948
  Other non-segment expenses                                               (2,983,847)
                                                                          ------------
  Consolidated net income/ (loss) before
  tax from continuing operations                                          $(4,548,314)
                                                                          ============

  Total assets for reportable segments          140,490          537,935      678,425
  Other assets                                                             18,089,830
  Consolidated assets                                                     $18,768,255
                                                                          ============

  Purchase of long lived assets
  for reportable segments                        26,567          129,403      155,970
  Other purchases                                                               7,387
  Total purchases                                                         $   163,357
                                           ===========================================
</TABLE>

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2004
                                            RESEARCH &
                                            DEVELOPMENT   MANUFACTURING      TOTAL
<S>                                        <C>            <C>             <C>
  Sales to external customers              $          -   $    1,394,589  $ 1,394,589
  Grant income                                  596,522                -      596,522
  Depreciation                                  187,313          250,636      437,949

  Net income/(loss)                          (2,672,725)         645,614   (2,027,111)
  Interest income                                     -                -      474,589
  Interest expense                                    -                -      (12,437)
  Other non-segment other income                                               20,113
  Other non-segment expenses                                               (2,654,275)
                                                                          ------------
  Consolidated net income/ (loss) before
  tax from continuing operations                                          $(4,199,121)
                                                                          ============

  Total assets for reportable segments          316,157          828,360    1,144,517
  Other assets                                                             10,063,623
  Consolidated assets                                                     $11,208,140
                                                                          ============

  Purchase of long lived assets
  for reportable segments                        32,837           94,228      127,065
  Other purchases                                                               8,512
  Total purchases                                                         $   135,577
                                           ===========================================
</TABLE>

There were no inter-segment sales.

In  2004,  2005  and 2006, the Company operated in one geographical segment with
all  of  its  assets  and  operations  located  in  Australia.

The  percentage  of  revenues  derived  from  customers  outside  of  Australia
represented  7.7%  in  2006,  13.8%  in  2005  and  18.2%  in  2004.

Revenues  from  one  Australian  customer of the Company's Manufacturing segment
represents  approximately  $516,000 of the Company's sales to external customers
in  2006,  $425,000  in  2005  and  $786,000  in  2004.


--------------------------------------------------------------------------------
                                      F-22
<PAGE>
PROGEN  INDUSTRIES  LIMITED


13.     SEGMENT DISCLOSURES (CONTINUED)

RECONCILIATION  TO  REPORTED  RESULTS

<TABLE>
<CAPTION>
  DEPRECIATION AND AMORTISATION           2004      2005      2006
<S>                                   <C>       <C>       <C>
  Total reportable segments           $437,949  $411,067  $368,940
  Unallocated corporate depreciation    25,507    17,824    29,103
                                      --------  --------  --------
  Total reported depreciation         $463,456  $428,891  $398,043
                                      ========  ========  ========
</TABLE>

14.     FAIR VALUE OF FINANCIAL INSTRUMENTS

The  Company's principal financial instruments are cash and short-term deposits.
The  various  other  financial  assets and liabilities are trade receivables and
trade payables, which arise directly from its operations. The main risks arising
from  the  Company's  financial  instruments  are  cash flow interest rate risk,
liquidity  risk  and  credit  risk.  The  Board  reviews and agrees policies for
managing  each  of  these  risks  which  are  summarised  below.

CREDIT RISK
The Company trades only with recognised, creditworthy third parties. Receivables
balances  are  monitored on an on-going basis with the result that the Company's
exposure  to  bad  debts  is  not  significant.  There  are  no  significant
concentrations  of  credit  risk.

CASH EQUIVALENTS
Investments  are  made  in  accordance  with a Board approved Investment Policy.
Investments  are  typically in bank bills and investment grade commercial paper.

<TABLE>
<CAPTION>
                                                   JUNE 30,
                                  2005             2005         2006             2006
                              CARRYING   ESTIMATED FAIR     CARRYING   ESTIMATED FAIR
                                AMOUNT            VALUE       AMOUNT            VALUE
<S>                        <C>          <C>              <C>          <C>
ASSETS
Cash and cash equivalents  $17,851,895  $    17,851,895  $11,588,471  $    11,588,471
Accounts receivable            184,912          184,912      112,781          112,781

LIABILITIES
Accounts payable               885,352          885,352      922,748          922,748
</TABLE>

The  carrying amounts approximate fair value in view of the short-term nature of
these  balances.

16.     EMPLOYEE  BENEFIT  PLAN

As  required by Australian superannuation legislation, the Company contributes a
defined  contribution  of  9% of all Australian employee's salary to an approved
superannuation  fund  for  their retirement benefit. The Company contributed, on
behalf  of  employees,  $220,211 to superannuation funds for the year ended June
30,  2006  (2005:  $210,672;  2004:  $153,138).

17.     FOREIGN  CURRENCY  TRANSLATION

The  functional  currency for the Company's operations is Australian dollars. As
at June 30, 2006, A$1 equated to $0.7301. As at December 6, 2006, A$1 equated to
$0.7877.

18.          SUBSEQUENT  EVENTS

On  December  19,  2006 the Company announced that it was raising A$20.0 million
($15.63  million)  through  an  underwritten  private  share placement and would
commence a share purchase plan to existing shares raising up to a further A$14.4
million ($11.25 million) to partially fund the Phase III clinical development of
PI-88 in post resection liver cancer. The private share placement is expected to
close  on  December 21, 2006 and the share purchase plan is expected to close on
January  25,  2007.


--------------------------------------------------------------------------------
                                      F-23