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**UNITEDSTATES**

**SECURITIESAND EXCHANGE COMMISSION**

**WASHINGTON,D.C. 20549**

 

**FORM 20-F**

 

| **o**                | **REGISTRATION STATEMENT PURSUANT  TO SECTION 12(b) OR 12(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, 2009**                                                                                                                                                                  |
| ** **           | ** **                                                                                                                                                                                                                                                                                                         |
| **— OR —** |
| ** **           | ** **                                                                                                                                                                                                                                                                                                         |
| **o**                | **TRANSITION REPORT PURSUANT TO  SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                            |
| ** **           | **For the transition period from                         to                         ** |
| **— OR —** |
| ** **           | ** **                                                                                                                                                                                                                                                                                                         |
| **o**                | **SHELL COMPANY REPORT PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934**                                                                                                                                                                                                         |

 

Dateof event requiring this shell company report 

 

Commissionfile number: 000-29228

 
| **PROGEN PHARMACEUTICALS 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 St, Toowong, Queensland 4066,  Australia**                                                                                                                                        |
| (Address of principal executive office)                                                                                                                                                       |
|                                                                                                                                                                                          |
| **Mr. Paul Dixon, General Manager of Finance,**

**Progen Pharmaceuticals Limited, 16 Benson St,  Toowong, Queensland 4066, Australia**

**Tel: +61 7 3842 3333,  Fax: +61 7 3720 9624** |
| (Name, Telephone, E-mail and/or Facsimile number and Address of  Company Contact Person)                                                                                                      |

 

Securitiesregistered or to be registered pursuant to Section 12(b) of the Act:

 

| Title of each  class |   | Name of each  exchange on which registered              |
|----------------------|--------|---------------------------------------------------------|
| Ordinary Shares      |   | Australian Securities Exhange and Nasdaq Capital Market |
| Warrants             |   | Australian Securities Exhange and Nasdaq Capital Market |

 

Securitiesregistered or to be registered pursuant to Section 12(g) of the Act:

 
| **None**         |
|------------------|
| (Title of Class) |

 

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Securitiesfor which there is a reporting obligation pursuant to Section 15(d) ofthe Act:

 
| **None**         |
|------------------|
| (Title of Class) |

 

Indicatethe number of outstanding shares of each of the issuer’s classes of capital orcommon stock as of the close of the period covered by the annual report:
|   | Ordinary  Shares: 24,709,097 (as of June 30, 2009) |
|--------|----------------------------------------------------|
|   | Warrants:  2,679,178 (as of June 30, 2009)         |

 

Indicateby check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405of the Securities Act:

o Yes   x No

 

Ifthis report is an annual or transition report, indicate by check mark if theregistrant is not required to file reports pursuant to Section 13 or 15(d) ofthe Securities Exchange Act of 1934:

o Yes   x No

 

Note— Checking the box above will not relieve any registrant required to filereports pursuant to Section 13 or 15(d) of the Securities ExchangeAct of 1934 from their obligations under those Sections.

 

Indicateby check mark whether the registrant (1) has filed all reports required tobe filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject tosuch filing requirements for the past 90 days:

x Yes   o No

 

Indicateby check mark whether the registrant has submitted electronically and posted onits corporate Web site, if any, every Interactive Data File required to besubmitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of thischapter) during the preceding 12 months (or for such shorter period that theregistrant was required to submit and post such files).

 

o Yes   x No

 

Indicateby check mark whether the registrant is a large accelerated filer, anaccelerated filer, or a non-accelerated filer. See definition of “acceleratedfiler and large accelerated filer” in Rule 12b-2 of the Exchange Act(Check one):

 

| Large accelerated filer o |   | Accelerated filer o |   | Non-accelerated filer x |
|---------------------------|--------|---------------------|--------|-------------------------|

 

Indicateby check mark which basis of accounting the registrant has used to prepare thefinancial statements included in this filing:

 

| U.S. GAAP o |   | International Financial Reporting Standards as issued  by the International Accounting Standards Board x |   | Other o |
|-------------|--------|----------------------------------------------------------------------------------------------------------|--------|---------|

 

If“Other” has been checked in response to the previous question, indicate bycheck mark which financial statement item the registrant has elected to follow:

o Item 17   o Item 18

 

Ifthis is an annual report, indicate by check mark whether the registrant is ashell company (as defined in Rule 12b-2 of the Exchange Act).

o Yes   x No

 

(APPLICABLEONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)

 

Indicateby check mark whether the registrant has filed all documents and reportsrequired to be filed by Sections 12, 13 or 15(d) of the SecuritiesExchange Act of 1934 subsequent to the distribution of securities under a planconfirmed by a court.

 

o Yes   x No

 

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**TABLE OF CONTENTS**

 
| ** **                                                                                                                                       | ** **                                                      | **Page**   |
|--------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------------------------------------------|------------|
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **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**                                                | **9**      |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 4.**                                                                                                                                      | **INFORMATION ON THE  COMPANY**                                 | **26**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 4.A.**                                                                                                                                    | **HISTORY AND  DEVELOPMENT OF THE COMPANY**                     | **26**     |
| **ITEM 4.B.**                                                                                                                                    | **BUSINESS OVERVIEW**                                           | **27**     |
| **ITEM 4.D.**                                                                                                                                    | **PROPERTY,  PLANTS AND EQUIPMENT**                             | **41**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 5.**                                                                                                                                      | **OPERATING AND  FINANCIAL REVIEW AND PROSPECTS**               | **42**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 5.A.**                                                                                                                                    | **OPERATING RESULTS**                                           | **43**     |
| **ITEM 5.B.**                                                                                                                                    | **LIQUIDITY AND  CAPITAL RESOURCES**                            | **47**     |
| **ITEM 5.C.**                                                                                                                                    | **RESEARCH AND  DEVELOPMENT, PATENTS AND LICENSES, ETC.**       | **49**     |
| **ITEM 5.D.**                                                                                                                                    | **TREND INFORMATION**                                           | **49**     |
| **ITEM 5.E.**                                                                                                                                    | **OFF-BALANCE  SHEET ARRANGEMENTS**                             | **51**     |
| **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**                                             | **56**     |
| **ITEM 6.D.**                                                                                                                                    | **EMPLOYEES**                                                   | **57**     |
| **ITEM 6.E.**                                                                                                                                    | **SHARE OWNERSHIP**                                             | **58**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 7.**                                                                                                                                      | **MAJOR  SHAREHOLDERS AND RELATED PARTY TRANSACTIONS**          | **59**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 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**                                         | **62**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 9.**                                                                                                                                      | **THE OFFER AND LISTING**                                       | **62**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 9.C.**                                                                                                                                    | **MARKETS**                                                     | **62**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 10.**                                                                                                                                     | **ADDITIONAL  INFORMATION**                                     | **65**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 10.B.**                                                                                                                                   | **MEMORANDUM AND  ARTICLES OF ASSOCIATION**                     | **65**     |
| **ITEM 10.C.**                                                                                                                                   | **MATERIAL CONTRACTS**                                          | **66**     |
| **ITEM 10.D.**                                                                                                                                   | **EXCHANGE CONTROLS**                                           | **67**     |
| **ITEM 10.E.**                                                                                                                                   | **TAXATION**                                                    | **68**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 11.**                                                                                                                                     | **QUANTITATIVE  AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK** | **80**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 12.**                                                                                                                                     | **DESCRIPTION OF  SECURITIES OTHER THAN EQUITY SECURITIES**     | **82**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 13.**                                                                                                                                     | **DEFAULTS,  DIVIDEND ARREARAGES AND DELIQUENCIES**             | **83**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 14.          MATERIAL  MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS** | **83**                                                          |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 15.**                                                                                                                                     | **CONTROLS AND  PROCEDURES**                                    | **83**     |
| ** **                                                                                                                                       | ** **                                                      | ** ** |
| **ITEM 16.**                                                                                                                                     | **[RESERVED]**                                                  | **86**     |
|                                                                                                                                                  |                                                                 |            |  |  |  |

 

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| **ITEM 16A.** | **AUDIT  COMMITTEE FINANCIAL EXPERT**                                       | **86**     |
|---------------|-----------------------------------------------------------------------------|------------|
| ** **    | ** **                                                                  | ** ** |
| **ITEM 16B.** | **CODE OF ETHICS**                                                          | **86**     |
| ** **    | ** **                                                                  | ** ** |
| **ITEM 16C.** | **PRINCIPAL  ACCOUNTANT FEES AND SERVICES**                                 | **86**     |
| ** **    | ** **                                                                  | ** ** |
| **ITEM 16D.** | **EXEMPTIONS  FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES**             | **87**     |
| ** **    | ** **                                                                  | ** ** |
| **ITEM 16E.** | **PURCHASES OF  EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS** | **87**     |
| ** **    | ** **                                                                  | ** ** |
| **ITEM 17.**  | **FINANCIAL STATEMENTS**                                                    | **88**     |
| ** **    | ** **                                                                  | ** ** |
| **ITEM 18.**  | **FINANCIAL STATEMENTS**                                                    | **88**     |
| ** **    | ** **                                                                  | ** ** |
| **ITEM 19.**  | **EXHIBITS**                                                                | **88**     |

 

Referencesin this annual report to “Progen,” “we,” “our”, “us” and “the Company” refer toProgen Pharmaceuticals Limited.

 

All references to dollars or $ are to the currency ofthe Australian dollars (AUDs).

 

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**CAUTIONARY NOTE REGARDINGFORWARD-LOOKING STATEMENTS**

 

This annual report contains forward-looking statementsthat involve risks and uncertainties.   Forward-looking statements relate to future events or our futurefinancial performance and include information concerning our possible orassumed future results of operations, business strategies, financing plans,competitive position, industry environment, potential growth opportunities, theeffect of future regulation and the effects of competition. These statementsare based on our current expectations, beliefs and assumptions, and oninformation currently available to our management. In some cases, you canidentify 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 similarexpressions.    These forward-lookingstatements are only predictions and involve known and unknown risks,uncertainties and other factors which may cause our actual results, levels ofactivities, performance and other factors to be materially different from thoseanticipated 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 thosediscussed elsewhere in this annual report.

 

Certainstatements contained in this report may not be based on historical facts andare “forward-looking statements” within the meaning of Section 27A of theSecurities Act of 1933, as amended, and Section 21E of the SecuritiesExchange Act of 1934, as amended. In particular, certain statements includedherein under “Item 3. Key Information” and “Item 5. Operating and FinancialReview and Prospects,” including without limitation, those concerning theCompany’s strategy and competitive strengths, the Company’s expectations andplans, the Company’s collaborative revenues, research and development andgeneral and administrative expenses, contain certain forward-looking statementsconcerning the Company’s operations, performance and financial condition. Suchstatements may generally, but not always, be identified by their use of wordssuch as “anticipates,” “expects,” or “believes.” Although the Company believesthat the expectations reflected in such forward-looking statements are reasonable,no assurance can be given that such expectations will prove in hindsight to becorrect. Many important factors could cause actual results to differ materiallyfrom such expectations including, among others, those set forth in “Item 3. KeyInformation—Risk Factors” and “Item 4. Information on the Company—AustralianGovernment Regulation and U.S. Government Regulation” (collectively, the “RiskFactors”). All subsequent written and oral forward-looking statementsattributable to the Company or persons acting on its behalf are expresslyqualified by the Risk Factors. Other relevant risks may be detailed from timeto time in the Company’s press releases and filings with the Securities andExchange Commission. We undertake no obligation to update these forward-lookingstatements to reflect events or circumstances that occur after the date of thisreport.

 

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**PART I**

 

# **ITEM 1.                 IDENTITY OF DIRECTORS, SENIOR MANAGEMENT ANDADVISERS**

#  

Not applicable.

 

# **ITEM 2.                 OFFER STATISTICS AND EXPECTED TIMETABLE**

#  

Not applicable.

 

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# **ITEM 3.                 KEY INFORMATION**

#  

## **Item 3.A                Selected Financial Data**

##  

The following selected consolidated financial data forthe four years ended June 30, 2009 should be read in conjunction with “Item5. Operating and Financial Review and Prospects” below and our financialstatements and related notes contained elsewhere in this Annual Report. Ourfinancial statements and related notes have been prepared in accordance withInternational Financial Reporting Standards (IFRS).

 

The consolidated balance sheet information as at June 30,2008 and 2009 and the consolidated income statement data for fiscal 2007, 2008and 2009 are derived from our audited financial statements included in thisannual report. Consolidated balance sheet information as of June 30, 2005,2006 and 2007 and consolidated income statement information for fiscal 2005 and2006 are derived from our audited financial statements which are not includedin this annual report.

 
| ** **                                                          | ** ** | **For the years ended  June 30,** | ** ** |
|---------------------------------------------------------------------|------------|----------------------------------------|------------|
| ** **                                                          | ** ** | **2005**                               | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
| **Consolidated Income Statement Data:**                             |       |                                   |       |   |   |   |   |   |   |   |   |
| Revenue                                                             |       | $                                      | 2,248,287  |   | $ | 2,007,904 |   | $ | 2,665,947 |   | $ | 6,477,931 |   | $ | 4,940,369 |   |
| Other income from ordinary activities                               |       | 805,964                                |       | 814,943 |   | 1,113,245 |   | 1,369,534 |   | 7,021,310 |   |
| Research and development expenses                                   |       | 4,080,939                              |       | 3,895,745 |   | 6,991,757 |   | 16,143,407 |   | 7,048,870 |   |
| Manufacturing facility expenses                                     |       | 1,707,299                              |       | 2,075,324 |   | 2,372,679 |   | 2,721,370 |   | 1,683,136 |   |
| Administration and corporate expenses                               |       | 3,219,338                              |       | 3,816,781 |   | 5,438,437 |   | 11,081,469 |   | 8,689,364 |   |
| Finance costs                                                       |       | 26,908                                 |       | 24,799 |   | 15,355 |   | 19,490 |   | 7,269 |   |
| Impairment loss                                                     |       | —                                 |       | 618,818 |   | 1,769,198 |   | — |   | — |   |
| Other expenses                                                      |       | —                                 |       | — |   | 9,645,903 |   | 4,029,302 |   | — |   |
| Net loss from operations                                            |       | $                                      | (5,980,233 | ) | $ | (7,608,620 | ) | $ | (22,454,137 | ) | $ | (26,147,573 | ) | $ | (5,466,960 | ) |
| Net loss before income tax expense                                  |       | $                                      | (5,980,233 | ) | $ | (7,608,620 | ) | $ | (22,454,137 | ) | $ | (26,147,573 | ) | $ | (5,466,960 | ) |
| Income tax expense                                                  |       | —                                 |       | — |   | — |   | — |   | — |   |
| Net loss attributable to members of Progen  Pharmaceuticals Limited |       | $                                      | (5,980,233 | ) | $ | (7,608,620 | ) | $ | (22,454,137 | ) | $ | (26,147,573 | ) | $ | (5,466,960 | ) |
| Basic and diluted loss per share (cents per share)                  |       | (16.7                                  | )          | (18.6 | ) | (50.2 | ) | (43.3 | ) | (10.0 | ) |

 

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| ** **                           | ** ** | **For the years ended June 30,** | ** ** |
|--------------------------------------|------------|----------------------------------|------------|
| ** **                           | ** ** | **2005**                         | ** ** | **2006** | ** ** | **2007** | ** ** | **2008** | ** ** | **2009** | ** ** |
| **Consolidated Balance Sheet Data:** |       |                             |       |   |   |   |   |   |   |   |   |
| Cash and Cash Equivalents            |       | $                                | 23,427,684 |   | $ | 15,872,443 |   | $ | 98,222,758 |   | $ | 76,747,878 |   | $ | 28,044,529 |   |
| Working Capital                      |       | 22,297,388                       |       | $ | 14,960,325 |   | $ | 96,928,384 |   | $ | 70,864,837 |   | $ | 26,814,764 |   |
| Total Assets                         |       | 27,018,257                       |       | $ | 19,793,864 |   | $ | 100,639,229 |   | $ | 82,592,581 |   | $ | 32,661,315 |   |
| Long Term Debt                       |       | —                           |       | — |   | — |   | — |   | — |   |
| Capital Stock                        |       | 88,432,740                       |       | $ | 88,579,339 |   | $ | 191,089,162 |   | $ | 194,519,063 |   | $ | 155,516,344 |   |
| Accumulated Deficit                  |       | (63,048,587                      | )          | $ | (70,658,399 | ) | $ | (93,112,536 | ) | $ | (119,258,442 | ) | $ | (124,727,069 | ) |
| Net Assets                           |       | $                                | 25,384,153 |   | $ | 17,920,940 |   | $ | 97,976,626 |   | $ | 75,260,621 |   | $ | 30,789,275 |   |
| Shares on issue                      |       | 40,556,793                       |       | 40,589,793 |   | 59,416,427 |   | 60,393,891 |   | 24,709,097 | (1) |

 

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(1) Share Buyback in April 2009

 

**Currencies and Exchange Rates**

 

The Company publishes its consolidated financialstatements in Australian dollars.  Inthis Annual Report, references to $ are to Australian dollars currency andreferences to “U.S. dollars” or “US$” are to U.S. currency. Solely forinformational purposes, this Annual Report contains translations of certainAustralian dollars into or from U.S. dollars at specified rates. Thesetranslations should not be construed as representations that the Australiandollars amounts actually represent such U.S. dollar amounts or could beconverted into or from U.S. dollars at the rate indicated or at any other rate.Unless otherwise stated herein, the translations of Australian dollars into orfrom U.S. dollars have been made at $1.00 to US$0.8048, the Buying Rate on June 30,2009.

 

The following table sets forth, for the periods anddates indicated, certain information concerning the Buying Rate for Australiandollars expressed in U.S. dollars per $1.00. The period average data set forthbelow is the average of the Buying Rate on the last day of each full monthduring the period. On June 30, 2009, the Buying Rate was $1.00 toUS$0.8048 and on December 2, 2009 the Buying Rate was $1.00 to US$0.9195.

 

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| **2009  Month End**     | ** ** | **High** | ** ** | **Low** | ** ** |
|-------------------------|------------|----------|------------|---------|------------|
| June 30, 2009      |       | 0.8262   |       | 0.7789  |       |
| July 31, 2009      |       | 0.8337   |       | 0.7723  |       |
| August 31, 2009    |       | 0.8477   |       | 0.8155  |       |
| September 30, 2009 |       | 0.8788   |       | 0.8239  |       |
| October 31, 2009   |       | 0.9327   |       | 0.8567  |       |
| November 30, 2009  |       | 0.9405   |       | 0.8902  |       |

 
| **Year  end June 30,** | ** ** | **Average** | ** ** |   |   |
|-----------------------------|------------|-------------|------------|--------|--------|
| 2005                        |       | 0.75352     |       |   |   |
| 2006                        |       | 0.74783     |       |   |   |
| 2007                        |       | 0.78592     |       |   |   |
| 2008                        |       | 0.89599     |       |   |   |
| 2009                        |       | 0.74803     |       |   |   |

 

## **Item 3.D.                Risk Factors**

##  

*The risks and uncertainties described below are notthe only ones that we face. Additional risks and uncertainties not presentlyknown to us or that we currently believe to be immaterial may also adverselyaffect our business. If any of the following risks and uncertainties developsinto actual events, our business, financial condition and results of operationscould be materially and adversely affected, and the trading price of ourordinary shares could decline.*

 

**RISKSRELATED TO OUR BUSINESS**

 

***We are primarily engaged with activities at a stage in the developmentof pharmaceutical products where success is uncertain***

 

Although we****are presentlygenerating revenues from the sale of contract manufacturing services, we havenot sufficiently advanced the development of our lead product candidates toenable their registration, and, accordingly, have not begun to market orgenerate revenues from their commercialization. PG-11047, PG545, PI-88(currently licensed as muparfostat) and other future pharmaceutical productcandidates will require significant additional investment in research anddevelopment, preclinical testing and clinical trials, drug manufacture andsupply, regulatory and sales and marketing activities, and regulatory approvalprior to any commercial sales.  We cannotmake any assurances that any of our product candidates, if successfullydeveloped, will generate sufficient or sustainable revenues to enable us to beprofitable.

 

***There is a significant risk that we may not be able to complete thedevelopment of PG-11047, PG545, PI-88 or develop other pharmaceutical products***

 

We cannot make any assurances that we or ourcollaborative partners will be able to develop PG-11047, PG545, PI-88 or anyfuture pharmaceutical product candidates adequately to successful 

 

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commercialization, thedevelopment of one or more suitable collaborative partners, or a combinationthereof, or that our research will lead to the discovery of additional productcandidates, or that any of our current and future product candidates will besuccessfully developed, will be proven to be safe and efficacious in clinicaltrials, 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 collaborativepartner. We****also cannot make any assurancesthat the products we develop will be able to penetrate the potential market fora particular therapy or indication or gain market acceptance among health careproviders, patients and third-party payers. We cannot predict if or whenPG-11047, PG545, PI-88 or any of our other pharmaceutical products underdevelopment will be commercialized.

 

***The results of on-going and future clinical trials of PG-11047, PG545and PI-88 are uncertain and we or our collaborative partners will not be ableto commercialize PG-11047, PG545, PI-88 or any of our other product candidatesif we fail to adequately demonstrate their safety, efficacy and superiorityover existing therapies***

 

Before obtaining regulatory approvals for thecommercial sale of any of our pharmaceutical products, we must demonstratethrough preclinical testing and clinical studies that our product candidatesare safe and effective for use in humans for each target indication. Conductingpreclinical testing and clinical studies is an expensive, protracted andtime-consuming process. Furthermore, the results of preclinical *in vitro* (within an artificial environment) and animalstudies may not necessarily be predictive of results obtained in human clinicaltesting. Likewise, results from early clinical trials may not be predictive ofresults obtained in large-scale, later-stage clinical testing. In addition,even though a potential drug product shows promising results in clinicaltrials, regulatory authorities may not grant the necessary approvals withoutsufficient safety and efficacy data.

 

Until the July 2008 termination of the Phase 3PATHWAY trial of PI-88 in liver cancer, we were embarking on the globalregistration of PI-88. Since the termination of this trial, our subsidiary,Pharmasynth, has out-licensed PI-88 (under the name muparfostat) to a US basedcompany with aspirations of conducting a Phase 3 clinical trial and seekingcommercialization.  As part of thelicense agreement, we maintain the rights to PI-88 in Australia as we continueto treat patients in our Phase 2 clinical trial of PI-88 in Melanoma.

 

We are currently nearing completion of the Phase 2clinical trial of PI-88 in Melanoma cancer patients in the United States andAustralia. We have also recently completed a Phase 1(b) clinical trial ofPG-11047 in the United States and, depending on the results of this trial, mayconduct additional clinical trials. We plan to pursue a range ofcommercialization approaches for PG-11047, amongst them entering intocollaborative arrangements with one or more suitable pharmaceutical orbiotechnology company(ies). We, cannot make any assurances that we nor ourcollaborative partners will be able either to complete the current clinicaltrials of PI-88 and PG-11047 successfully, commence new or additional clinicaltrials of PI-88, PG-11047 or PG545 as anticipated, or at all, or to demonstratethe safety and efficacy or superiority of PI-88, PG-11047 or PG545 overexisting therapies or enter into any collaborative arrangement to commercializePI-88, PG-11047 and PG545 on terms acceptable to us, or at all. Clinical trialresults that show insufficient safety and efficacy could have a materialadverse effect on our business, financial condition and results of operations.

 

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Clinical trials may take 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. Wecannot make any assurances that, when clinical trials are completed, we will beable to pursue further clinical development, execute market developmentefforts, enter into a collaborative arrangement with a suitable pharmaceuticalor biotechnology company to complete the development of, or commercializePI-88, PG-11047 or PG545. Nor can we make any assurances that once clinicaltrials are completed by us or a collaborative partner, we will be able tosubmit as scheduled a marketing approval request to the Australian TherapeuticGood Administration’s (TGA) Drug Safety and Evaluation Branch, the U.S. Foodand Drug Administration (FDA) or any other authority, or, that such request andapplication will be reviewed and cleared by any of these authorities, asapplicable, in a timely manner, or at all.

 

During the course of clinical trials and toxicologystudies, PI-88, PG-11047, PG545 and our other product candidates may exhibitunforeseen and unacceptable drug-related toxicities or side effects. If anyunacceptable toxicities or side effects were to occur, we may, or regulatoryauthorities may require us to, interrupt, limit, delay or abort the developmentof our potential products. In addition, unacceptable toxicities couldultimately prevent the clearance of our product candidates by the TGA or theFDA for any or all targeted indications. Even after being cleared by the TGA orthe FDA, any of our products may later be shown to be unsafe or not to have itspurported effect, thereby preventing widespread use or requiring withdrawalfrom the market. We cannot make any assurances that PI-88, PG-11047 or any ofour other product candidates will be safe or effective when administered topatients.

 

***We may experience delays in our clinical trials that could adverselyaffect our business and operations***

 

We do not know whether planned clinical trials willbegin on time or whether we will complete any of our clinical trials onschedule or at all. Our ability to commence and complete clinical trials may bedelayed by many factors, including:

 

·                                         Government or regulatory delays, including delays inobtaining approvals from applicable hospital ethics committees and internalreview boards;

 

·                                         Slower than expected patient recruitment;

 

·                                         Our inability to manufacture or prepare, asapplicable, sufficient quantities of pharmaceutical product;

 

·                                         Unforeseen safety issues; and

 

·                                         Lack of efficacy during clinical trials.

 

Patient enrollment is a function of, amongst otherthings, the nature of the clinical trial protocol, the existence of competingprotocols, the size and longevity of the target patient population and theavailability of patients who meet the eligibility criteria for the clinicaltrial. Delays in planned patient enrollment may result in increased costs,delays in trial completion or termination of clinical trials. Moreover, we havelimited experience in conducting and managing clinical trials and may rely onthird parties to assist us in managing and monitoring clinical trials. Anyfailure by these 

 

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third parties to performunder their agreements with us may cause the trials to be delayed or result ina failure to complete the trials.

 

Product development costs to our collaborators and uswill increase if we have delays in testing or approvals or if we need toperform more or larger clinical trials than planned. Significant delays couldhave a material adverse effect on the commercial prospects of our productcandidates and our business, financial condition and results of operations.

 

***We may be unable to enroll a sufficient number of patients to completeour clinical trials***

 

Our clinical trials may be suspended at any time for avariety of reasons. Completion of clinical trials depends on, among otherthings, our ability to enroll a sufficient number of patients, which is afunction of many factors, including:

 

·                                         the therapeutic endpoints chosen forevaluation;

 

·                                         proximity of patients to clinical sites;

 

·                                         the eligibility criteria forparticipation in the clinical trials;

 

·                                         the size of the patient populationrequired for meaningful analysis of the trial results;

 

·                                         our ability to recruit clinical trialinvestigators with the appropriate competencies and experience;

 

·                                         our ability to obtain and maintainpatient consents;

 

·                                         the risk that patients enrolled inclinical trials will drop out of the trials before completion; and

 

·                                         competition for patients by clinicaltrial programs for other treatments.

 

We have in thepast experienced, and may again experience difficulties in enrolling patientsin our clinical trials, particularly due to the rate of incidence for ourtarget indications in certain populations, as well as the geographicallocations we have selected for conducting our clinical trials.  Any such difficulties could increase thecosts or affect the timing or outcome of these trials and could prevent us fromcompleting these trials.

 

***We may not be successful in performing additional clinical trials inother indications***

 

If our productcandidates are approved for one or more initial indications and aresuccessfully commercialized, our strategy calls for the execution of additionalclinical trials in other indications. We may not be able to initiate suchadditional trials due to a number of factors, including the following:

 

·                                         we may not have sufficient financial orother resources to undertake such trials;

 

·                                         we may be unable to secure sufficientsupport from leading authorities or influential parties to build trialprotocols and support for conduct of a new trial;

 

·                                         there may not be sufficient market sizeto warrant product development in other new indications; and

 

·                                         the health care community may believethat our products are limited in use to the 

 

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already-approved indications.

 

Anyfailure to initiate additional clinical trials in other indications could havea material adverse effect on our business.

 

***We have limited manufacturing experience, and delays in manufacturingsufficient quantities of PI-88, PG-11047 and PG545 for preclinical and clinicaltrials may negatively impact our business and operations***

 

We have sufficient supply of PI-88 to complete theremaining ongoing Phase 2 trial of PI-88 in Melanoma. We cannot make anyassurances that we will be able to manufacture sufficient quantities ofPG-11047 or any of our other product candidates in a cost-effective or timelymanner. Any delays in production would delay our preclinical and clinicaltrials which could have a material adverse effect on our business, financialcondition and results of operations.

 

We will be required to enter into contractingarrangements with third parties to manufacture PG-11047 and our other productcandidates for large-scale, later-stage clinical trials. We may need to enterinto collaborative arrangements with other parties who have establishedmanufacturing capabilities, or have third parties manufacture or prepare ourproducts on a contract basis. We cannot make any assurances that we will haveaccess on acceptable terms to the necessary and substantial financing thatwould be required to scale-up production and develop effective commercialmanufacturing processes and technologies. We also cannot make any assurancesthat we will be able to enter into collaborative or contracting arrangements onacceptable terms with parties that will meet our requirements for quality,quantity and timeliness.

 

***If we are unable to independently commercialize or establish and managestrategic collaborations to develop PI-88, PG-11047, PG545 or any of our otherproduct candidates, we may have to reduce or delay product development and/orincrease our expenditures***

 

Our strategy for developing and commercializing ourproduct candidates includes entering into various relationships withpharmaceutical or biotechnology companies to provide us with funding and/or toperform research, clinical development, regulatory clearance, commercial scalemanufacturing, sales, marketing or distribution activities relating to PI-88,PG-11047, PG545 or some or all of our current or future product candidates. Todate, we have secured a license with a US based company who will be managingfuture development of PI-88.  We have notentered into any agreements with third parties capable of providing suchservices for PG-11047, PG545 or our other product candidates. Establishingstrategic collaborations is difficult and time-consuming. Our discussions withpotential collaborators may not lead to the establishment of collaborations onfavorable terms, if at all. If we are unable to establish collaborativearrangements, we may have to reduce or delay further development of or ourproduct candidates and/or increase our expenditures and undertake thedevelopment and commercialization activities at our own expense. If we elect tofund our research and development programs on our own, we will need to obtainadditional 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 significanttime and effort from our management team, coordination of our research anddevelopment programs with the research and development priorities of ourcollaborators, and effective allocation of our resources to multiple projects.We cannot be certain 

 

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that these relationshipswill result in the successful development or commercialization of our productcandidates or the generation of sales revenue. If we enter into strategiccollaborations at an early phase of product development, our success will inpart depend on the performance of our corporate collaborators. Factors thatcould harm a successful collaboration include:

 

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

 

·                                         Collaborators could independently develop, or developwith third parties, products that could compete with our current and futureproduct candidates;

 

·                                         Collaborators may not commit adequate resources to themarketing and distribution of our product candidates, limiting potentialrevenues from the commercialization of a product;

 

·                                         Collaborators may not pursue further development andcommercialization of compounds resulting from collaborations or may elect notto continue or renew research and development programs;

 

·                                         The terms of our agreements with collaborators may notbe favorable to us;

 

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

 

·                                         Collaborators may terminate their agreements with usif, for example, we fail to meet a required milestone or observe otherobligations in those agreements.

 

***Our limited oversight of contract research organizations may not besufficient to avoid significant problems with the protocols and conduct of theclinical trials.***

 

We engage third partycontract research organizations to help us with the conduct of our clinicaltrials. These organizations may not perform all of their obligations underarrangements with us. If contract research organizations and other thirdparties do not perform clinical trials in a satisfactory manner or breach theirobligations to us, the development and commercialization of our productcandidates may be delayed or precluded. We cannot control the amount and timingof resources these contract research organizations devote to our programs orproduct candidates. The failure of any of these contract research organizationsto comply with any governmental regulations would substantially harm ourdevelopment and marketing efforts and delay or prevent regulatory approval ofour product candidates. If we are unable to rely on clinical data collected byothers, we could be required to repeat, extend the duration of, or increase thesize of our clinical trials and this could significantly delaycommercialization and require significantly greater expenditures.

 

***Our efforts to discover, develop and commercialize new productcandidates beyond PI-88 and PG-11047 are at a very early stage and, therefore,these efforts are subject to a high risk of failure***

 

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

 

***If we cannot enter into new licensing arrangements, our ability todevelop a broad product portfolio could be limited***

 

A component of our business strategy is in-licensingdrug compounds developed by other commercial or academic entities. Competitionfor promising compounds is intense. If we are not able to identify additionallicensing opportunities or enter into licensing arrangements on acceptableterms, if at all, our ability to develop a diverse portfolio of productcandidates is restricted.

 

***We may require substantial additional financing in the future tosufficiently fund our operations, development efforts and research***

 

We have been unprofitable to date and expect to incurlosses over the next several years as we expand our drug discovery anddevelopment programs and preclinical testing and as we conduct clinical trialsof PG-11047, PI-88 Melanoma in Australia and our other product candidates.Although our future capital requirements will depend on many factors, webelieve that our existing cash and cash equivalents will be adequate to satisfythe requirements of our current and planned operations beyond June 2011.We cannot, however, make any assurances that such funds will be sufficient tomeet our actual operating expenses and capital requirements during this period.Our actual cash requirements may vary materially from those now planned andwill depend upon numerous factors, including:

 

·                                         The continued progress of our research and developmentprograms;

 

·                                         The timing, scope, results and costs of preclinicalstudies and clinical trials;

 

·                                         The progress of licensing efforts;

 

·                                         The cost, timing and outcome of regulatory submissionsand approvals;

 

·                                         Determinations as to the commercial potential of ourproduct candidates;

 

·                                         Our ability to successfully expand our contractmanufacturing services, if we choose to do so;

 

·                                         Our ability to establish and maintain collaborativearrangements;

 

·                                         The status and timing of competitive developments; and

 

·                                         Other factors.

 

Whilst we currently believe we have sufficient fundsto conduct all current and planned clinical trials as well as complete theresearch and development of our pharmaceutical product 

 

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candidates we may requireadditional funds to pursue regulatory clearances, prosecute and defend ourintellectual property rights, establish commercial scale manufacturingfacilities, develop marketing and sales capabilities and fund operatingexpenses. We have no established bank financing arrangements, and we cannot becertain that we will be able to establish such arrangements on satisfactoryterms, or at all. We may seek such additional funding through public or privatefinancings and/or through strategic alliances or other arrangements withcorporate partners. We cannot, however, be certain that such additional financingwill be available from any sources on acceptable terms, or at all, or that wewill be able to establish strategic alliances or other arrangements withcorporate partners on acceptable terms, or at all. Any shortfall in fundingcould result in our having to curtail our operations, including our researchand development activities, which could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

***We have a history of operating losses and may not achieve profitabilityin the near future***

 

We have incurred net operating losses in each yearsince we began operations in 1989. As of June 30, 2009, we had anaccumulated deficit of approximately $124.7 million primarily attributable toour research and development activities. We expect to incur additionaloperating losses and to increase our cumulative losses substantially as weexpand our research and development and preclinical activities.  In addition, further losses are expected tobe incurred in the continuation of our current PG-11047 and PI-88 Melanomatrials, and we may commence clinical trials of our PG500 series compounds..

 

***Our research and developmentefforts will be seriously jeopardized if we are unable to attract and retainkey personnel and cultivate key academic and scientific collaborations***

 

We are a company with 25employees as of June 30, 2009. Our success is highly dependent on thecontinued contributions of our principal management and scientific personneland on our ability to develop and maintain important relationships with leadingacademic institutions and scientists. Competition among biotechnology andpharmaceutical companies for qualified employees is intense, and we cannot becertain that we will be able to continue to attract and retain qualifiedscientific and management personnel critical to our success. We also haverelationships with leading academic and scientific collaborators who conductresearch at our request or assist us in formulating our research anddevelopment strategies. These academic and scientific collaborators are not our****employees and may have commitments to, or consulting oradvisory contracts with, other entities that may limit their availability tous.

 

***Acceptance of our products in themarketplace is uncertain, and failure to achieve market acceptance willnegatively impact our business and operations***

 

We cannot make anyassurances that our products will achieve market acceptance even if they areapproved by the TGA, the FDA, and the regulatory agencies of other countries.The degree of market acceptance of our products will depend on a number offactors, including:

 

·                                         The receipt and timing of regulatory approvals for theuses that we are studying;

 

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·                                         The establishment and demonstration in the medicalcommunity of the safety, clinical efficacy and cost-effectiveness of ourproduct candidates and their potential advantages over existing therapeuticsand technologies; and

 

·                                         The pricing and reimbursement policies of governments andthird-party payers.

 

Physicians, patients,payers or the medical community in general may be unwilling to accept, use orrecommend any of our products.

 

***Wemay need to establish our own sales, marketing and distribution capability***

 

As a company, we currentlyhave no experience in marketing, sales or distribution of pharmaceuticalproducts. If we develop any commercially marketable pharmaceutical products anddecide to perform our****own sales andmarketing activities**,**we willrequire additional management, will need to hire sales and marketing personnel,and will require additional capital. We cannot make any assurances thatqualified personnel will be available in adequate numbers or at a reasonablecost, that additional financing will be available on acceptable terms, or atall, or that our sales staff will achieve success in their marketing efforts.Alternatively, we may be required to enter into marketing arrangements withother parties who have established appropriate marketing, sales anddistribution capabilities. We cannot make any assurances that we will be ableto enter into marketing arrangements with any marketing partner or that if sucharrangements are established, our marketing partners will be able tocommercialize our products successfully. Other companies offering similar orsubstitute products may have well-established and well-funded marketing andsales operations in place that will allow them to market their products moresuccessfully. Failure to establish sufficient marketing capabilities may have amaterial adverse impact our potential revenues and results of operations.

 

***Healthcare insurers and otherorganizations may not pay for our products, or may impose limits onreimbursement***

 

The drugs we strive todevelop may be rejected by the marketplace due to many factors, including cost.The continuing efforts of governments, insurance companies, health maintenanceorganizations and other payers of healthcare costs to contain or reducehealthcare costs may affect our future revenues and profitability and those ofour potential customers, suppliers and collaborative partners, as well as theavailability of capital. In Australia and certain foreign markets, the pricingor profitability of prescription pharmaceuticals is already subject to governmentcontrol. We expect initiatives for similar government control at both the stateand federal level to continue in the United States. The adoption of any suchlegislative or regulatory proposals could have a material adverse effect on ourpotential revenues and results of operations.

 

Our ability tocommercially exploit our products successfully will depend in part on theextent to which reimbursement for the cost of our products and relatedtreatment will be available from government health administration authorities,private health coverage insurers and other organizations. Third-party payers,such as government and private health insurers, are increasingly challengingthe price of medical products and services. Although the Australian governmentcontinues to provide a subsidy to certain prescribed prescriptionpharmaceutical products through the Pharmaceutical Benefits Scheme, which,pending development, could include PI-88 and PG-11047, uncertainty exists as tothe reimbursement status of newly approved health care products and in 

 

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foreign markets,including the United States. If third-party coverage is not available topatients for any of the products we develop, alone or with collaborators, themarket acceptance of these products may be reduced which may adversely affectour future revenues and profitability. In addition, cost containmentlegislation and reductions in government insurance programs may result in lowerprices for our products and could materially adversely affect our ability tooperate profitably.

 

***Exchangerate fluctuations will continue to affect our reported results of operations***

 

Substantially all of ourrevenues are realized, and a significant portion of our operating costs areincurred, in Australian dollars. Movement in currency exchange rates willaffect cash denominated in U.S. dollars and therefore will affect our reportedresults of operations.

 

**RISKS ASSOCIATED WITH OUR TECHNOLOGY ANDINTELLECTUAL PROPERTY**

 

***Potential technologicalchanges in our field of business create considerable uncertainty***

 

We are engaged in the biopharmaceutical field, which is characterizedby extensive research efforts and rapid technological progress. Newdevelopments in research are expected to continue at a rapid pace in bothindustry and academia. Research and discoveries by others may render some orall of our programs or product candidates uncompetitive or obsolete.

 

Our business strategy is based in part uponnew and unproven technologies to the development of pharmaceutical products forthe treatment of cancer and other serious diseases. Unforeseen problems maydevelop with these technologies or applications and it is possible thatcommercially feasible products will not ultimately be developed by us.

 

***We may not be able to keep pacewith technological change or with the advances of our competitors***

 

The biotechnology andpharmaceutical industries are subject to rapid and significant technologicalchange. 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 developtechnologies and products that are more effective than any that we aredeveloping, or which would render our technology and products obsolete ornon-competitive. Many of these competitors have greater financial and technicalresources and manufacturing and marketing capabilities than we do. In addition,many of our competitors have much more experience than we do in preclinicaltesting and human clinical trials of new or improved drugs, as well as inobtaining FDA, TGA and other regulatory approvals.

 

We know that competitorsare developing or manufacturing various technologies or products for thetreatment of diseases that we have targeted for product development. Some ofthese competitive products use therapeutic approaches that compete directly withsome of our product candidates. Our ability to further develop our products maybe adversely affected if any of our competitors were to succeed in obtainingregulatory approval for their competitive products sooner than we would.

 

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***Our success depends upon our ability to protect our intellectualproperty and our proprietary technology***

 

Our success will depend in large part on whether wecan:

 

·                                         Obtain and maintain patents to protectour own products;

 

·                                         Obtain licenses to relevant patentedtechnologies of third parties;

 

·                                         Operate without infringing on theproprietary rights of third parties; and

 

·                                         Protect our trade secrets and know-how.

 

·                                         Retain our valuable scientific staff whoare experts on the subject matters

 

Patent matters inbiotechnology are highly uncertain and involve complex legal and factualquestions. Accordingly, the availability and breadth of claims allowed inbiotechnology and pharmaceutical patents cannot be predicted. Statutorydifferences in patentable subject matter may limit the protection we can obtainon some or all of our inventions outside Australia or prevent us from obtainingpatent protection outside Australia, either of which could have a materialadverse effect on our business, financial condition and results of operations.For example, methods of treating humans are not patentable in many countriesoutside Australia and the United States. Moreover, since patent applications inAustralia and the United States are maintained in secrecy until the patent isissued, and since publication of discoveries in the scientific or patentliterature often lags behind actual discoveries, we cannot be certain that weor any of our licensors were the first creator of inventions covered by pendingpatent applications or that we or our licensors were the first to file patentapplications for such inventions. Additionally, the enforceability of a patentdepends on a number of factors that may vary amongst jurisdictions. Thesefactors may include the novelty of the invention, the requirement that theinvention not be obvious in light of prior art (including prior use orpublication of the invention), the utility of the invention, and the extent towhich the patent clearly describes the best method of working the invention.

 

While we intend to seekpatent protection for our therapeutic products and technologies, we cannot becertain that any of the pending or future patent applications filed by us or onour behalf will be approved, or that we will develop additional proprietaryproducts or processes that are patentable or that we will be able to licenseany other patentable products or processes. We also cannot be certain thatothers will not independently develop similar products or processes, duplicateany of the products or processes developed or being developed by us or licensedto us, or design around the patents owned or licensed by us, or that anypatents owned or licensed by us will provide us with competitive advantages.Furthermore, we cannot be certain that patents held by third parties will notprevent the commercialization of products incorporating the technologydeveloped by us or licensed to us, or that third parties will not challenge orseek to narrow, invalidate or circumvent any of the issued, pending or futurepatents owned or licensed by us.

 

Our commercial successwill also depend, in part, on our ability to avoid infringement of patentsissued to others. If a court determines that we were infringing any third partypatents, we could be required to pay damages, alter our products or processes,obtain licenses or cease certain activities. We cannot be certain that thelicenses required under patents held by third parties would 

 

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be made available onterms acceptable to us or at all. To the extent that we are unable to obtainsuch licenses, we could be foreclosed from the development, manufacture orcommercialization of the product requiring such license or encounter delays inproduct introductions while we attempt to design around such patents, and anyof these circumstances could have a material adverse effect on our business,financial condition and results of operations.

 

We may have to resort tolitigation to enforce any patents issued or licensed to us or to determine thescope and validity of third party proprietary rights. Such litigation couldresult in substantial costs to be incurred by us and the diversion of ourefforts. We may have to participate in opposition proceedings before theAustralian Patent and Trademark Office or another foreign patent office, or ininterference proceedings declared by the United States Patent and TrademarkOffice, to determine the priority of invention for patent applications filed bycompetitors. Any such litigation, interference or opposition proceeding, regardlessof outcome, could be expensive and time consuming, and adverse determinationsin any such proceedings could prevent us from developing, manufacturing orcommercializing our products and could have a material adverse effect on ourbusiness, financial condition and results of operations.

 

In addition to patentprotection, we rely on unpatented trade secrets and know-how and proprietarytechnological innovation and expertise that are protected in part byconfidentiality and invention assignment agreements with our employees,advisors and consultants. We cannot make any assurances that we will haveadequate remedies for any breach. In addition, third parties couldindependently develop the same or similar technologies.

 

***If we are not able to protect and control unpatented trade secrets,know-how and other technological innovation, we may suffer competitive harm.***

 

Inaddition to patented intellectual property, we also rely on unpatentedtechnology, trade secrets, confidential information and know-how to protect ourtechnology and maintain our competitive position. Trade secrets are difficultto protect. In order to protect proprietary technology and processes, we relyin part on confidentiality and intellectual property assignment agreements withour employees, consultants and others. These agreements may not effectivelyprevent disclosure of confidential information or result in the effectiveassignment to us of intellectual property, and may not provide an adequateremedy in the event of unauthorized disclosure of confidential information orother breaches of the agreements. In addition, others may independentlydiscover trade secrets and proprietary information that have been licensed tous or that we own, and in such case we could not assert any trade secret rightsagainst such party. Enforcing a claim that a party illegally obtained and isusing trade secrets that have been licensed to us or that we own is difficult,expensive and time-consuming, and the outcome is unpredictable. In addition,courts outside the United States and Australia may be less willing to protecttrade secrets. Costly and time-consuming litigation could be necessary to seekto enforce and determine the scope of our proprietary rights, and failure toobtain or maintain trade secret protection could have a material adverse effecton our business.

 

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***We do not have patentprotection in certain countries and we may not be able to effectively enforceour intellectual property rights in certain countries, which couldsignificantly erode the market for our product candidates.***

 

Weintend to seek regulatory approval to market our product candidates in a numberof foreign countries. Our product candidates are not protected by patents incertain countries, which means that competitors may be free to sell productsthat incorporate the same technology that is used in our products in thosecountries. In addition, the laws and practices in some foreign countries maynot protect intellectual property rights to the same extent as in the UnitedStates. We, or our licensors, may not be able to effectively obtain, maintainor enforce rights with respect to the intellectual property relating to ourproduct candidates in those countries. Our lack of patent protection in one ormore countries, or the inability to obtain, maintain or enforce intellectualproperty rights in one or more countries, could adversely affect our ability tocommercialize our products in those countries and could otherwise have amaterial adverse effect on our business.

 

**RISKS ASSOCIATED WITH GOVERNMENT REGULATION**

 

***We may not be able to obtain theextensive government approvals required to bring our pharmaceutical products tomarket***

 

Our ongoing research anddevelopment activities are, and the production and marketing of ourpharmaceutical product candidates derived there from will be, subject toregulation by numerous governmental authorities in Australia, principally theTGA, and by the FDA in the United States, the European Medicines EvaluationAgency (EMEA) of the European Union and the regulatory agencies of othercountries. Prior to marketing, any therapeutic product developed must undergorigorous preclinical testing and clinical trials, as well as an extensiveregulatory approval process mandated by the TGA and, to the extent that any ofour pharmaceutical products under development are marketed abroad, by foreignregulatory agencies including the FDA in the United States and the EMEA inEurope. These processes can take many years and require the expenditure ofsubstantial resources. Delays in obtaining regulatory approvals could adverselyaffect the development and commercialization of our pharmaceutical productcandidates and could have a material adverse impact on our business, financialcondition and results of operations. Although we intend to make use offast-track and abbreviated regulatory approval programs when possible, wecannot be certain that we will be able to obtain the clearances and approvalsnecessary for clinical testing or for manufacturing and marketing ourpharmaceutical products candidates.

 

***Our business and operations maybe negatively impacted if we fail to comply with government regulationsapplicable to our current revenue generating business.***

 

Todate, we have derived revenues from contract manufacturing services. Ourcontract manufacturing operations include some manufacturing processes that arerequired to comply with the applicable cGMP requirements of the TGA, theAustralian Office of Gene Technology Regulator and the Australian NationalRegistration Authority  (agricultural andveterinary chemicals), which govern the methods, controls, facilities andquality assurance procedures used in manufacturing, packing and storingbiological and pharmaceutical products. In addition, certain internationalmarkets have quality assurance and manufacturing requirements that may be moreor less rigorous than those in Australia. Our manufacturing facilities are alsosubject to periodic inspections by the TGA and the Australian National RegistrationAuthority. Any potential failure to comply with 

 

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cGMPrequirements or with any other international requirements could have a materialadverse impact on our business, financial condition and results of operations.

 

***Changesin government legislation and policy may adversely affect us***

 

While we do notanticipate in the near future any specific material changes in governmentlegislation that may adversely affect us, any material changes in interestrate, exchange rate, relevant taxation and other legal regimes and governmentpolicies may adversely affect our operations, the use of our financialresources and the market price of our ordinary shares.

 

**RISKS ASSOCIATED WITH OUR SHARES**

 

***Our stock price may be volatileand the U.S. trading market for our ordinary shares is limited***

 

The market price for ourordinary shares, like that of the securities of many other biotechnologycompanies, has fluctuated substantially and may continue to be highly volatilein the future. We believe that the following factors, in addition to other riskfactors described above and elsewhere in this annual report, will continue tosignificantly affect the market price of our ordinary shares:

 

·                                          The results of preclinical testing andclinical trials by us and our competitors;

 

·                                          Developments concerning research anddevelopment, manufacturing, and marketing alliances or collaborations by us andour competitors;

 

·                                          Announcements of technologicalinnovations or new commercial products by us and our competitors;

 

·                                          Determinations regarding our patentapplications and those of others;

 

·                                          Publicity regarding actual or potentialresults relating to medicinal products under development by us and ourcompetitors;

 

·                                          Proposed governmental regulations anddevelopments in Australia, the U.S. and elsewhere;

 

·                                          Litigation;

 

·                                          Economic and other external factors; and

 

·                                          Period-to-period fluctuations in our operatingresults.

 

In addition, stockmarkets have experienced extreme price and volume fluctuations. Thesefluctuations have especially affected the stock market price of many hightechnology and healthcare-related companies, including biotechnology companies,and, in many cases, are unrelated to the operating performance of theparticular companies. We believe that these broad market fluctuations maycontinue to affect the market price of our ordinary shares.

 

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From time to time, therehas been limited trading volume with respect to our ordinary shares quoted onthe Nasdaq Capital Market, but we cannot make any assurances that there willcontinue to be a trading market in our ordinary shares.

 

On September 4, 2008we received a letter from the Nasdaq Stock Market notifying the Company thatfor the last 30 consecutive business days prior to September 4, the bidprice for the Company’s ordinary shares has closed below the minimum US$1.00per share requirement for continued inclusion under Nasdaq Marketplace Rule 4320(e)(2)(E)(ii) (The“Rule”).  Following correspondence withthe Nasdaq Stock market, we now have until December 22, 2009 to obtaincompliance with the bid price rule.

 

To regain compliance withthe minimum bid price requirement, Progen’s ordinary shares must meet or exceedthe US$1.00 share price for 10 consecutive business days.  If the Company does not regain compliancewith the Rule by December 22, 2009, we will receive writtenconfirmation that the Company’s securities will be delisted from the NasdaqStock Market.

 

We cannot make anyassurance that the Company’s securities will continue to be listed on theNasdaq Capital Market.

 

***U.S. shareholders may notbe able to enforce civil liabilities against us***

 

A number of our directors and executiveofficers are non-residents of the United States, and all or a substantialportion of the assets of such persons are located outside the United States. Asa result, it may not be possible for investors to affect service of processwithin the United States upon such persons or to enforce against them judgmentsobtained in U.S. courts predicated upon the civil liability provisions of thefederal securities laws of the United States. There is doubt as to theenforceability in Australia in original actions, or in actions for enforcementof judgments of U.S. courts, of civil liabilities to the extent predicated uponthe federal securities laws of the United States.

 

***U.S. holders of ourordinary shares could be subject to material adverse tax consequences if we areconsidered a PFIC for U.S. federal income tax purposes****.*

 

There is a risk that we will be classified asa passive foreign investment company, or “PFIC”, for U.S. federal income taxpurposes. Our status as a PFIC could result in a reduction in the after-taxreturn to U.S. holders of our ordinary shares and warrants and may cause areduction in the value of such shares. We will be classified as a PFIC for anytaxable year in which (i) 75% or more of our gross income is passiveincome or (ii) at least 50% of the average value of all our assetsproduce, or are held for the production of passive income. For this purpose, passiveincome includes interest, gains from the sale of stock, and royalties that arenot derived in the active conduct of a trade or business. Because we receiveinterest and may recognize gains from the sale of appreciated stock, there is arisk that we will be considered a PFIC under the income test described above.In addition, because of our cash position, there is a risk that we will beconsidered a PFIC under the asset test described above. While we believe thatthe PFIC rules were not intended to apply to companies such as us thatfocus on research, development and commercialization of drugs, no assurance canbe given that the U.S. Internal Revenue Service or a U.S. court would determinethat, based on the composition of our income and assets, we are not a PFICcurrently or in the future. If we were classified as a PFIC, U.S. holders ofour ordinary shares could be subject to greater U.S. income tax

 

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liability than might otherwise apply, imposition of U.S. income tax inadvance of when tax would otherwise apply, and detailed tax filing requirementsthat would not otherwise apply. The PFIC rules are complex and you areurged to consult your own tax advisors regarding the possible application ofthe PFIC rules to you in your particular circumstances.

 

***As a foreign privateissuer we do not have to provide you with the same information as an issuer ofsecurities based in the U.S.***

 

Given that we are a foreign private issuerwithin the meaning of the rules under the Exchange Act, we are exempt fromcertain provisions of that law that are applicable to U.S. public companies,including (i) the rules under the Exchange Act requiring the filingwith the US SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;(ii) the sections of the Exchange Act regulating the solicitation ofproxies, consents or authorizations in respect of a registered security; and (iii) thesections of the Exchange Act requiring insiders to file public reports of theirstock ownership and trading activities and liability for insiders who profitfrom trades made in a short period of time. Thus, investors are not affordedthe same protections or information which would be ordinarily available to werethey investing in a U.S. public corporation.

 

In accordance with the requirements of theAustralian Securities Exchange and the Corporations Act 2001, we discloseannual and semi-annual results. Our results are presented in accordance withAustralian International Financial Reporting Standards. Our annual results areaudited, and our semi-annual results undergo a limited review by ourindependent auditors. We lodge annual audited results presented in accordancewith Australian International Financial Reporting Standards and IFRS as issuedby International Accounting Standards Board with the SEC on Form 20-F.Subject to certain exceptions, we are also required to immediately disclose tothe Australian Securities Exchange any information concerning us that areasonable person would expect to have a material effect on the price or valueof our shares. This would include matters such as (i) any major newdevelopments relating to our business which are not public knowledge and maylead to a substantial movement in our share price; (ii) any changes in ourboard of directors; (iii) any purchase or redemption by us of our ownequity securities; (iv) interests of directors in our shares ordebentures; and (v) changes in our capital structure. We are required toprovide our semi-annual results and other material information that we disclosein Australia in the U.S. under the cover of Form 6-K. Nevertheless, thisinformation is not the same and may not be as much information as would be madeavailable to investors were they investing in a U.S. public corporation.

 

***Future issuances and salesof our stock could dilute your ownership and cause our stock price to decline***

 

We intend to continue to finance our operationsthrough the issuance of securities, if feasible, including by way of the publicequity markets, private financings and debt. If we raise additional capitalthrough the issuance of equity or securities convertible into equity, existingholders of our securities may experience dilution. Those securities may haverights, preferences or privileges senior to those of the holders of ourordinary shares. Additional financing may not be available to us on favorableterms, and financing available at less favorable terms may lead to moresubstantial dilution of existing shareholders.

 

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***If we fail to comply withinternal controls evaluations and attestation requirements our stock pricecould be adversely affected***

 

Weare subject to United States securities laws, including the Sarbanes-Oxley Actof 2002 and the rules and regulations adopted by the SEC pursuant to suchAct. As a foreign private issuer, under Section 404 of the Sarbanes-OxleyAct and the related regulations, we are generally required to perform anevaluation of our internal controls over financial reporting, including (1) management’sannual report on its assessment of the effectiveness of internal controls overfinancial reporting; and (2) an independent registered public accountingfirm’s annual audit of management’s assessment of internal controls. In 2009,our market capitalization fell to a point where we were no longer recognized asan accelerated filer, and pursuant to temporary rules of the Securities and ExchangeCommission the company was exempt from Section 404(b) of theSarbanes-Oxley Act for fiscal 2009, meaning that we did not have to comply withpoint (2) above.  In fiscal 2009, weidentified two material weaknesses in our internal control system, relating to (i) deficienciesin the financial statement close process; and (ii) the Company did notmaintain an adequate segregation of duties with respect to internal controlover financial reporting. See “Item 15—Controls and Procedures—Management’sAnnual Report on Internal Control over Financial Reporting.”

 

Therequirements of Section 404 of the Sarbanes-Oxley Act are ongoing and alsoapply to future years. We expect that our internal control over financialreporting will continue to evolve as our business develops. Although we arecommitted to continue to improve our internal control processes and we willcontinue to diligently and vigorously review our internal control overfinancial reporting in order to ensure compliance with the Section 404requirements, any control system, regardless of how well designed, operated andevaluated, can provide only reasonable, not absolute, assurance that itsobjectives will be met. Therefore, we cannot be certain that in the futureadditional material weaknesses or significant deficiencies will not exist orotherwise be discovered. If our efforts to remediate the weakness identifiedare not successful or if other deficiencies occur, these weaknesses ordeficiencies could result misstatements of our results of operations,restatements of our financial statements, a decline in our stock price, orother material effects on our business, reputation, results of operations, financialconditions or liquidity.

 

***Our Constitution and otherAustralian laws and regulations applicable to us may adversely affect ourability to take actions that could be beneficial to our shareholders***

 

Asan Australian company we are subject to different corporate requirements than acorporation organized under the laws of the United States. Our constituentdocument, or Constitution, as well as the Corporations Act 2001 set forthvarious rights and obligations that are unique to us as an Australian company.These requirements may limit or otherwise adversely affect our ability to takeactions that could be beneficial to our shareholders.

 

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# **ITEM 4.                  INFORMATIONON THE COMPANY**

#  

## **Item 4.A.                Historyand Development of the Company**

##  

We were incorporated in September 1989 asAlmagest Pty. Ltd. in the State of Queensland, Australia, and changed our nameto Progen Industries Pty. Ltd. in April 1990.  In 1991, we converted to a public limitedliability company under the name Progen Industries Limited and introduced ourfirst life sciences products to the Australian market for use in DNArecombinant research. In March 2007 we changed our name to ProgenPharmaceuticals Limited to better reflect the Company’s focus on the discoveryand development of novel cancer therapies.

 

Since October 1993, we have been engaged in theresearch and development of small molecule pharmaceuticals, includingheparanase inhibitors, that are potent and selective inhibitors ofcarbohydrate-protein interactions implicated in a range of disease states. Ourresearch and development activities are conducted in collaboration with privateindustry and academic and research institutions in Australia, the United Statesand elsewhere.

 

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

 

In February 2008, the Company acquired CellGate, Inc.,a California based oncology drug development Company. This acquisition providedthe Company with a product candidate in Phase 1 and multiple preclinicalcompounds.

 

On December 22, 2008 the Company announced the signing of anexclusive and binding Merger Implementation Agreement with Avexa Limited, anAustralian publicly listed biotechnology company.  A general meeting was called for April 11,2009 to approve the plan; however, after receiving the majority of proxy votes,it became apparent that the transaction would be defeated by shareholders.  Progen and Avexa subsequently terminated theagreement, with Progen paying a $0.5 million break fee to Avexa.

 

Following the termination of the Avexa agreement, theCompany undertook an equal-access, voluntary share buy-back for $39.4 milliondollars on April 30, 2009.  Thisbuy-back reduced the number of shares on issue from 60,545,131 to24,709,097.  Each of the 38,836,034shares was bought back for $1.10.

 

We have incurred significant losses since ourinception and as of June 30, 2009, our accumulated deficit wasapproximately $124.7 million. We expect to incur additional operating lossesfor the year ending June 30, 2010 on the development of our clinicalproduct candidate PG-11047, and preclinical activities associated PG545 and ourother preclinical product candidates.

 

For many yearsPI-88 has been the lead product candidate in Progen’s drug developmentpipeline. In March 2008 the Company commenced a Phase 3 human clinicaltrial of PI-88 in patients with post-resection liver cancer (the PATHWAYtrial). In July 2008 the Company terminated this Phase 3 trial forcommercial reasons.  On July 1,2009, our subsidiary, PharmaSynth executed a license agreement with a US basedcompany, Global Transbiotech Inc. to conduct Phase 3 trials and subsequentlycommercialize muparfostat (formerly known as PI-88).  We are entitled to various 

 

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milestone payments linkedto progression in the development of muparfostat, as well as a royalty on allproduct sales upon commercialization.

 

Following the termination of the Phase 3 Trials inPI-88 and its subsequent licensing, various requisitions have been receivedfrom shareholders for general meetings to remove current board members andappoint new board members.  Such meetingshave been held on January 9, 2009, March 27, 2009 and July 17,2009.  In the March 27 meeting, fourProgen directors were removed from office. In the July 17 meeting, three shareholder candidates were appointedas directors of the company.

 

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

 

The Company’s ordinary shares are listed on theAustralian Securities Exchange (ASX: PGL) and on the NASDAQ Capital Market(NASDAQ: PGLA).

 

**Corporate Information**

 

Our principal executive offices are located at 16Benson Street, Toowong, Queensland 4066, Australia. Our telephone number is +61 7 3842 3333. The address of the Company’s agent in the U.S. is Mr. LaurenceMarton, Progen Pharmaceuticals Inc. 2479 East Bayshore Road, Suite 709,Palo Alto, California, 94303.

 

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

 

Progenis a registered trademark of Progen Pharmaceuticals Limited. Trademarks,tradenames or service marks of other companies appearing in this Annual Reportare the property of their respective owners**.**

 

## **Item 4.B.                BusinessOverview**

 

Weare a globally focused biotechnology company committed to the discovery,development and commercialization of small molecule therapeutics primarily forthe treatment of cancer.

 

TheGroup operates the Research and Development business in Australia and theU.S.A. For segment revenue breakout, both geographically and by business unit,please refer to Item 5.

 

Progen’s three cancer platformstarget different aspects of the biology of cancer: epigenetics, angiogenesisand cell proliferation.

 

**Epigenetics**

 

Epigenetics is an exciting new areaof drug research and with Progen’s strong and established epigenetics researchefforts and early stage compounds we are at the forefront of this new area ofresearch.

 

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Much of the focus in epigenetics (theprocess of changing gene expression) is on a group of enzymes that help controlhow tightly DNA is coiled around a group of proteins called histones. Genes canonly be activated when key pieces of DNA are unwrapped, allowing the data to beaccessed to manufacture proteins. In cancer, the coiling of DNA can bedysregulated resulting in the silencing of important tumor suppressor genes,and the goal with most epigenetic research is the use of drugs to control theway DNA is coiled so that those tumor suppressor genes can be switched back on.

 

Progen and its collaborators havedeveloped the first published anti-cancer compounds that inhibit a newlyidentified enzyme that plays a part in the above process, lysine specific demethylase(LSD1). The primary goal of our current studies is to determine if inhibitionof LSD1 with our new compounds offers potential therapeutic advantages overexisting strategies targeting aberrant epigenetic gene silencing.

 

**Angiogenesis**

 

Progen’s angiogenesis products havebeen developed to target a number of proteins, including VEGF and FGF-2, whichbind to a complex sugar called heparan sulfate. PI-88 was formerly our leadproduct candidate from this technology platform. PI-88 is currently licensed toa US based company seeking global registration, except for Australia whereProgen retains rights and is continuing its Phase 2 metastatic melanomaclinical trial. The PG500 program capitalizes upon Progen’s longstandingexpertise in the area of heparan sulfate mimetics. This program is aimed towardproviding a product for clinical development with significant enhancements tothe first generation products (eg PI-88) in efficacy, manufacturability andpharmacokinetic properties. Our lead candidate, PG545, is now progressingthrough preclinical studies toward submission of an IND package with the U.S.FDA, thus allowing the commencement of human clinical trials.

 

In addition, we are currently in theearly stages of a heparanase discovery research program which is aimed at thedesign of selective, small molecule inhibitors of heparanase.

 

**Cell Proliferation**

 

Uncontrolledcell reproduction begins when a cell accumulates enough mutations to activatecertain growth promoting genes (oncogenes) and de-activate certain protectiongenes (suppressor genes) that are built into the genetic fingerprint of aperson. The mutated cell seems to ignore the instructions to limit its selfreplication and soon it becomes many cells and continues to grow.

 

Cellproliferation is at the crux of cancer and Progen’s cell proliferationcandidates target hyper-proliferating cells. Treatment with thesecompounds results in cessation of the natural cascade of events involved incell division and can potentially induce cell death.

 

Progen’scell proliferation platform is centered around the role of polyamines incellular function. The requirement for adequate polyamine levels for cellproliferation makes polyamine function and metabolism attractive targets fortherapeutic intervention. PG-11047 is our lead product from this technologyplatform and is currently in Phase 1 clinical development. PG-11047 is apolyamine analogue that competes with natural polyamines, and treatment withPG-11047 results in alterations to the natural cascade of events involved incell division and may be able to induce cell death in tumors. Although thismechanism is unique, it has been the focus of considerable scientific interestfor several years.  To date, PG-11047 hasshown anti-tumor activity in animal models along 

 

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with a good safety profile in human trials. Progen isprogressing PG-11047 through early clinical development in parallel toconducting additional translational studies to determine the most promisingindications for PG-11047.

 

In addition to PG-11047, Progen has a large portfolio of polyamineanalogues that have been tested extensively against a variety of human tumorcells. In vivo testing, which has included macular degeneration, inflammatory,and vascular hyperplasia models and nude mouse xenografts (cancer models), hasdemonstrated excellent activity and minimal toxicity. It is clear that eachindividual polyamine analog has unique characteristics associated with it inregard to spectrum of activity, potential toxicities, metabolism, andselectivity. Analogs that are extremely well tolerated and have a broadspectrum of activity have been identified.

 

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**Products**

 

The followingtable lists the Company’s products currently under development:

 
| **Product**                    | ** ** | **Principal  uses**      | ** ** | **Status**                                      | ** ** | **Next  Significant Milestone**                                                                                                                                                                                                                                                                                                       |
|--------------------------------|------------|--------------------------|------------|-------------------------------------------------|------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| PI-88                          |       | Cancer                   |       | Phase 2 clinical development (Australia and US) |       | ·   Completion  of Phase 2 Melanoma trial 

 

·   Analysis  of data from Phase 2 Melanoma trial                                                                                                                                                                                         |
|                           |       |                     |       |                                            |       |                                                                                                                                                                                                                                                                                                                                  |
| Muparfostat 

 

(PI-88)  |       | Cancer                   |       | Phase 2 clinical development                    |       | ·   Approval  of Phase 3 Liver Trial 

 

·   Initiation  of Phase 3 Liver clinical trial by Global TransBiotech Inc                                                                                                                                                                     |
|                           |       |                     |       |                                            |       |                                                                                                                                                                                                                                                                                                                                  |
| PG-11047                       |       | Cancer                   |       | Phase 1 clinical  development                   |       | ·   Data analysis from  recently completed Phase 1 trial

 

·   Seeking a collaborative  partner to assist in further development                                                                                                                                                       |
|                           |       |                     |       |                                            |       |                                                                                                                                                                                                                                                                                                                                  |
| PG500 Series                   |       | Cancer and  inflammation |       | Preclinical                                     |       | ·   Conduct IND enabling  studies including:

·   safety studies to  determine the safety profile and future human dosing of PG545

·   scale-up manufacture

·   bioassay development

·   Progress back-up compounds  to PG545. |
|                           |       |                     |       |                                            |       |                                                                                                                                                                                                                                                                                                                                  |
| Epigenetics  Discovery Program |       | Cancer                   |       | Discovery                                       |       | ·   Continue to screen new  compounds against LSD1 and expand the chemical series in development.

·   Progress representative  compounds through early animal studies to determine their anti-tumor  activity.                                                                               |
|                           |       |                     |       |                                            |       |                                                                                                                                                                                                                                                                                                                                  |
| Heparanase  Discovery Program  |       | Cancer and  inflammation |       | Discovery                                       |       | ·   Progress screening program  of small molecules against the target heparanase.                                                                                                                                                                                                                                 |

 

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**PI-88**

 

*PI-88Description*

 

Untilthe termination in July 2008 of the PATHWAY trial PI-88 was our leadproduct candidate.  PI-88 is acarbohydrate-based small-molecule which is believed to work via two mechanisms.First, it inhibits the enzyme heparanase, which plays an important role intumor spread and invasion through surrounding tissues. Tumors must ordinarilydegrade the basement membrane and extracellular matrix of surrounding tissuesin order to grow and heparanase is an enzyme that facilitates this process. Byinhibiting this degradation process, PI-88 reduces the ability of tumors toexpand and spread. Second, PI-88 exerts an anti-angiogenic effect by inhibitingthe interaction between growth factors, heparan sulfate and cellular receptors.As tumors grow, they require additional blood supply to provide oxygen andnutrients. The generation of these new blood vessels to supply additional bloodsupply is a process known as angiogenesis, and it is controlled in part byproteins such as Vascular Endothelial Growth Factor, or VEGF, and FibroblastGrowth Factor, or FGF-1 and FGF-2, binding to their receptors. PI-88competitively links to the binding domain of these growth factors, limitingtheir ability to bind to heparan sulfate and their receptors. Angiogenesis hasbeen widely validated as an important target in the development of novelanti-cancer therapies; however, PI-88, a First-in-Class heparanaseinhibitor, employs a unique mechanism to target angiogenesis.

 

Most oncology drugs are designed to be toxic to thecancer, as their name — cytotoxics — indicates. These drugs are designed toeradicate tumor cells, often with adverse consequences for non-cancerous cellsas well. Historically, the efficacy of cytotoxic compounds was measured byassessments such as the degree to which tumors shrink. PI-88 belongs to therelatively new class of cytostatic drugs. As the name implies, cytostatic drugsare designed to keep the disease stable, so the efficacy of these cytostaticdrugs is measured by assessments such as time to disease recurrence, diseaseprogression, time of stable disease, disease free survival, and overallsurvival.

 

*PI-88 License to GlobalTransBiotech*

 

PI-88(muparfostat) was licensed to Global TransBiotech on July 1, 2009. Underthe agreement, Progen will retain the development and commercialization rightsof muparfostat in Australia, and our subsidiary, PharmaSynth, will provide thetechnical and manufacturing support to US-based Global TransBiotech to developand commercialize muparfostat elsewhere in the world, with an initial focus onTaiwan, China, Hong Kong and Singapore. We are entitled to various milestone payments linked to progression inthe development of muparfostat, as well as a royalty on product sales uponcommercialization.

 

*PI-88Clinical Development Program*

 

All clinical trials of PI-88 have been conducted underan active Investigational New Drug Application or IND with the FDA. In thepreclinical and clinical studies executed to date, PI-88 has shown anacceptable safety and tolerability profile in clinical trials. PI-88 has alsoshowed signs of 

 

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clinical efficacy in PI-88’s multinational clinical developmentprogram.

 

*Ongoing Phase 2 clinical trial of PI-88*

 

Our metastatic melanoma trial has recruited patientsthat have not previously received chemotherapy (i.e. first line patients). Inthis indication, the efficacy of PI-88 in combination with DTIC (dacarbazine)is being investigated. DTIC is a chemotherapy drug used as standard first-linetreatment for patients with newly diagnosed metastatic melanoma and the goal ofthe study is to determine whether PI-88 can increase efficacy in combinationwith DTIC. The approved anti-angiogenic drug, Avastin® (bevacizumab),has been shown to enhance efficacy in combination with chemotherapy in patientswith various solid tumors, including bowel cancer, lung cancer and breastcancer. The PI-88 Phase 2 trial in combination with DTIC has been conductedacross seven sites in Australia and at three sites in U.S.  The study is nearing completion with thefinal five patients undergoing treatment. The lead-in stage was to assess safety of the combination while therandomized stage will assess the benefit of the addition of PI-88 to DTIC. Weanticipate that the trial will be completed in the first quarter of 2010.

 

*CommercializationStrategy for PI-88*

 

With the exceptionof Australia, worldwide rights to PI-88 have been licensed to GlobalTransBiotech Inc, who will further develop and commercialize the compound.  Progen has determined thatthe current phase 2 PI-88 melanoma trial, will be completed but no furtherdevelopment in melanoma by Progen is anticipated at this stage.

 

**PG-11047**

 

PG-11047is the most advanced compound acquired through the acquisition of CellGate, Inc.in February 2008.

 

PG-11047, which is currently in Phase 1 clinicaltrials, is our first produced candidate from the Company’s cell proliferationresearch platform. It is hoped treatment with PG11047 resultsin alterations to the natural cascade of events involved in celldivision and induces cell death in tumors.

 

*PG-11047Clinical Development Program*

 

Progen is taking PG-11047 through early clinicaldevelopment in parallel to conducting additional translational studies todetermine the most promising cancer indications for Phase 2 developmentand beyond.

 

Two Phase I studiesinvolving PG-11047 are being conducted simultaneously. Both trials wereoriginally initiated by CellGate, Inc. Following the acquisition ofCellGate, Inc. Progen has re-initiated both trials. The first trial at theUniversity of Chicago was designed to evaluate the safety PG-11047 in advancedcancer patients that have failed all other treatment options or that have fewtreatment options open to them. This study is closed to enrollment and theprimary objectives of the study were met. A total of 46 patients were enrolled into the trial and all patients areoff study. The maximum tolerated dose (MTD) identified in this study (610 mg)was significantly higher than previous studies with other polyamine analogues,which may imply that PG-11047 will be better 

 

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tolerated than previous compounds. Progen expects that all data fromthis study will be collected and ready for analysis by the end of 2009.

 

The second Phase I trial isassessing the safety and efficacy of treating patients with PG-11047 incombination with other approved cancer therapies: Gemzar, Taxotere, Avastin,Tarceva, cisplatin, Sutent and 5-fluoracil. This trial will provide us withsafety and dosing data to support a Phase 2 clinical program. To date thistrial has enrolled approximately 130 patients.

 

**PG500Series**

 

Potent inhibition has also been observed in other *in vitro* models such as the tube formation assay and the rataortic angiogenesis assay. Daily treatment or twice weekly treatmentsignificantly reduced angiogenesis in the *in vivo*AngioSpongeTM model. Blocking these interactions inhibits the angiogenesis andmetastasis processes critical in tumor growth and progression.

 

These compounds have also been shown to inhibit solidtumor progression in a variety of animal models of melanoma (B16F1 syngeneicmouse model), breast (T41 orthotopic mouse model), lung cancer (LLC/2 syngeneicmouse model), human colorectal cancer (HT29 xenograft model), human pancreaticcancer (MiaPaCa-2 xenograft model), human breast cancer (MDA-MB-231 xenograftmodel), human prostate cancer (PC3 xenograft model) and human liver cancer(HepG2 xenograft model and Hep3B orthotopic model). Importantly, thesecompounds also potently block the development of metastases as shown in theaforementioned B16F1, T41 and LLC/2 models.

 

Through a target productprofile approach incorporating aspects such as efficacy, pharmacokinetics,toxicology and ease of manufacture we have identified PG545 as the leadcompound. Pharmacokinetic studies have demonstrated that half-life of PG545 inmice or rats is in the region of 21-50 hours and elimination is reasonablyslow. Thus, the current dosing schedule of a once weekly subcutaneous injectionhas been found to be sufficient to maintain significant antitumor activity inmany of the cancer models mentioned previously. Non-GLP toxicology studies havebeen completed in mice, rats and dog and data supports progressing PG545 towardthe clinic by initiating the definitive GLP toxicology studies.

 

This research program waspartially funded by an AusIndustry START grant until June 2005. In August 2005,we were successful in being awarded a further AusIndustry grant known as aCommercial Ready Grant that continued to partially fund this program up to August 2008.

 

**DiscoveryPrograms**

 

We****maintainefforts in two drug discovery programs:

 

1.                    Heparanasediscovery program. This program is targeted towards the identification ofmolecules that selectively inhibit the enzyme heparanase.

2.                    Epigeneticsdiscovery program. Theprimary goal of our current studies is to determine if inhibition of LSD1 withour new compounds offers potential therapeutic advantages over existingstrategies targeting aberrant epigenetic gene silencing.

 

Theobjective of these programs is to replenish and to diversify the Company’sproduct development portfolio by creating a robust drug pipeline.

 

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**Manufacturing**

 

PharmaSynth Pty Ltd, asubsidiary of the Company, operates a current good manufacturing practice, orcGMP, certified pilot manufacturing facility that provides contractmanufacturing services to the biotechnology industry, earning revenues on a feefor service basis. Contract and consulting services revenues constituted 100%of our consolidated sales revenue in each of the fiscal years ended June 30,2005, 2006, 2007, and 2008, respectively.

 

On July 2, 2008, thisdivision was transferred into a wholly-owned subsidiary, PharmaSynth Pty Ltd(PharmaSynth). PharmaSynth’s business is the provision of contractpharmaceutical manufacturing development services and manufacture of materialfor phase 1 to phase 3 clinical trials.

 

**GovernmentRegulation**

 

**General**

 

Regulation bygovernment authorities in the U.S., Australia and other countries in which theCompany operates is a significant factor in the development, manufacture andmarketing of our proposed products and in our ongoing research and developmentactivities. The nature and extent to which such regulation applies to us willvary depending on the nature of any products which may be developed by us. Weanticipate that many, if not all, of our proposed products will requireregulatory approval by governmental agencies prior to commercialization. Inparticular, human therapeutic products are subject to rigorous preclinical andclinical testing and other approval procedures of the FDA and similarregulatory authorities in European and other countries. Various governmentalstatutes and regulations also govern or influence testing, manufacturing,safety, labeling, storage and recordkeeping related to such products and theirmarketing. The process of obtaining these approvals and the subsequentcompliance with appropriate statutes and regulations require the expenditure ofsubstantial time and money, and there can be no guarantee that approvals willbe granted.

 

The Company isalso subject to various laws, regulations, policies, guidelines andrecommendations relating to such matters as safe working conditions, laboratoryand manufacturing practices, the experimental use of animals and the protectionof the environment. Furthermore, there has been a general trend towards greaterregulation of the pharmaceutical industry and its products.

 

**Manufacturing**

 

The manufacturingfacility, run by our wholly-owned subsidiary PharmaSynth Pty Ltd, is licensedby the Australian Therapeutic Goods Administration for the manufacture ofbiological-based starting materials for human therapeutics to cGMP and by theAustralian Office of Gene Technology Regulator for the manufacture of largescale genetically modified organisms. In addition, certain internationalmarkets have quality assurance and manufacturing requirements that may be moreor less rigorous than those in Australia. Our manufacturing facilities are alsosubject to regular inspections by the TGA. We cannot make any assurances thatwe will continue to be in compliance with cGMP requirements. Failure to complywith cGMP requirements or with any other international requirements could havea material adverse effect on our business, financial condition and results ofoperations.

 

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**Researchand Development**

 

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

 

*AustralianGovernment Regulation*

 

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

 

·                                          Preclinical laboratory and animaltesting;

 

·                                          Submission to the TGA of a clinical trialnotification, or CTN, or a clinical trial exemption, or CTX, application forhuman trials;

 

·                                          Submission of an investigators’ brochureand clinical protocols to the independent ethics committee, or IEC, of eachinstitution at which the trial is to be conducted;

 

·                                          Adequate and well-controlled clinicaltrials to demonstrate the safety and efficacy of the product;

 

·                                          Development of chemistry, manufacture andcontrol documentation, which demonstrates that the manufacture of the productconforms to GMP guidelines;

 

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

 

·                                          Approval by the TGA for inclusion in theAustralian Register of Therapeutic Goods.

 

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

 

Preclinicalstudies include laboratory evaluation of the product as well as animal studiesto assess the potential safety and efficacy of the product. The results of thepreclinical studies are submitted to each investigator’s IEC and, in someinstances, to the TGA. Approval by each IEC and by the TGA is necessary beforeclinical trials can commence. An IEC is a review committee at each institutionat which a study is conducted and is set up under guidelines of the AustralianNational Health and Medical Research Council. The role of an IEC is to reviewproposals for clinical trials, 

 

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andapprove 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 assurancesthat submission to the applicable IECs and the TGA will result in authorizationto commence clinical trials.

 

Clinical trialsare typically conducted in three sequential phases that may overlap:

 

·                                          Phase 1 clinical trials that involve theinitial introduction of the drug into human subjects and the exploration of itssafety (adverse effects), dosage tolerance, absorption, metabolism, excretionand pharmacodynamics;

 

·                                          Phase 2 clinical trials that (i) evaluatethe efficacy of the drug for specific, targeted indications, (ii) determinedosage tolerance and optimal dosage, and (iii) identify possible adverseeffects and safety risks. Phase 2 trials usually involve studies in a limitedpatient population; and

 

·                                          Phase 3 clinical trials that generallyfurther evaluate clinical efficacy and further test for safety within anexpanded patient population sufficient to provide statistically significantdata.

 

In the case ofproducts with a high risk of toxicity, the initial clinical trials aresometimes conducted in patients with the target disease rather than in healthyvolunteers. Since these patients are already afflicted with the target disease,it is possible that such clinical trials may provide evidence of efficacytraditionally obtained in Phase 2 clinical trials. We cannot make anyassurances that Phase 1, Phase 2 or Phase 3 testing will be completedsuccessfully within any specific time period, if at all, with respect to any ofour product candidates. Furthermore, the TGA and/or the applicable IEC maysuspend clinical trials at any time on various grounds, including a findingthat the subjects or patients are being exposed to an unacceptable health risk.

 

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

 

All ongoing PG-11047 patient clinical trials are beingconducted under an active IND application with the FDA.

 

The Phase 1clinical trial with PI-166 in patients with unresectable primary liver cancerwas being conducted under a separate CTN application with the TGA.

 

In order to obtainAustralian marketing approval for a drug, the results of the preclinicalstudies and clinical trials, together with detailed information on themanufacture and composition of the product, are submitted to the TGA with arequest for registration of the product in the Australian Register of TherapeuticGoods. The TGA may delay approval if applicable regulatory criteria are notsatisfied, require additional testing or information, and/or requirepost-marketing testing and surveillance to monitor the safety or efficacy of aproduct. We cannot make any assurances that approval by the TGA will be grantedon a timely basis, if at all. Also, if regulatory approval of a product isgranted, such approval may entail limitations on the indicated uses for whichsuch product may be marketed.

 

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*U.S.Government Regulation*

 

FDA approval tomarket our drug products in the U.S. is expected to be undertaken by us or inconjunction with a commercial partner. The approval process of the FDA and TGAare similar, with substantial requirements for preclinical research, conduct ofclinical trials, and manufacture of the product. Human clinical testing of anew drug requires the submission of an IND that must include the results ofpreclinical studies, together with manufacturing information and analyticaldata. We cannot make any assurances, however, that submission of an IND willallow us to commence clinical trials. In addition to the IND process, theclinical trial protocol also requires approval by the study sites InstitutionalReview Board (IRB), a similar process to the IEC review performed forAustralian based trials. Furthermore, once trials have commenced, the FDA orIRB may stop the trials, or particular types of trials, by placing a “clinicalhold” on such trials because of, for example, concerns regarding the safety ofthe product being tested. Such holds can cause substantial delay and, in somecases, may require abandonment of a product. In addition, Phase 4 clinicaltrials may be required by the FDA following initial license approval, to gainadditional experience from the treatment of patients in the intendedtherapeutic indication and to document a clinical benefit in the case of drugsapproved under accelerated approval regulations. If the FDA approves a productwhile a company has ongoing clinical trials that were not necessary forapproval, a company may be able to use the data from these clinical trials tomeet all or part of any Phase 4 clinical trial requirement. These clinicaltrials are often referred to as “Phase 3/4 post-approval clinical trials.”  Failure to promptly conduct Phase 4 clinicaltrials could result in withdrawal of product approval under acceleratedapproval regulations.

 

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

 

**Patents**

 

Our success will depend in large part on whether wecan:

 

·                                          Obtain patents to protect our ownproducts;

 

·                                          Obtain licenses to the patentedtechnologies of third parties;

 

·                                          Operate without infringing on theproprietary rights of third parties; and

 

·                                          Protect our trade secrets and know-how.

 

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For a discussionof the risks and uncertainties associated with our intellectual propertyposition, see “Risk Factors — Our success depends upon our ability to protectour intellectual property and our proprietary technology.”

 

The Company’spolicy is to protect and defend the intellectual property associated with itstechnology and products, principally through patent protection. We achieve thisby filing patent applications for discoveries made by our scientists, as wellas those that we make in conjunction with our scientific collaborators andstrategic partners.

 

The most materialof these patents and patent applications being:

 

1.               PI-88 — Composition of matter and method of use patentfamilies have been granted in countries including the U.S., Australia, Korea,Taiwan, China, South Africa and New Zealand. Further, the PI-88 composition ofmatter patent application has been accepted in Canada and filed in countriesincluding Europe and Japan. The PI-88 composition of matter patent expires in2016. Under laws such as the U.S. Waxman Hatch law, extensions for PI-88patents are possible in some countries and we intend to maximize theopportunities to pursue such patent extensions.

 

2.               PG-11047**—**There are two granted UScomposition of matter and method of use patents claiming compounds within afamily of polyamines with defined formulae, including PG-11047. These patentshave also been issued in Europe and are pending in other jurisdictions.

 

The availabilityand breadth of claims allowed in biotechnology and pharmaceutical patents ishighly uncertain and generally involves complex legal and factual questions. Wecannot make any assurances that any of our pending or future patentapplications will be approved, or that we will develop additional proprietaryproducts or processes, or be able to license any other patentable products orprocesses. We also cannot make any assurances that others will notindependently develop similar products or processes, duplicate any of theproducts or processes developed or being developed by or licensed to us, ordesign around the patents owned or licensed by us, or that any patents owned orlicensed by us will provide us with competitive advantages. Furthermore,patents held by third parties may prevent the commercialization of productsincorporating the technology developed by or licensed to us, and third partiesmay challenge or seek to narrow, invalidate or circumvent any or all of theissued, pending or future patents owned or licensed by us.

 

If it weredetermined that we were infringing any third party patents, we could berequired to pay damages, alter our products or processes, obtain licenses orcease certain activities. We cannot make any assurances that the licensesrequired under patents held by third parties would be made available to us onacceptable terms, or at all. To the extent that we are unable to obtain suchlicenses, we could be foreclosed from the development, manufacture orcommercialization of the product requiring such license or encounter delays inproduct introductions while we attempt to design around such patents.

 

We also believethat because of the differences in patent laws, foreign patents, if obtained,and the protection afforded by such foreign patents and foreign intellectualproperty laws may be more limited than that provided under Australian or UnitedStates patents and intellectual property laws. Litigation, which could resultin substantial costs and diversion of effort on our part, may also be necessaryto enforce any patents issued or licensed to us or to determine the scope andvalidity of 

 

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thirdparty proprietary rights. We may have to participate in opposition proceedingsbefore the Australian Patent and Trademark Office or another foreign patentoffice, or in interference proceedings declared by the United States Patent andTrademark Office, to determine the priority of the invention for patentapplications filed by competitors. Any such litigation, interference oropposition proceeding, regardless of outcome, could be expensive and timeconsuming, and adverse determinations in any such proceedings could have amaterial adverse effect on our business, financial condition and results ofoperations.

 

**Licenses**

 

*PI-88**.*We have an exclusive worldwide license from the AustralianNational University in Canberra, Australia, to five families of patents andpatent applications relating to PI-88, our sulfated oligosaccharide heparanaseinhibitor. Our license rights terminate on March 10, 2028. Our licensewith the Australian National University requires us to pay the University aportion of PI-88 related payments that we receive including royalties on salesof 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-88(muparfostat) was out-licensed to Global TransBiotech on July 1, 2009.Under the agreement, Progen will retain the development and commercializationrights of muparfostat in Australia, and our subsidiary, PharmaSynth, willprovide the technical and manufacturing support to US-based Global TransBiotechto develop and commercialize muparfostat elsewhere in the world, with aninitial focus on Taiwan, China, Hong Kong and Singapore.  We are entitled to various milestone paymentslinked to progression in the development of muparfostat, as well as a royaltyon product sales upon commercialization.

 

*PG-11047**.*Progen acquired PG-11047 through the acquisition ofCellGate, Inc.  In total, there arethree agreements that involve milestone events related to CellGate products.

 

1.               The 2008 Progen Acquisition of CellGate Inc.(CellGate)

2.               The 2004 acqusition by CellGate of certain SLILBiomedical Corp (SLIL) assets

3.               The 2004 licensing of certain Wisconsin AlumniResearch Foundation (WARF) assets

 

We have ongoing milestone payments to make to CellGateInc shareholders upon the achievement of certain clinical and regulatorymilestones in respect of the acquired intellectual property. These milestonepayments are one-off payments that become due on the first occurrence of themilestone by any of the CellGate acquired intellectual property. As PG-11047 isthe lead compound acquired in the acquisition of CellGate, Inc. and it islikely to be the on-going development of this compound that triggers thesemilestone payments.

 

Further, CellGate acquired certain assets from SLILBiomedical Corp, which also attract one-off milestone payments that become dueon the first occurrence of the milestone.

 

Initially, SLIL Biomedical Corp licensed variouscompounds from the Wisconsin Alumni Research Foundation (WARF), includingPG-11047.  The license with WARF imposesa series of negative milestones, meaning that we must pay upon failing to reachcertain milestones.  In addition, 

 

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the license includes a tiered royalty structure based on net sales ofPG-11047.

 

**ProprietaryTechnology**

 

In addition topatent protection, we rely on unpatented trade secrets and know-how andproprietary technological innovation and expertise, all of which are protectedin part by confidentiality and invention assignment agreements with ouremployees, advisors and consultants. We cannot make any assurances that theseagreements will not be breached, that we will have adequate remedies for anybreach, or that our unpatented proprietary intellectual property will nototherwise become known or independently discovered by competitors. We alsocannot make any assurances that persons not bound by an invention assignmentagreement will not develop relevant inventions.

 

**Competition**

 

*DrugDevelopment*

 

We facecompetition in each of our target product markets. The pharmaceutical andbiotechnology industries are also intensely competitive. Our anti-cancerpharmaceutical product candidates would be subject to significant competitionfrom existing drugs and therapies, as well as from products and therapiesutilizing alternative or similar technologies. There are many pharmaceuticaland biotechnology companies, and public and private academic institutions andresearch organizations actively engaged in the research and development ofalternative products and therapies for the treatment of diseases that we havetargeted for product development. Many of these organizations have greaterfinancial, technical, manufacturing and marketing resources.

 

Some of ourcompetitors may succeed in developing products earlier than us, obtaingovernmental approvals more rapidly than us, or develop products that are saferand more effective than those under development by us. Other companies may alsodevelop products or therapies that render our technology and products obsoleteor non-competitive. We also cannot make any assurances that any therapydeveloped by us will be preferred to any existing or newly developedtechnologies. Some of our competitors may succeed in developing treatments thatare superior to any therapy or product developed by us. Our ability tosuccessfully compete with these and other companies will also depend to aconsiderable degree on the continuing availability of capital to us, as well asour ability to recruit and retain highly qualified scientific personnel andconsultants, and to compete with the established manufacturing and marketingcapabilities of our competitors. Competition among products will be determined by, among other things,efficacy, safety, convenience, reliability, price and patent position.

 

*ContractManufacturing*

 

The clients of ourcontract manufacturing business, PharmaSynth Pty Ltd, are mostly from theAustralasia region with a limited number also from the United States. Ourability to compete with our competitors will depend on our ability to remaincost competitive, recruit and retain qualified personnel and maintain adequatelevels of compliance with regulatory bodies.

 

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## **Item 4.C.        Organizational Structure**

##  

## Progen PharmaceuticalsLimited acts as an operating holding company of a group consisting of itsdirectly held subsidiaries. Progen Pharmaceuticals Limited has the followingsubsidiaries:

 
| ** **                         | ** ** | **% Held** | ** ** | **Country of   Incorporation** | ** ** |
|------------------------------------|------------|------------|------------|--------------------------------|------------|
| PharmaSynth Pty  Ltd               |       | 100        |       | Australia                      |       |
| Progen  Pharmaceuticals, Inc. |       | 100        |       | U.S.A. (Delaware)              |       |

##  

## On July 2, 2008 theGroup’s manufacturing division was transferred into a wholly owned subsidiary,PharmaSynth Pty Ltd (PharmaSynth). PharmaSynth focuses on the provision ofcontract pharmaceutical manufacturing services.

##  

## **Item 4.D.        Property, Plant and Equipment**

##  

The Company leasesits principal offices at Toowong, a suburb of Brisbane, Queensland, Australia.

 

ProgenPharmaceuticals, Inc, a subsidiary of the Company, leased offices at 3 TwinDolphin Drive, Redwood City, California, U.S.A. until September 30, 2009,when it was relocated to 2479 East Bayshore Road, Palo Alto, California, USA.

 

PharmaSynth PtyLtd, a subsidiary of the Company, leases an 11,200 square foot fully-integratedpharmaceutical raw material manufacturing facility in Darra, also a suburb ofBrisbane, Queensland, Australia. This manufacturing facility has the capabilityto develop and manufacture therapeutic products for worldwide markets andconsists of 15 modular laboratories, each with a designated function.

 

This facility isused to manufacture a range of biological products, including the PI-88 activeingredient for clinical trials and preparation of PG545 for preclinical trials.It is equipped for the genetic manipulation of micro-organisms, cell culture,small and large-scale fermentation of micro-organisms, purification anddownstream processing, freeze-drying, and sterile packing and filling.

 

This manufacturingfacility is licensed by the Australian Therapeutic Goods Administration, orTGA, for the manufacture of biological-based starting materials for humantherapeutics to cGMP standards and by the Australian Office of Gene TechnologyRegulator for the manufacture of large scale genetically modified organisms.The TGA regulates the manufacture of compounds intended as starting materialsfor human therapeutics. In addition, the facility is licensed by the AustralianNational Registration Authority for manufacture of sterile and immunobiologicalveterinary products to cGMP standards and by the Australian Quarantine andInspection Service as a quarantine facility.

 

The leaseagreement on our corporate offices is for a five year period beginning December 15,2008 with an option to lease for a further five years. Rental is approximately$236,000 per annum, subject to an annual increase based on the movement in theconsumer price index or 4%, whichever is higher.

 

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The leaseagreement on Progen Pharmaceutical, Inc.’s offices expires on October 31,2010. We currently pay rental of US$3,734 per month for these premises.

 

The lease agreement on PharmaSynth Pty Ltd’smanufacturing facility is on a month to month basis with a 6 month noticeperiod on termination.  This agreementwill continue until a new lease or lease extension is put in place.  We pay a current rental of approximately$134,460 per annum.

 

**ITEM 4A.       UNRESOLVEDSTAFF COMMENTS**

 

None.

 

**ITEM 5.          OPERATING AND FINANCIAL REVIEW ANDPROSPECTS**

 

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

 

This discussionmay contain forward-looking statements based on current expectations thatinvolve risks and uncertainties. Our actual results and the timing of selectedevents could differ materially from those anticipated in these forward-lookingstatements as a result of several factors, including those set forth in “Item3. Key Information — Risk Factors” above and elsewhere in this annual report.

 

**Overview**

 

We have incurredsignificant losses since our inception and as of June 30, 2009, ouraccumulated deficit was approximately $124.7 million. We devote a substantialportion of our financial resources to fund the development of our cancerproduct candidates and our drug discovery research efforts. Whether we incuroperating losses for the financial year June 30, 2010 and beyond, and ifso the extent of those losses depends on the research and development costs,licensing arrangements, success of our cancer product candidates and potentialM&A activity.

 

Our operations have historically been financed by theissuance of capital stock because it is generally difficult to fundpharmaceutical research via borrowings due to the lack of revenues to servicedebt and the significant inherent uncertainty as to results of this researchand the timing of those results.

 

**CriticalAccounting Policies**

 

The followingdiscussion and analysis of our operating and financial review and prospects arebased upon our financial statements, which have been prepared in accordancewith International Financial Reporting Standards. These accounting principlesrequire us to make certain estimates and assumptions that can affect thereported amounts of assets and liabilities as of the date of the financialstatements, as well as the reported amounts of revenue and expenses during theperiods 

 

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presented.Based on the nature of our operations, our accounting policies do not requiredifficult, subjective or highly complex judgments and therefore our reportedamounts are not subject to material variation based on changes in assumptions.Our significant accounting policies are described in Note 2 to the financialstatements.

 

## **Item 5.A.        Operating Results**

##  

***Yearsended June 30, 2009, 2008 and 2007***

 

The functionalcurrency for the Company’s operations is the Australian dollar.

 

The consolidated operating resultfor the year ended June 30, 2009 was a loss of $5.467 million, being adecrease of 79.1% over the 2008 loss of $26.148 million. The overall operatingresult for the year ended June 30, 2007 was a loss of $22.454 million.

 

*Revenue from Operations*

 

Our consolidatedrevenue from continuing operations for fiscal 2007, 2008 and 2009 is as follows(in AUD thousands):

 
| ** **                                    | ** ** | **Years Ended June 30,** | ** ** |
|-----------------------------------------------|------------|-------------------------------|------------|
| ** **                                    | ** ** | **2007**                      | ** ** | **2008** | ** ** | **2009** | ** ** |
| Revenue from  manufacturing services          |       | 920                           |       | 1,086 |   | 1,724 |   |
| Interest income                               |       | 1,746                         |       | 5,392 |   | 3,216 |   |
| **Total  revenue from continuing operations** | ** ** | **$**                         | **2,666**  | ** ** | **$** | **6,478** | ** ** | **$** | **4,940** | ** ** |
|                                               |            |                               |            |  |  |  |  |  |  |  |

 

For the fiscalyear ended June 30, 2009 revenues from manufacturing services divisionincreased 58.7% to $1.7 million due to additional manufacturing contracts beingreceived.

 

For the fiscalyear ended June 30, 2008 revenues from manufacturing services increased18.0% to $1.1 million due to a manufacturing contract awarded in the 2007fiscal year being mostly invoiced in the 2008 fiscal year.

 

Interest incomereceived varies from year to year depending on the amount of cash to invest andthe interest rate prevailing at that time. The Company executed an equal-accessshare buy-back during April 2009, totaling $39.4 million, reducing theamount of cash available for investment. This, accompanied with diminishing cash interest rates, resulted in theinterest income for the fiscal year 2009 decreasing 40.4% to $3.2 million.

 

*Researchand Development Expenses*

 

Our consolidatedresearch and development expenses for compounds under development and discoveryprograms are as follows (in AUD thousands):

 

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| ** **                                                  | ** ** | **Years Ended June 30,** | ** ** |
|-------------------------------------------------------------|------------|-------------------------------|------------|
| ** **                                                  | ** ** | **2007**                      | ** ** | **2008** | ** ** | **2009** | ** ** |
| PI-88                                                       |       | $                             | 4,125      |   | $ | 11,263 |   | $ | 1,393 |   |
| PI-166                                                      |       | $                             | 42         |   | $ | 127 |   | $ | 47 |   |
| PG-11047                                                    |       | —                        |       | $ | 475 |   | $ | 2,037 |   |
| PG500  Series and Heparanase discovery programPG 11047 |       | $                             | 2,100      |   | $ | 2,850 |   | $ | 1,676 |   |
| Epigenetics  discovery program                              |       | —                        |       | $ | 814 |   | $ | 1,217 |   |
| General research  and development expenses                  |       | $                             | 725        |   | $ | 616 |   | $ | 679 |   |
| **Total  research and development expenses**                | ** ** | **$**                         | **6,992**  | ** ** | **$** | **16,145** | ** ** | **$** | **7,049** | ** ** |

 

In fiscal year 2009expenditure on our Research and Development initiatives decreased year on yearby 56.3% to $7.049 million, primarily due to the reduced research activityfollowing the cancellation of the PATHWAY phase 3 trial in July 2008.

 

In fiscal year 2009, weexpended $0.7 million on the ongoing PI-88 Phase 2 Melanoma trial (2008: $1.0million)and $2.9million on drug discovery across PG545, PG562 and PI-166 (2008: $3.4million).  Expenditure of $2.0 millionwas booked against the ongoing PG11047 phase 1 trial in the United States and afurther $0.7 million was related to PI-88.

 

Our lead drugcandidates, PG545 and PG-11047 are currently in preclinical and Phase 1clinical trials respectively. Many drugs in human clinical trials fail todemonstrate the desired safety and efficacy characteristics. Even if our drugsprogress successfully through initial human testing, they may fail in laterstages of development. Regulatory agencies, including the FDA and TGA, regulatemany aspects of a product candidate’s life cycle, including research anddevelopment and pre-clinical and clinical testing. We or the regulatoryauthorities may suspend clinical trials at any time on the basis that theparticipants are being exposed to unacceptable health risks. Completion ofclinical trials depends on, among other things, the number of patientsavailable for enrollment in a particular trial, which is a function of manyfactors, including the availability and proximity of patients with the relevantcondition. We rely on third parties to conduct clinical trials, which mayresult in delays and failure to complete trials if the third parties fail toperform or meet applicable standards. Our drug discovery efforts are still inthe research phase and have not yet commenced pre-clinical development, whichmeans they have not yet been tested on humans. We will need to commitsignificant time and resources to develop these product candidates.

 

Our products willonly be successful if:

 

·                  our product candidates are developed to a stage thatwill enable us to commercialize them or sell related marketing rights topharmaceutical companies;

 

·                  we are able to commercialize product candidates inclinical development or sell the marketing rights to third parties; and

 

·                  our product candidates, if developed, are approved.

 

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

 

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Because of theserisks and uncertainties, we cannot accurately predict when or whether we willsuccessfully complete the development of our product candidates or the ultimateproduct development cost.

 

Without revenuegenerated from commercial sales, we anticipate that funding to support ourongoing research, development and general operations will primarily come frompublic equity financings, collaborations, milestones and licensingopportunities from future collaborations.

 

*Rentalson Operating Leases*

 

Rentals onoperating leases increased $210,000 or 61.4% in fiscal 2009 over 2008 to$552,000. This is due to an increase in the Progen Pharmaceuticals Limitedcorporate office upon negotiation of a new lease agreement.  Further, a CPI increase on the Pharmasynthpremises and a full year of rental expense of Progen Pharmaceuticals, Inc.contributed to the increase.

 

Rentals onoperating leases increased $47,000 or 16% in fiscal 2008 over 2007 to $342,000.This is due to CPI increase on both the Progen Pharmaceuticals Limitedcorporate office and Darra manufacturing facility and the taking over of the RedwoodCity, California office lease by Progen Pharmaceuticals, Inc. on theacquisition of CellGate, Inc. in February 2008.

 

Rental costs onthe corporate offices of Progen Pharmaceuticals Limited and ProgenPharmaceuticals, Inc. are included in *Administrative andcorporate expenses*, whilst rental costs of the Darra manufacturingfacility are included in *Manufacturing facilityexpenses*.

 

*OtherExpenses - Medigen Termination Agreement Obligation*

 

For fiscal years2008 and 2007 other expenses relate solely to the payments made to MedigenBiotechnology Corporation (Medigen) under the terms of an agreement executedterminating the Medigen strategic alliance.

 

Under the terms ofthe strategic alliance Medigen were required to undertake and complete certainclinical trial of PI-88. On completion of these PI-88 clinical trials, Medigenwas entitled to a 15% royalty on PI-88 proceeds of commercialization receivedby Progen.  Both parties agreed to endthe strategic alliance to allow Progen to develop and commercialize PI-88 asrapidly as possible and with maximum flexibility.

 

In considerationfor Medigen agreeing to end the strategic alliance, and thereby foregoing theirentitlement to the 15% royalty, and to compensate Medigen for theircontribution to the development of PI-88, Progen agreed to make certain cashand equity based payments to Medigen and to return the equity investment we hadin Medigen. The 2008 financial impact of this termination agreement amounted to$4.0 million (2007: $11.7 million).

 

Under the agreement,$2.0 million was to be paid on a PI-88 transaction event being achieved. TheCompany paid $1.8 million in full settlement of this obligation in November 2009.

 

*Manufacturingfacility expenses*

 

On July 2,2008 the manufacturing operations were transferred into the wholly ownedsubsidiary PharmaSynth Pty Ltd.  Infiscal year 2009, the segment result in the manufacturing 

 

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businesswas a profit of $41,000, compared to a loss of $1.6 million in 2008. Thisincrease was due to additional manufacturing contracts in 2009, as well as areduction in staff and contracting costs from the prior year.

 

In fiscal year 2008,the manufacturing business cost was $182,000 higher than the 2007 result,primarily due to the payment of $87,000 in redundancy payments and $85,000 paidto consultants in assessing our PI-88 manufacturing operations.

 

Themanufacturing business focuses on the provision of contract pharmaceuticaldevelopment services by leveraging the skills developed through PI-88development and manufacture of material for phase 1 to phase 3 clinical trials.

 

The costs areprimarily salaries and wages, manufacturing consumables and overheadsassociated with our Darra manufacturing facility.

 

*Geographicalsegments*

 

Geographicalsegments are determined based on the location of the Group’s research anddevelopment operations.  The Groupoperates research and development segments in both Australia and the USA.

 

The segment resultfor Australia was a loss of $1.3 million compared to a loss of $24.3 million in2008.  The variance is primarily due tothe reduction in research and development expenses following the cessation ofthe PATHWAY Phase 3 trials and the foreign exchange gain booked in 2009.

 

The segment resultfor the USA was a loss of $4.1 million compared to a loss of $1.8 million in2008.  The increased loss is primarilydue to a full year of operations from our subsidiary, Progen PharmaceuticalsInc. which was acquired in February 2008.

 

*Depreciationexpense*

 

Depreciationexpense decreased $22,000 in fiscal 2009 to $401,000. In fiscal year 2008,depreciation expense decreased $78,000 from 2007 to $423,000.  These decreases in depreciation are dueprimarily to assets becoming fully depreciated.

 

*OtherIncome (Expenses)*

 

We realized totalnet other income of $7.0 million in fiscal 2009, compared with $1.4 million infiscal 2008 and $1.1 million in fiscal 2007. The components of Other Income(Expenses) as shown in our statements of income included elsewhere in thisannual report are (in AUD thousands):

 
| ** **                        | ** ** | **Years Ended June 30,** | ** ** |
|-----------------------------------|------------|-------------------------------|------------|
| ** **                        | ** ** | **2007**                      | ** ** | **2008** | ** ** | **2009** | ** ** |
| Grant income                      |       | $                             | 1,073      |   | $ | 1,316 |   | $ | 83 |   |
| Gain (loss) on  derivative        |       | —                        |       | $ | (249 | ) | $ | 508 |   |
| Unrealized  foreign exchange gain |       | —                        |       | — |   | $ | 6,319 |   |
| Other income                      |       | $                             | 40         |   | $ | 54 |   | $ | 111 |   |
| **Total  other income**           | ** ** | **$**                         | **1,113**  | ** ** | **$** | **1,121** | ** ** | **$** | **7,021** | ** ** |

 

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Grant incomerelates to the funding we receive for our drug discovery program under theCommercial Ready grant. The Commercial Ready grant partially funded our PG500 Series andHeparanase drug discovery programs for the three years beginning August 2005.Grant income in the 2007 fiscal year was received under the Commercial Readygrant. The grant was based on a 50% re-imbursement of eligible expenditure andtherefore is directly related to level of expenditure incurred on this program.Grant income decreased $1.2 million in fiscal 2009 as the grant expired in August 2008.  Compared to 2007, grant income increased$243,000 in fiscal 2008 as there was an increase in eligible, or claimable,expenditure as described above under *PG500 Series andHeparanase discovery program expenses*under the above analysis of*Research and Development Expenses*.

 

*IncomeTaxes*

 

The Group has taxlosses arising in Australia of $137.9 million (2008: $127.8 million, 2007:$100.4 million) that are available indefinitely for offset against futuretaxable profits of the companies in which the losses arose, subject tosatisfying the relevant income tax loss carry forward rules. The Company has USfederal and state net operating loss carry-forwards of approximatelyUS$3,380,000 and US$3,830,000, which have a carry forward period between 2028 —2029 are available a maximum of 20 years, subject to a continuity of ownershiptest.

 

## **Item 5.B.        Liquidity and Capital Resources**

##  

*Sourcesof Liquidity*

 

Since inception,we have financed our operations primarily through public and private sales ofequity securities totaling approximately $191.3 million in net proceeds. TheCompany ended the 2009 fiscal year with cash and cash equivalents totaling$28.0 million compared with $76.8 million at the end of fiscal 2008.  The material change in cash is primarily dueto the off market share buy-back completed in April 2009, totaling $39.4million.  The cash balance at the end offiscal 2009 consisted primarily of highly liquid interest bearing investments,typically bank bills with maturities of three months or less or deposits oncall. Investments are made in accordance with a Board approved InvestmentPolicy. We believe that these investments do not constitute any material marketrisk exposure. The majority of cash and cash equivalents held at June 30,2009 were in Australian dollars with the company maintaining a small balance ofUS dollars to service its US operating subsidiary, Progen Pharmaceuticals, Inc.

 

*Cash Flows from Operating Activities*

 

Cash of $15.8million was disbursed during the year to fund consolidated net operatingactivities, compared to $15.6 million in 2008 and $9.1 million in 2007. In2009, savings from the cancelled PATHWAY trials were offset by cash outflowsfor management consultants, legal fees and the settlement of the remainingPATHWAY liabilities, which made up the bulk of the $5.092 million decrease intrade and other payables throughout the year.

 

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The increase in cashexpended in fiscal 2008 over 2007 of $6.6 million is commensurate with the $9.1million increase in Research and Development expenditures and $1.8 million inAdministration expenditure (excluding the unrealized foreign exchange loss of$3.8 million).

 

*Cash Flows from Investing Activities*

 

Cash outflows from investingactivities included $109,000 on the purchase of plant and equipment (2008: $354,000,2007: $254,000) and an inflow of $259,000 related to the settlement of aforward exchange contract used to hedge our foreign currency exposure during2008.

 

During 2008, cash outflowsfrom investing activities also included $1.1 million on costs related to theacquisition of CellGate, Inc. The acquisition consideration was funded bycash of $360,000 and by the issue of 806,224 shares at $1.85 per share. The netcash acquired with this acquisition amounted to $930,000, of which $803,000 wasimmediately used to repay an outstanding loan.

 

*Cash Flows from Financing Activities*

 

Cash outflows fromfinancing activities in the fiscal year 2009 of $39.420 million relatesentirely to the off-market, equal-access share buy-back undertaken by thecompany in April 2009. The shares were bought back at $1.10 which was$0.22 more than the volume weighted average price over the 60 days prior to thedate of the buy-back. The buy-back was carried out to return funds toshareholders following the reduced cash requirement of the company due to thecessation of the PATHWAY Phase 3 trial.

 

Netcash used in financing activities in 2008 of $1.1 million relates to:

 

·                  transaction costs relating to an issue of shares madeprior to June 30, 2007 amounting to $275,000.

 

·                  the repayment of an outstanding loan of $803,000 heldby CellGate, Inc. immediately following the consummation of thisacquisition.

 

Net cash provided by financing activities in 2007 of$92.4 million relates to proceeds from the following share issues:

 

·                  a private placement in December 2006 raising$18.8 million,

 

·                  a share purchase plan in January 2007 toAustralian and New Zealand resident shareholders raising $5.3 million,

 

·                  a U.S. equity offering in May 2007 raising $36.5million,

 

·                  a rights entitlement offering in June 2007raising $31.6 million, and

 

·                  the exercise of employee options raising $227,000.

 

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*Funding Requirements*

 

Currently thereare no significant commitments for capital expenditure. However, the groupexpects to incur substantial future expenditure in light of the oncologyclinical programs and drug discovery programs. The company has continued funding the phase 1 clinical trial assessingthe safety of PG11047 alone and in combination with approved cancer drugs. Thephase 2 PI-88 trial in melanoma is currently treating its final patients and isexpected to be completed during 2010. Preclinical studies in the PG545, PG562 and PG11144 compounds willcontinue throughout the 2010 financial year. The group’s heparan sulfate mimetic drug discovery program is now fullyfunded by the company following the completion of the AusIndustry CommercialReady grant which expired in August 2008.

 

At 30 June, theGroup has outstanding commitments of $2.4 million, of which $1.4 millionrelates to the Phase 1 clinical trial of PG11047 and $233,000 is committed tothe PI-88 Phase 2 melanoma trial.  Thegroup has also committed to paying its various insurance premiums of $432,000over the next fiscal year.  No furtherfunds are expected to be expended with regard to the PATHWAY trial termination.

 

Under the terms ofthe agreement terminating the strategic alliance with Medigen BiotechnologyCorporation we were obligated to pay a further $2.0 million on PI-88 achievinga specified commercial milestone or a transaction event being achieved.   As part of a settlement agreement dated November 18,2009, this milestone is no longer payable.

 

Future cashrequirements will depend on a number of factors, including the scope andresults of preclinical studies and clinical trials, continued progress ofresearch and development programs, including in-licensing and corporatedevelopment activities, the ability to generate revenues from contractmanufacture services, the ability to generate revenues from thecommercialization of drug development efforts and the availability of otherfunding.  Based on our currentcommitments our working capital is sufficient to meet our present requirements.

 

**Item 5.C.        Research and development, patents andlicenses, etc.**

 

Refer to *Research and Development Expenses* under Item 5.A.

 

## **Item 5.D.        Trend Information**

##  

Following thecessation of the PATHWAY Phase 3 trial in July 2008, there was asignificant decrease in research and development expenditures.  The Company still has a Phase 2 clinicaltrial underway in metastatic melanoma in Australia and a Phase 1(a) trialunderway in the USA which are far less resource-intensive than the PATHWAYPhase 3 trial which was underway during 2008.

 

In April 2009,the company returned capital totaling $39.4 million to shareholders via anequal access share buy-back scheme.  Thiswas to reduce excess capital which was initially raised to fund the PATHWAYtrial which was cancelled in July 2008. Despite the buy-back, the Company maintained a balance of $28.0 millioncash at the end of the 2009 fiscal year which it will utilize to fund itsdevelopment programs in the coming years. **AS A RESULT OF THE ABOVETHERE IS SIGNIFICANT UNCERTAINTY AS TO THE FUTURE DIRECTION AND OPERATIONS**

 

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**OF THE COMPANY.**

 

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**Item 5.E.        Off-BalanceSheet Arrangements**

 

We have not entered into any off-balance sheettransactions, agreements or other contractual arrangements (includingcontingent obligations) with any unconsolidated entity that have or arereasonably likely to have a current or future effect on our financialcondition, changes in financial conditions, revenues or expenses, results ofoperations, liquidity, capital expenditures or capital resources.

 

## **Item 5.F.        Tabular Disclosure of AggregateContractual Obligations**

##  

As of June 30,2009, we had known contractual obligations and commitments of $2.4 million. Ofthis amount $1.7 million relates to sponsored research commitments andestimates to fund the ongoing trial of PG-11047 and to complete current trialsof PI-88 (melanoma) and PG-11047 and an estimate of costs to be incurred inwinding down the PATHWAY trial. The remaining $0.7 million relates to thefollowing: payment of our insurance premium ($432,000), our current operatinglease obligations including the lease of our premises ($223,000), and othercommitments ($119,000) most of which relates to payment obligations undervarious consulting and advisory agreements.

 

Under the terms ofthe agreement terminating the strategic alliance with Medigen BiotechnologyCorporation we are required to pay Medigen $2.0 million upon PI-88 achieving aspecified commercial milestone.  This hasnot been included as the commercial milestone has not been achieved.

 

The followingtable sets forth our aggregate contractual obligations for the three yearsfollowing June 30, 2009 (in AUD thousands):

 
| ** **                                                         | ** ** | **Payments Due by Period** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------|------------|
| **Contractual obligations**                                        | ** ** | **Total**                  | ** ** | **< 1 year** | ** ** | **1-3 years** | ** ** |
| Operating leases                                                   |       | 223                        |       | 223 |   | — |   |
| Sponsored  research and clinical trial obligations and commitments |       | 1,672                      |       | 1,582 |   | 90 |   |
| Insurance  premium funding                                         |       | 432                        |       | 432 |   | — |   |
| Other  commitments                                                 |       | 119                        |       | 119 |   | — |   |
| **Total**                                                          | ** ** | **$**                      | **2,446**  | ** ** | **$** | **2,356** | ** ** | **$** | **90** | ** ** |
|                                                                    |            |                            |            |  |  |  |  |  |  |  |

 

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

 

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# **ITEM 6.****         ****DIRECTORS, SENIOR MANAGMENT ANDEMPLOYEES**

#  

## **Item 6.A.       Directors and Senior Management**

##  

The followingtable sets forth certain information as of June 30, 2009 about ourdirectors and executive officers:

 
| **Name**            | ** ** | **Age** | ** ** | **Position**                                                                                           |
|---------------------|------------|---------|------------|--------------------------------------------------------------------------------------------------------|
| T. Justus Homburg   |       | 53      |       | Managing Director  (resigned as Director July 1, 2009, ceased employment as CEO on November 18,  2009) |
| Stephen Chang       |       | 60      |       | Non-Executive Director  (resigned as Director July 1, 2009)                                            |
| Dr. Wolf Hanisch    |       | 56      |       | Non-Executive Director  (resigned as Director July 1, 2009)                                            |
| Paul Dixon          |       | 26      |       | General Manager Finance  and Company Secretary                                                         |
| Dr. Laurence Marton |       | 65      |       | Chief Scientific  Officer                                                                              |

 

**Mr. Justus Homburg** was appointed Managing Director and CEOin March 2006 having joined Progen as COO in January 2006. Mr. Homburghas had an international career working in the pharmaceutical and life sciencesindustries in the U.S., Australia, Europe and Asia. His experience ranges fromthe multi-national biotechnology giant Monsanto Company through to start uporganizations such as Chirogen.

 

Mr. Homburg spent more than a decade at MonsantoCompany (1990 — 2001) and during his senior management time there he focused onnew technology and business commercialization, technology in and out-licensing,mergers and acquisitions, joint ventures, capital raisings, and the developmentof international markets. His roles included Regional Business Management(Monsanto Chemicals), Division Management (Growth Enterprises), and StrategicPlanning (Monsanto Agricultural Products).

 

Prior to his business career, Mr. Homburg held afaculty position at the University of Michigan and was a Fulbright Scholar. Heholds an MBA from the University of Washington and degrees from Iowa StateUniversity, Southern Illinois University and The University of Utrecht.

 

**Mr. Stephen Chang** is a founding director of ProgenPharmaceuticals Limited and has served as chairman in the period from 1990 to1994 and again since 1999 until March 2008 when he resigned as a Chairmanand continued his service as a non-executive director. He served as chairman ofTaiwan-based Medigen Biotechnology Corporation during its inauguration. Mr. Changwas general manager and director of Australia Pacific Electric Cables Pty Ltdand is currently director of Capac International Pty Ltd. Prior to 1987 he wasTechnical Manager and Senior Engineer with Taiwan Pacific Group, a largeTaiwanese conglomerate specializing in the IT industry.

 

**Dr WolfHanisch** has nearly 30 years experience in managing small to medium sizecompanies through the early stages of drug development. His main focus has beenon the healthcare field, particularly biotechnology, since its inception in1979 in California. His recent experience has included CEO, founder anddirector of CBIO, CEO of Bresagen and Non-executive director of Analytica Ltd andPsiron Ltd. Prior to his Australian experience Dr Hanisch spent two decadesworking in various international scientific positions at IDEC Corporation (nowBiogen IDEC), Cetus 

 

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Corporation and Abbot Laboratories.

 

**Mr. PaulDixon** Paul Dixon joined Progen in late 2008 on acontract basis and has since commenced as General Manager Finance.  Paul’s duties include ASX and statutoryreporting, audit management, company secretarial duties, oversight of thefinance team and internal controls.

 

Prior to joining Progen,Paul was Group Financial Controller for ASX listed manufacturing company StyleLimited, where he was responsible for ASX reporting and the management of theinternational finance function.  Prior tothis, Paul held accountancy positions with Rio Tinto Coal Australia, MackTrucks Australia and Betta Stores Limited.

 

**Dr. LaurenceMarton MD** joined Progen in February 2008 as ChiefScientific Officer. Prior to joining Progen, Dr. Marton was the ChiefScientific Officer of CellGate and before that Chief Scientific and MedicalOfficer of SLIL Biomedical Corporation, both companies focused on the discoveryand development of novel polyamine analogs and other compounds for thetreatment of cancer and other serious diseases. Dr. Marton was previouslyDean of the University of Wisconsin-Madison Medical School and before thatChaired the Department of Laboratory Medicine at the University of California,San Francisco. He is a leading expert with extensive experience in the fieldsof cell growth and drug development. His work is focused on the use ofpolyamines in treating human diseases related to aberrant cell growth,including cancer and infectious diseases.  His research has resulted inmore than 180 original publications, 60 scientific reviews andchapters, four books, and numerous patents, and his work has been acknowledgedinternationally. Dr. Marton serves as a consultant for industry and forgovernmental and academic institutions.  He serves on the Board of theFoundation for Cardiovascular and Transplant Research and was appointed by theGovernor of Wisconsin to the Wisconsin Technology Council.  Dr. Martonreceived his BA from Yeshiva University and his MD from the Albert EinsteinCollege of Medicine.

 

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

 

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## **Item 6.B.                Compensation**

##  

The following table setsforth certain information concerning the compensation that we paid to ourdirectors and our five most highly compensated executive officers, bothindividually and as a group, during the fiscal year ended June 30, 2009:

 

Table 1: Non-executive directors’ remuneration for theyear ended June 30, 2009.

 
| ** **                       | ** ** | ** ** | ** ** | **Short term** | ** ** | **Post  employment** | ** ** | ** **   | ** ** | **Share-  based  payment** | ** ** | ** **      | ** ** |
|----------------------------------|------------|------------|------------|----------------|------------|----------------------|------------|--------------|------------|----------------------------|------------|-----------------|------------|
| ** **                       | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | **Non**      | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | **Salary**     | ** ** | **Cash**             | ** ** | **monetary** | ** ** | ** **                 | ** ** | **Termination** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Directors**                    | ** ** | ** ** | ** ** | **and fees**   | ** ** | **bonus**            | ** ** | **benefits** | ** ** | **Superannuation**         | ** ** | **payment**     | ** ** | **Options** | ** ** | **Total** | ** ** |
| ** **                       | ** ** | ** ** | ** ** | **$**          | ** ** | **$**                | ** ** | **$**        | ** ** | **$**                      | ** ** | **$**           | ** ** | **$** | ** ** | **$** | ** ** |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Mal  Eutick(1)                   | ** ** | **2009**   | ** ** | **67,788**     | ** ** | **—**           | ** ** | **—**   | ** ** | **6,101**                  | ** ** | **—**      | ** ** | **—** | ** ** | **73,889** | ** ** |
|                             |       | 2008       |       | 67,043         |       | —               |       | —       |       | 6,034                      |       | —          |       | — |   | 73,077 |   |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stephen  Chang(2)                | ** ** | **2009**   | ** ** | **119,730**    | ** ** | **—**           | ** ** | **—**   | ** ** | **5,826**                  | ** ** | **—**      | ** ** | **—** | ** ** | **125,556** | ** ** |
|                             |       | 2008       |       | 258,495        |       | —               |       | —       |       | 32,167                     |       | 145,000         |       | — |   | 435,662 |   |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| John  Zalcberg(3)                | ** ** | **2009**   | ** ** | **12,608**     | ** ** | **—**           | ** ** | **—**   | ** ** | **1,135**                  | ** ** | **—**      | ** ** | **—** | ** ** | **13,743** | ** ** |
|                             |       | 2008       |       | 55,046         |       | —               |       | —       |       | 4,954                      |       | —          |       | — |   | 60,000 |   |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Patrick  Burns(1)                | ** ** | **2009**   | ** ** | **44,333**     | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** | ** ** | **44,333** | ** ** |
|                             |       | 2008       |       | 60,000         |       | —               |       | —       |       | —                     |       | —          |       | — |   | 60,000 |   |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| John  Lee(1)                     | ** ** | **2009**   | ** ** | **45,000**     | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** | ** ** | **45,000** | ** ** |
|                             |       | 2008       |       | 19,450         | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** |   | 19,450 |   |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rob  Williamson(1)               | ** ** | **2009**   | ** ** | **44,333**     | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** | ** ** | **44,333** | ** ** |
|                             |       | 2008       |       | 19,450         | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** |   | 19,450 |   |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wolfgang  Hanisch(4)             | ** ** | **2009**   | ** ** | **11,526**     | ** ** | **—**           | ** ** | **—**   | ** ** | **4,307**                  | ** ** | **—**      | ** ** | **—** | ** ** | **15,833** | ** ** |
|                             |       | 2008       | ** ** | **—**     | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** | ** ** | **—** | ** ** |
|                             | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  - Non-executive Directors | ** ** | **2009**   | ** ** | **345,318**    | ** ** | **—**           | ** ** | **—**   | ** ** | **17,369**                 | ** ** | **—**      | ** ** | **—** | ** ** | **362,687** | ** ** |
| ** **                       | 2008       |       | 479,484    |           | —     |                 | —     |         | 43,155     |                       | 145,000    |            | —     |   | 667,639 | ** ** |

 

----

(1) ResignedMarch 27, 2009

(2) Resignedas Executive Chairman on 3 March 2008 and continued as Non-ExecutiveDirector until March 27, 2009 when he was appointed as Non-ExecutiveChairman until July 1, 2009

(3) ResignedSeptember 4, 2008

(4) AppointedMarch 27,2009

 

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| ** **                              | ** ** | ** ** | ** ** | **Short term** | ** ** | **Post  employment** | ** ** | ** **   | ** ** | **Share-  based  payment** | ** ** | ** **      | ** ** |
|-----------------------------------------|------------|------------|------------|----------------|------------|----------------------|------------|--------------|------------|----------------------------|------------|-----------------|------------|
| ** **                              | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | **Non**      | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| **Other  key**                          | ** ** | ** ** | ** ** | **Salary**     | ** ** | **Cash**             | ** ** | **monetary** | ** ** | ** **                 | ** ** | **Termination** | ** ** | ** ** | ** ** | ** ** | ** ** |
| **management  personnel**               | ** ** | ** ** | ** ** | **and fees**   | ** ** | **bonus**            | ** ** | **benefits** | ** ** | **Superannuation**         | ** ** | **payment**     | ** ** | **Options** | ** ** | **Total** | ** ** |
| ** **                              | ** ** | ** ** | ** ** | **$**          | ** ** | **$**                | ** ** | **$**        | ** ** | **$**                      | ** ** | **$**           | ** ** | **$** | ** ** | **$** | ** ** |
|                                    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| T  Justus Homburg (10)             | ** ** | **2009**   | ** ** | **295,083**    | ** ** | **—**           | ** ** | **18,959**   | **(1)**    | **25,377**                 | ** ** | **—**      | ** ** | **32,099** | ** ** | **371,518** | ** ** |
| ** **                              |       | 2008       |       | 287,703        |       | 138,608              |       | 7,386        |       | 28,889                     |       | —          |       | 135,259 |   | 597,845 |   |
|                                    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Linton  Burns (3)                       | ** ** | **2009**   | ** ** | **93,707**     | ** ** | **—**           | ** ** | **—**   | ** ** | **28,151**                 | ** ** | **—**      | ** ** | **—** | ** ** | **121,858** | ** ** |
|                                    |       | 2008       |       | 190,000        |       | 68,807               |       | —       |       | 23,293                     |       | —          |       | 109,609 |   | 391,709 |   |
|                                    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Anand  Gautam (7)                       | ** ** | **2009**   | ** ** | **—**     | ** ** | **—**           | ** ** | **—**   | ** ** | **—**                 | ** ** | **—**      | ** ** | **—** | ** ** | **—** | ** ** |
|                                    |       | 2008       |       | 150,744        |       | —               |       | —       |       | 13,200                     |       | 100,000         |       | 54,304 |   | 318,248 |   |
|                                    |       |       |       |           |       |                 |       |         |       |                       |       |            |       |   |   |   |   |
| Sarah  Meibusch (4)                     | ** ** | **2009**   | ** ** | **138,680**    | ** ** | **50,000**           | ** ** | **—**   | ** ** | **15,586**                 | ** ** | **98,942**      | ** ** | **11,061** | ** ** | **314,269** | ** ** |
|                                    |       | 2008       |       | 117,546        |       | —               |       | —       |       | 10,579                     |       | —          |       | 109,609 |   | 237,734 |   |
|                                    |       |       |       |           |       |                 |       |         |       |                       |       |            |       |   |   |   |   |
| James  Garner (5)                       | ** ** | **2009**   | ** ** | **89,974**     | ** ** | **—**           | ** ** | **—**   | ** ** | **7,322**                  | ** ** | **—**      | ** ** | **—** | ** ** | **97,296** | ** ** |
|                                    | ** ** | 2008       |       | 175,000        |       | —               |       | —       |       | 15,750                     |       | —          |       | 55,305 |   | 246,055 | ** ** |
|                                    | ** ** | ** ** | ** ** | ** **     | ** ** | ** **           | ** ** | ** **   | ** ** | ** **                 | ** ** | ** **      | ** ** | ** ** | ** ** | ** ** | ** ** |
| John  Devlin(6)                         | ** ** | **2009**   | ** ** | **17,363**     | ** ** | **—**           | ** ** | **—**   | ** ** | **8,022**                  | ** ** | **23,077**      | ** ** | **—** | ** ** | **48,462** | ** ** |
|                                    |       | 2008       |       | 150,000        |       | —               |       | —       |       | 13,500                     |       | —          |       | 55,305 |   | 218,805 |   |
|                                    |       |       |       |           |       |                 |       |         |       |                       |       |            |       |   |   |   |   |
| Laurence  Marton(9)                     | ** ** | **2009**   | ** ** | **419,004**    | ** ** | **—**           | ** ** | **—**   | ** ** | **30,115**                 | **(2)**    | **—**      | ** ** | **30,416** | ** ** | **479,535** | ** ** |
|                                    |       | 2008       |       | 133,268        |       | —               |       | —       |       | 11,711                     | (2)        | —          |       | 36,073 |   | 181,052 |   |
|                                    |       |       |       |           |       |                 |       |         |       |                       |       |            |       |   |   |   |   |
| Michael  Fitzgerald                     | ** ** | **2009**   | ** ** | **169,888**    | ** ** | **15,051**           | ** ** | ** **   | ** ** | **14,902**                 | **(2)**    | **—**      | ** ** | **13,314** | ** ** | **213,155** | ** ** |
|                                    |       | 2008       |       | —         |       | —               |       | —       |       | —                     |       | —          |       | — |   | — |   |
|                                    |       |       |       |           |       |                 |       |         |       |                       |       |            |       |   |   |   |   |
| Paul  Dixon (8)                         | ** ** | **2009**   | ** ** | **34,763**     | ** ** | **—**           | ** ** | **—**   | ** ** | **3,129**                  | ** ** | **—**      |       | — | ** ** | **37,892** | ** ** |
|                                    |       | 2008       |       | —         |       | —               |       | —       |       | —                     |       | —          |       | — |   | — |   |
|                                    |       |       |       |           |       |                 |       |         |       |                       |       |            |       |   |   |   |   |
| Total  - Other key management personnel | ** ** | **2009**   | ** ** | **1,258,462**  | ** ** | **65,051**           | ** ** | **18,959**   | ** ** | **132,604**                | ** ** | **122,019**     | ** ** | **86,890** | ** ** | **1,683,985** | ** ** |
|                                    | 2008       |       | 1,204,261  |           | 207,415    |                 | 7,386      |         | 116,922    |                       | 100,000    |            | 555,464    |   | 2,191,448 |   |

 

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(1) Thisrepresents a car under a novated lease arrangement.

(2) Thisrepresents US based health plans

(3) ResignedJanuary 9, 2009

(4) ResignedMay 6, 2009

(5) ResignedDecember 8, 2008

(6) ResignedSeptember 4, 2008

(7) ResignedMay 29, 2008

(8) AppointedApril 3, 2009

 

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(9) AppointedFebruary 6, 2008

(10) Ceasedemployment November 18, 2009

 

## **Item 6.C.                BoardPractices**

##  

Wecurrently have six directors. Our constitution provides that at least one-thirdof our directors (except the managing director) must retire at each annualgeneral meeting of shareholders. As a result, only a portion of our board ofdirectors will be elected each year.

 

Further,our constitution provides that directors appointed either to fill a casualvacancy or as an addition to the existing directors hold office until the nextannual general meeting and are not to be taken into account in determining thedirectors who are to retire by rotation.

 

Mr. SChang was re-elected at our 2007 annual general meeting of shareholders. Dr. M.Eutick was re-elected at our 2008 annual general meeting of shareholders. Mr. J.Lee and Mr. R. Williamson both being appointed directors since the date ofour 2007 annual general meeting were elected directors at our 2008 annualgeneral meeting of shareholders.

 

Notermination benefits are provided to directors other than statutorysuperannuation.

 

***Audit Committee.*** Our audit committee currently consists of Mr. Heng Tang (Chair), Dr. JulieCherrington and Mr. Stuart James, all of whom are non-management membersof our board of directors. The authority and responsibilities of our auditcommittee are set forth in its charter and includes:

 

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

 

·                  The approval of all audit and non-audit engagements and fees with theindependent auditors;

 

·                  The authority to engage, without board approval, independent legalcounsel and other advisors, at the Company’s expense, as deemed necessary tocarry out its duties;

 

·                  Reviewing and monitoring the framework of our internal controls and theobjectivity of our financial reporting;

 

·                  Oversight of the adequacy and effectiveness of the Company’s internalcontrols over financial reporting and disclosure controls and procedures;

 

·                  Reviewing, prior to filing, our unaudited interim or audited annualfinancial statements and discussing the statements and reports with ourmanagement and the independent auditors, including any significant adjustments,management judgments and estimates, new accounting policies and disagreementwith management;

 

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

 

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·                  Establishing and reviewing procedures for complaints received by usregarding accounting matters.

 

***Remuneration Committee.*** Our remuneration committee currently consists of Mr. Thomas Burt(Chair), Mr. Stuart James and Dr. Julie Cherrington, who arenon-management members of our board of directors. The function of ourremuneration committee includes:

 

·                  Reviewing and, as it deems appropriate, recommending to our board ofdirectors, policies, practices and procedures relating to the compensationarrangements for management and other personnel, including the granting ofoptions under our option plans;

 

·                  Establishing and reviewing general compensation policies with theobjective to attract and retain superior talent, reward individual performanceand achieve our financial goals; and

 

·                  Advising and consulting with our executive officers regarding managerialpersonnel and development.

 

***Service Agreements.*** The Company’s policy is to enter intoservice contracts with executive directors and senior executives on appointmentthat are unlimited in term but capable of termination on specified noticeperiods and that the Company has the right to terminate the contractimmediately by making payment equal to the specified notice period as pay inlieu of notice other than for misconduct when termination is immediate. Theexecutive directors and senior executives are also entitled to receive ontermination of employment their statutory entitlements of accrued annual leaveand long service leave.

 

The service contractoutlines the components of remuneration paid to the executive directors and keymanagement personnel but does not prescribe how remuneration levels aremodified year to year.

 

The current terminationnotice periods included in the service agreements with key management personnelare detailed below.

 

·                  **John Chiplin, Chief ExecutiveOfficer and Managing Director.** Term of agreement – 6 months, capable of terminationon written notice.

 

·                  **P Dixon, General Manager ofFinance and Company Secretary**. Term of agreement – unlimited, capable oftermination on 12 weeks’ notice.

 

·                  **Dr. L Marton, US-based ChiefScientific Officer.**Term of agreement – unlimited, capable of termination on 180 days notice.

 

## **Item 6.D.                Employees**

##  

Thenumber of persons, including executive directors, employed by the Company, asof June 30, 2009, 2008 and 2007, broken down by activity is shown below.

 

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| ** **                    | ** ** | **As of June 30,** | ** ** |
|-------------------------------|------------|-------------------------|------------|
| ** **                    | ** ** | **2007**                | ** ** | **2008** | ** ** | **2009** | ** ** |
| Management and administration |       | 13                      |       | 13 |   | 7 |   |
| Research and development      |       | 20                      |       | 18 |   | 9 |   |
| Manufacturing                 |       | 17                      |       | 10 |   | 9 |   |
| **Total**                     | ** ** | **50**                  | ** ** | **41** | ** ** | **25** | ** ** |

 

Duringfiscal 2008 we restructured our manufacturing and drug discovery divisions(part of research and development). The restructure involved 8 redundancies inmanufacturing and 4 in drug discovery.

 

We had4 employees based in the U.S. (two in research and development and two inmanagement and administration) as at June 30, 2009. All remainingemployees are based at either our corporate offices in Toowong, Queensland orat our research and manufacturing facility at Darra, Queensland.

 

Noneof our employees are represented by a labor union, nor have we experienced workstoppages. We believe that our relations with our employees are good.

 

Followingthe wind-down of the PATHWAY trial we made a further 9.5 full time equivalentstaff redundant. In addition several staff have resigned during fiscal 2009without being replaced.

 

## **Item 6.E.                ShareOwnership**

##  

The following table sets forth, for each director orsenior executive of the Company, their interest in the ordinary shares of theCompany (including the interests of their immediate families and personsconnected with them) and the percentage of the Company’s outstanding sharecapital represented by such ownership interests as of December 2, 2009.

 
| **Name**                                                           | ** ** | **Number  of Issued  Ordinary Shares** | ** ** | **Percentage  of  Issued Ordinary  Shares (1)** | ** ** | **Number  of  Ordinary Shares  Issuable  Pursuant to  Options** | ** ** |
|--------------------------------------------------------------------|------------|----------------------------------------|------------|-------------------------------------------------|------------|-----------------------------------------------------------------|------------|
| Heng Hsin Tang                                                     |       | 1,500                                  |       | *                                               |       | —                                                          |       |
| Thomas Burt                                                        |       | —                                 |       | —                                          |       | —                                                          |       |
| Stuart James                                                       |       | —                                 |       | —                                          |       | —                                                          |       |
| John Chiplin                                                       |       | —                                 |       | —                                          |       | —                                                          |       |
| Julie Cherrington                                                  |       | —                                 |       | —                                          |       | —                                                          |       |
| Tzong Pai Lin                                                      |       | —                                 |       | —                                          |       | —                                                          |       |
| Laurence Marton                                                    |       | —                                 |       | —                                          |       | —                                                          |       |
| Paul Dixon                                                         |       | —                                 |       | —                                          |       | —                                                          |       |
| **All directors and executive officers****As a group (7 persons)** | ** ** | **1,500**                              | ** ** | **0.0**                                         | **%**      | **0**                                                           | ** ** |

 

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**Option Plans**

 

The following director and employee option plans werein existence during the fiscal year ending June 30, 2009. The plans areoverseen by the Remuneration Committee which determines the terms under whicheligible individuals may participate.  Nooptions were granted during the 2009 fiscal year.

 

In accordance with Australian law, we will not grantany option if, after such issuance, the number of options issued tonon-executive employees during the previous five years whether or not exercisedand which have not yet terminated or expired would exceed 5% of the then totalnumber of outstanding ordinary shares. In accordance with Australian SecuritiesExchange Listing Rules all grants of options to directors require theprior approval from our shareholders.

 

In November 2004, our shareholders approved thedirectors and employee option incentive plan. All our directors and allemployees, whether full time or part time, are eligible to participate in thisplan. The minimum exercise price of options granted under this plan shall notbe less than the average closing share price as recorded on the AustralianSecurities Exchange in the five business days preceding the grant of thoseoptions. The expiry date of options issued under this plan cannot exceed 10years from the date of grant.  As of December 2,2009, there were outstanding options to purchase an aggregate of 967,000ordinary shares under this plan.

 

# **ITEM 7.                 MAJORSHAREHOLDERS AND RELATED PARTY TRANSACTIONS**

#  

## **Item 7.A.                Major Shareholders**

##  

Thetable below shows all holders who, to the Company’s knowledge, own, directly orindirectly, 5% or more of the Company’s ordinary shares, as of December 11,2007, January 9, 2009 and December 2, 2009, each being the mostrecent practicable date before reporting for the last three fiscal years.

 
| ** **                                                 | ** ** | **2007**         | ** ** | **2008**                 | ** ** | **2009**         | ** ** |
|------------------------------------------------------------|------------|------------------|------------|--------------------------|------------|------------------|------------|
| **Name and Address**                                       | ** ** | **# of  Shares** | ** ** | **% of  issued  shares** | ** ** | **# of  Shares** | ** ** | **% of  issued  shares** | ** ** | **# of  Shares** | ** ** | **% of  issued  shares** | ** ** |
| Su  Hua Chuang, Fu Ying Wang, Fu Mei Wang, Pai-Mao Lin (1) |       | N/A              |       | N/A                      |       | N/A              |       | N/A |   | 2,122,781 |   | 8.59 |   |
| Manifest  Capital Management Pty Ltd                       |       | 3,538,260        |       | 5.96                     |       | 3,538,260        |       | 5.86 |   | N/A |   | N/A |   |
| Northcape  Capital Pty Ltd                                 |       | 3,575,289        |       | 6.02                     |       | 4,979,043        |       | 8.23 |   | N/A |   | N/A |   |
| Medigen  Biotechnology Corp (2)                            |       | 1,363,882        |       | 2.30                     |       | 1,363,882        |       | 2.26 |   | 2,096,482 |   | 8.48 |   |
| CCH  Investment Corp & Tzu Liang Huang (2)        |       | N/A              |       | N/A                      |       | N/A              |       | N/A |   | 1,243,251 |   | 5.03 |   |

 

----

(1)          Substantial holder notice lodged 9 June2009

(2)          Substantial holder notice lodged 14July 2009

 

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As of November 2, 2009, a total of 2,599,076ordinary shares (or 10.51% of the total number of our ordinary shares thenoutstanding) were held by five registered holders with registered addresses inthe United States. As the majority of these ordinary shares were held bybrokers or other nominees, the number of record or registered holders in the USis not representative of the number of beneficial holders in the US or of theresidence of the beneficial holders. There are no different voting rights formajor shareholders.

 

On August 5, 2009, the Company announced that it had commencedlegal proceedings in the Supreme Court of Queensland against a group ofshareholders alleged to have contravened section 606 of the Corporations Act2001. The alleged contraventions relate to the Respondents (together having aninterest in the shares of Progen greater than 20%) acting in concert for thepurpose of controlling or influencing the composition of the board ofProgen.  On November 18, 2009, asettlement was reached with a number of key respondents representing 19.32% ofthe voting shares.  The parties to thesettlement agreed that in respect of board composition resolutions at generalmeetings, the votes would be assigned to Stuart James as Chairman.  This arrangement is in place for 18 monthsfrom the date of settlement.

 

Except for the circumstances mentioned above, to thebest of our knowledge, we are not owned or controlled, directly or indirectly,by another corporation, by any foreign government or by any other natural orlegal persons severally or jointly, and we disclaim control by the companies,entities or individuals listed in the table above. We do not know of anyarrangements 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 thisannual report, there were no material transactions to which we were a party andin which any of our directors, executive officers or major shareholders (or anyof their affiliates, associates or enterprises) were involved since July 1,2009.

 

None of our directors, executive officers or majorshareholders (or any of their affiliates, associates or enterprises) wasindebted to us at any time since July 1, 2009.

 

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**ITEM 8.****                                                  ****FINANCIAL INFORMATION**

#  

## **Item 8.A.****                                              ****Financial Statements and OtherFinancial Information**

##  

Ouraudited financial statements and related notes for our fiscal years ended June 30,2007, 2008 and 2009 are contained on pages F-1 through F-47 of this annualreport.

 

**Export Sales**

 

The following table indicates the percent of revenuesderived from export.

 
| ** **                              | ** ** | **For the Years Ended  June 30,** | ** ** |
|-----------------------------------------|------------|----------------------------------------|------------|
| ** **                              | ** ** | **2007**                               | ** ** | **2008** | ** ** | **2009** | ** ** |
| Contract manufacture export revenues    |       | $                                      | 25,000     |   | $ | 380,000 |   | $ | 328,000 |   |
| % of total revenues derived from export |       | 2.7                                    | %          | 35.0 | % | 19.0 | % |
|                                         |            |                                        |            |  |  |  |  |  |  |  |

 

The percentage of contract manufacturing revenuesderived from customers outside Australia fluctuates as these contracts aretypically ad-hoc in nature.

 

In fiscal 2009 we derived 73.0% of our total revenuesfrom one Australian based customer. In fiscal 2008 and 2007, we derived 65.0%and 97.3% respectively of our total revenues from this same customer.

 

**Legal Proceedings**

 

On August 5, 2009, the Company announced that it had commencedlegal proceedings in the Supreme Court of Queensland against a group ofshareholders alleged to have contravened section 606 of the Corporations Act2001 (the Act). The alleged contraventions relate to the Respondents (togetherhaving an interest in the shares of Progen greater than 20%) acting in concertfor the purpose of controlling or influencing the composition of the board ofProgen.

 

On November 18, 2009, the Company reached a settlement with a numberof Key Respondents totaling 19.32% of the voting power.  The settlement included undertakings from theRespondents not to cause a general meeting of members of Progen to be convenedunder any of sections 249D, 249E, 249F or 249G of the Corporations Act (theAct) for a period of 18 months and not to cause a resolution to be consideredat a general meeting of members under sections 249N and 249O of the Act for aperiod of 18 months, concerning resolutions electing, appointing or removing adirector or otherwise affecting the tenure of directors or the composition ofthe Board.  Further, Progen agreed to payMedigen Biotechnology Corporation $1.8 million and cease the employment of Mr. JustusHomburg, CEO immediately.

 

**Dividend Policy**

 

We have never declared cash dividends on our ordinaryshares and have no present intention of declaring such cash dividends in theforeseeable future. Our board of directors will not be able to recommend thepayment of any dividends until we make a profit. Future profitability willdepend on 

 

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future earnings and ourworking capital requirements. Our board of directors currently intends toreinvest income in the continued development and operations of our business. Weexpect to continue to generate operating losses on our research and developmentprojects until products arising from our research and development activitiesare successfully commercialized. Factors beyond our control, such as marketcompetition, exchange rate fluctuations and changing government policy may alsoaffect 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 financialstatements included in this annual report.

 

**ITEM 9.**                                                   **THE OFFER AND LISTING**

#  

## **Item 9.C.****                                              ****Markets**

##  

The principal non-United States trading market for ourordinary shares and warrants is the Australian Securities Exchange, or the ASX,under the codes “PGL” and “PGLO” respectively. Our ordinary shares and warrantsare also quoted on the Nasdaq Capital Market under the symbol “PGLA” and “PGLAW”respectively.

 

**Price Range of Ordinary Shares**

 

***AustralianSecurities Exchange (ASX)***

 

The followingtable sets forth the high and low closing sales prices in Australian dollarsand the trading volume of our ordinary shares as reported on the ASX during theperiods indicated:

 
| ** **          | ** ** | **High** | ** ** | **Low** | ** ** | **Trading  Volume** | ** ** |
|---------------------|------------|----------|------------|---------|------------|---------------------|------------|
| Yearly Data:        |       |     |       |    |       |                |       |
| Fiscal year 2005    |       | 6.22     |       | 2.04    |       | 23,242,125          |       |
| Fiscal year 2006    |       | 4.04     |       | 2.35    |       | 24,427,032          |       |
| Fiscal year 2007    |       | 9.49     |       | 2.52    |       | 53,491,809          |       |
| Fiscal year 2008    |       | 4.54     |       | 1.20    |       | 47,820,800          |       |
| Fiscal year 2009    |       | 1.34     |       | 0.57    |       | 37,768,800          |       |
| Quarterly Data:     |       |     |       |    |       |                |       |
| First Quarter 2008  |       | 2.55     |       | 1.28    |       | 7,653,400           |       |
| Second Quarter 2008 |       | 2.13     |       | 1.20    |       | 8,920,400           |       |
| Third Quarter 2008  |       | 1.28     |       | 0.58    |       | 13,846,600          |       |
| Fourth Quarter 2008 |       | 0.92     |       | 0.60    |       | 14,951,100          |       |
| First Quarter 2009  |       | 0.93     |       | 0.75    |       | 7,284,900           |       |
| Second Quarter 2009 |       | 1.08     |       | 0.71    |       | 1,686,200           |       |
| Third Quarter 2009  |       | 0.85     |       | 0.58    |       | 899,200             |       |
| Monthly Data:       |       |     |       |    |       |                |       |
| July 2009      |       | 0.85     |       | 0.71    |       | 99,000              |       |
| August 2009    |       | 0.75     |       | 0.60    |       | 362,900             |       |
| September 2009 |       | 0.65     |       | 0.58    |       | 437,300             |       |
| October 2009   |       | 0.66     |       | 0.57    |       | 220,400             |       |
| November 2009  |       | 0.60     |       | 0.50    |       | 134,000             |       |

 

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***NASDAQCapital Market***

 

The following table sets forth the high and lowclosing sales prices in United States dollars and the trading volume of ourordinary shares as reported on the NASDAQ Capital Market during the periodsindicated:

 
| ** **          | ** ** | **High** | ** ** | **Low** | ** ** | **Trading  Volume** | ** ** |
|---------------------|------------|----------|------------|---------|------------|---------------------|------------|
| Yearly Data:        |       |     |       |    |       |                |       |
| Fiscal year 2005    |       | 4.71     |       | 1.60    |       | 4,411,100           |       |
| Fiscal year 2006    |       | 3.15     |       | 1.71    |       | 1,628,400           |       |
| Fiscal year 2007    |       | 7.78     |       | 1.81    |       | 23,776,100          |       |
| Fiscal year 2008    |       | 4.01     |       | 1.12    |       | 5,652,400           |       |
| Fiscal year 2009    |       | 1.29     |       | 0.15    |       | 4,372,700           |       |
| Quarterly Data:     |       |     |       |    |       |                |       |
| First Quarter 2008  |       | 2.23     |       | 1.22    |       | 805,500             |       |
| Second Quarter 2008 |       | 1.92     |       | 1.12    |       | 832,800             |       |
| Third Quarter 2008  |       | 1.26     |       | 0.45    |       | 2,378,400           |       |
| Fourth Quarter 2008 |       | 0.67     |       | 0.30    |       | 1,601,900           |       |
| First Quarter 2009  |       | 0.62     |       | 0.31    |       | 180,600             |       |
| Second Quarter 2009 |       | 0.80     |       | 0.30    |       | 211,800             |       |
| Third Quarter 2009  |       | 0.75     |       | 0.32    |       | 201,800             |       |
| Monthly Data:       |       |     |       |    |       |                |       |
| July 2009      |       | 0.70     |       | 0.41    |       | 14,800              |       |
| August 2009    |       | 0.75     |       | 0.32    |       | 75,600              |       |
| September 2009 |       | 0.68     |       | 0.45    |       | 111,400             |       |
| October 2009   |       | 0.61     |       | 0.50    |       | 52,300              |       |
| November 2009  |       | 0.54     |       | 0.40    |       | 63,900              |       |

 

On December 2, 2009,the closing sales price of the ordinary shares as reported on the ASX and theNASDAQ Capital Market was $0.53 and US$0.45, respectively.

 

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**Price Range of Warrants**

 

***AustralianSecurities Exchange (ASX)***

 

The followingtable sets forth the high and low closing sales prices in Australian dollarsand the trading volume of our warrants as reported on the ASX during theperiods indicated:

 
| ** **          | ** ** | **High**   | ** ** | **Low**    | ** ** | **Trading  Volume** | ** ** |
|---------------------|------------|------------|------------|------------|------------|---------------------|------------|
| Yearly Data:        | ** ** | ** ** | ** ** | ** ** | ** ** | ** **          | ** ** |
| Fiscal year 2008    |       | 1.40       |       | 0.05       |       | 1,100,200           |       |
| Fiscal year 2009    |       | 0.25       |       | 0.001      |       | 311,300             |       |
| Quarterly Data:     |       |       |       |       |       |                |       |
| Third Quarter 2007  |       | 1.40       |       | 0.48       |       | 275,600             |       |
| Fourth Quarter 2007 |       | 0.93       |       | 0.35       |       | 264,800             |       |
| First Quarter 2008  |       | 0.60       |       | 0.05       |       | 474,100             |       |
| Second Quarter 2008 |       | 0.31       |       | 0.10       |       | 85,700              |       |
| Third Quarter 2008  |       | 0.25       |       | 0.01       |       | 102,500             |       |
| Fourth Quarter 2008 |       | 0.01       |       | 0.01       |       | —              |       |
| First Quarter 2009  |       | 0.10       |       | 0.001      |       | 201,000             |       |
| Second Quarter 2009 |       | 0.001      |       | 0.001      |       | 7,800               |       |
| Third Quarter 2009  |       | 0.001      |       | 0.001      |       | 86,100              |       |
| Monthly Data:       |       |       |       |       |       |                |       |
| July 2009      |       | 0.001      |       | 0.001      |       | —              |       |
| August 2009    |       | 0.001      |       | 0.001      |       | 78,100              |       |
| September 2009 |       | 0.001      |       | 0.001      |       | 8,000               |       |
| October 2009   |       | 0.001      |       | 0.001      |       | —              |       |
| November 2009  |       | 0.001      |       | 0.001      |       | —              |       |

 

***NasdaqCapital Market***

 

Therehas been no trading in our warrants on the Nasdaq Capital Market to date.

 

On December 2, 2009,the closing sales price in of the warrants as reported on the ASX and theNasdaq Capital Market was $0.001 and N/A, respectively.

 

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# **ITEM 10.****                          ****ADDITIONAL INFORMATION**

#  

## **Item 10.B.       Memorandumand Articles of Association**

##  

A description of our ordinary shares and warrants,including brief summaries of the rights of our shareholders and warrant holdersas conferred by our constitution and Australian law is incorporated byreference to the description of our securities contained in our RegistrationStatement on Form F-3 filed with the SEC on March 22, 2007 and anyamendment or report filed for the purposes of updating that description. Ourconstitution may be inspected and copied at the Public Reference Section ofthe Securities and Exchange Commission at 450 Fifth Street, N.W., Washington,D.C. 20549.

 

***Compliancewith Nasdaq Rules***

 

Nasdaq corporategovernance rules require that we disclose the exemptions that we haveobtained, and rely on, from compliance with existing Nasdaq corporategovernance rules. Under our Constitution and consistent with the AustralianCorporations Act, the quorum required for an ordinary meeting of shareholdersconsists of at least three shareholders, represented in person or by proxy.Under the Nasdaq Marketplace Rules, a Nasdaq listed-company must provide for aquorum that in no case shall be less than 33 1/3% of the outstanding shares ofthe 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 isin accordance with Australian law and generally accepted business practices inAustralia. We also obtained from Nasdaq an exemption from Nasdaq Marketplace Rule 4350(i) concerningshareholder approval of certain share plans, although we have not to daterelied on such exemption.

 

The Principles of GoodCorporate Governance and Best Practice Recommendations (BPRs) released by theAustralian Securities Exchange (ASX). Current practice in Australia recognizesthat the BPRs are guidelines only. If a company considers that a recommendationis not appropriate to its particular circumstances, it has the flexibility notto adopt it but is required to provide a statement in the annual report for notfollowing it (ASX Listing Rule 4.10). As stated in our 2009 Annual Reportthe Company’s corporate governance practices are largely consistent with theBPR’s.

 

On September 4, 2008we received a letter from the Nasdaq Stock Market notifying the Company thatfor the last 30 consecutive business days prior to September 4, the bidprice for the Company’s ordinary shares has closed below the minimum US$1.00per share requirement for continued inclusion under Nasdaq Marketplace Rule 4320(e)(2)(E)(ii) (The“Rule”).  Following correspondence withthe Nasdaq Stock market, we now have until December 22, 2009 to obtain compliancewith the bid price rule.

 

To regain compliance withthe minimum bid price requirement, Progen’s ordinary shares must meet or exceedthe US$1.00 share price for 10 consecutive business days.  If the Company does not regain compliancewith the Rule by December 22, 2009, we will receive writtenconfirmation that the Company’s securities will be delisted from The NasdaqStock Market.  We cannot make anyassurance that the Company’s securities will continue to be listed on TheNasdaq Capital Market.

 

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**Item 10.C.       MaterialContracts**

 

*Terminationof Collaboration with Medigen Biotechnology Corporation*

 

In May 2000,we entered into a strategic alliance agreement, the “Alliance Agreement”, withMedigen Biotechnology Corporation, or MBC, a biotechnology company based inTaiwan. The collaboration related to early stage clinical trials of PI-88. Thestrategic alliance required Medigen to undertake and complete certain clinicaltrials of PI-88. On completion of these PI-88 clinical trials, Medigen wasentitled to a 15% royalty on PI-88 proceeds of commercialization received byProgen. Both parties agreed to end the strategic alliance to allow Progen todevelop and commercialize PI-88 as rapidly as possible and with maximumflexibility.

 

InJanuary 2007 the Company announced that it had agreed terms with MBC toconclude the Alliance Agreement. In consideration for MBC agreeing to end theAlliance Agreement, and foregoing their entitlement to the 15% royalty, and tocompensate MBC for their contribution to the development of PI-88, Progenagreed to:

 

·                  Return 15,176,525 MBCordinary shares that comprised part of the consideration under the AllianceAgreement, to MBC.

 

·                  Issue 500,000 Progen sharesto MBC on execution of the termination agreement;

 

·                  Reimburse to MBC $300,000being the funds they contributed to the costs of the PI-88 Phase 2 Melanomaclinical trial on execution of the agreement;

 

·                  Issue a further 732,600Progen shares and pay $2,000,000 in cash or shares, at Progen’s discretion, toMBC on MBC completing two clinical milestones in relation to the current PI-88Phase 2 HCC Trial;

 

·                  Pay MBC up to $4,000,000 onPI-88 achieving specified clinical and commercial milestones; and

 

·                  Issue 1,000,000 options toMBC upon MBC providing to Progen the HCC Phase 2 Trial Final Study Report.

 

The financial statements for the period ended June 30,2007 included the financial impact of the return of the 15,176,525 MBC sharesto MBC, that being an impairment loss of $1,769,198, the reimbursement of the$300,000, the value of 1,232,600 Progen shares and the 1,000,000 options onProgen shares. The fair value at the measurement date of the 1,232,600 Progenshares was $8,325,000 and 1,000,000 options over Progen shares was $1,321,000.The total 2007 financial impact was an increase in the operating loss from continuingoperations of $11,715,198.

 

The financial statements for the period ended June 30, 2008include the financial impact $2,029,000 on MBC completing the second clinicalmilestone in relation to the PI-88 phase 2 HCC trial (this obligation wassatisfied via the issue of 732,600 shares of which 171,240 were newly issuedshares and 561,360 were acquired on-market and re-issued to MBC) and $2,000,000paid to MBC on PI-88 achieving a specified clinical milestone.  There was no impact on the financials for fiscalyear 2009.

 

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A further $2,000,000 was to be paid on a defined PI-88commercialization milestone or transaction event being achieved. As part of thesettlement reached on 18 November, 2009, Progen was released of thisobligation.  Refer to “Item 8.A. FinancialStatements and Other Financial Information” for further details on thesettlement.

 

Thereare no further obligations to Medigen under the Termination Agreement.

 

*License agreement with Global TransBiotech Inc.*

 

On July 1, 2009, the Company entered into a binding agreement withGlobal TransBiotech Inc. for the global licensing of muparfostat, Progen’s leadanti cancer compound formerly known as PI-88.

 

Underthe agreement, Progen retains the development and commercialization rights ofmuparfostat in Australia, and PharmaSynth will provide the technical andmanufacturing support to US-based Global TransBiotech to develop andcommercialize muparfostat elsewhere in the world, with an initial focus onTaiwan, China, Hong Kong and Singapore.

 

Inaddition to assuming all further costs associated with the development andcommercialization of muparfostat outside of Australia, Global TransBiotech willmake milestone payments of approximately US$5 million to PharmaSynth, as wellas royalties on muparfostat sales.

 

## **Items 10.D.     ExchangeControls**

##  

In the early 1980s, the Australian Government began aprogram of deregulation of the Australian financial sector. This led to theintroduction of competition from foreign banks and, perhaps more notably, thederegulation of foreign exchange controls. Deregulation has been at theforefront of Australian Government policy since the early 1980s and, except asdiscussed below, there are no laws or regulations in Australia that restrictthe export or import of capital or affect the remittance of dividends or otherpayments to holders of our ordinary shares who are non-residents of Australia,subject to withholding taxes under Australian law with respect to remittancesof dividends (to the extent the taxes on the dividends are not paid by us) andinterest payments. See “Taxation” below.

 

***The Foreign Acquisitions and Takeovers Act 1975***

 

The Foreign Acquisitions and Takeovers Act 1975 is anact of the Parliament of the Commonwealth of Australia which seeks to regulateoverseas investment in Australia. By and large, the Government’s policy is toencourage foreign investment provided that it is consistent with the needs ofthe Australian community. Although restrictions are applied in certain areas,in the majority of industry sectors, proposals are approved unless they arejudged contrary to the national interest. The Act requires compulsory notification of certain proposedacquisitions of Australian assets and makes other proposed acquisitions andarrangements subject to prohibition or divestiture after they have beenexamined and found to be contrary to the national interest.

 

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***The Financial Transactions Reports Act 1988***

 

The Financial Transactions Reports Act 1988 is an actof the Parliament of the Commonwealth of Australia, designed to facilitate theadministration and enforcement of Australia’s revenue laws. It provides for thereporting of certain financial transactions and transfers, including the exportor import of currency exceeding $10,000 to the Cash Transactions ReportingAgency.

 

***TheIncome 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 Commonwealthof Australia, concerning the collection and administration of taxes (exceptgoods and services tax). Under the Tax Act, overseas residents are obliged topay income tax in Australia on income derived from Australian sources.

 

## **Item 10.E.        Taxation**

##  

The following is a summary of the current tax laws ofthe US (including the Internal Revenue Code of 1986, as amended, itslegislative history, existing and proposed regulations thereunder, publishedrulings and court decisions) and Australia as they relate to us and ourshareholders, including United States and other non-Australian shareholders.The summary is based upon laws and relevant interpretations thereof in effectas 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 ofUS taxation other than federal income taxation or any aspects of Australiantaxation other than federal income taxation, inheritance taxation, stamp dutyand goods and services tax.

 

Prospective purchasers of ordinary shares are advisedto consult their own tax advisors with respect to the specific tax consequencesto 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 onincome derived from Australian sources. The mechanism by which that tax is paid (for non-residents who have nopermanent establishment in Australia or where the income is not connected witha permanent establishment) is known as withholding tax. Dividends paid by aresident Australian company to a resident of the United States of America aresubject to withholding tax at the rate of 15%. The rate of withholding tax ondividends is normally 30%, but since the United States has concluded a doubletax treaty agreement with Australia, the rate is reduced to 15%. It should benoted, however, that under Section 128B(3) of the Tax Act, to theextent that dividends paid to non-residents have been franked (generally wherea company pays tax itself), such dividends are exempt from withholding tax. “Frankeddividends” is the expression given to dividends when the profits out of whichthose dividends are paid have been taxed in our hands. Accordingly, anAustralian company paying fully franked dividends to a non-resident is notrequired to deduct any withholding tax. Dividends on which withholding tax hasbeen paid are not subject to any further Australian tax. In other words, thewithholding tax represents the final Australian tax liability in relation tothose dividends.

 

The pertinent provisions of the double tax treatybetween Australia and the United States provide that dividends are primarilyliable 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 casethe tax will be limited to 15%. Where the beneficial owner is a United Statesresident company that holds at least 

 

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10% of us, the tax willbe limited to 5%. The 15% limit does not apply to dividends derived by aresident of the United States of America who has a permanent establishment orfixed base in Australia, if the holding giving rise to the dividends iseffectively connected with that establishment or base. Such dividends are taxedin the normal way as business profits or independent personal services incomeas the case may be.

 

We have not paid any cash dividends since ourinception and we do not anticipate the payment of cash dividends in theforeseeable future. Additionally, we expect to incur additional operatinglosses until products arising from our research and development programs aresuccessfully commercialized. See “Item 8.A. Financial Statements and OtherFinancial Information—Dividend Policy.”

 

Capital gains tax in Australia is payable on realgains over the period in which the shares have been held, that is, thedifference between the selling price and the original cost price. The costprice is indexed for inflation if the shares have been held for more than oneyear, and individual taxpayers can, with respect to shares held for more thanone year, elect to forego indexation of the cost base in exchange for beingtaxed on 50% of the realized gain. Capital losses are available as deductionsbut only against other capital gains.

 

***Stamp Duty***

####  

Any transfer of shares through trading on the ASX andNASDAQ, whether by Australian residents or foreign residents, are not subjectto stamp duty.

 

***Australian Death Duty***

 

Australia does not have estate or death duties. Nocapital gains tax liability is realized upon the inheritance of a deceasedperson’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 incurAustralian goods and services tax and does not require a stockholder toregister for Australian goods and services tax purposes.

 

***U.S.Federal Income Tax Considerations***

 

The following discussionsummarizes the principal U.S. federal income tax considerations relating to thepurchase, ownership and disposition of our ordinary shares or warrants by aU.S. holder (as defined below) holding such shares or warrants as capitalassets (generally, property held for investment). This summary is based on theInternal Revenue Code of 1986, as amended (the “Code”), Treasury regulations,administrative pronouncements of the U.S. Internal Revenue Service (the “IRS”)and judicial decisions, all as in effect on the date hereof, and all of whichare subject to change (possibly with retroactive effect) and to differinginterpretations. This summary does not describe any state, local or non-U.S.tax law considerations, or any aspect of U.S. federal tax law other than incometaxation; U.S. holders are urged to consult their own tax advisors regardingsuch matters.

 

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This summary does notpurport to address all material federal income tax consequences that may berelevant to a holder of ordinary shares or warrants. This summary does not takeinto account the specific circumstances of any particular investors, some ofwhich (such as tax-exempt entities, banks or other financial institutions,insurance companies, broker-dealers, traders in securities that elect to use amark-to-market method of accounting for their securities holdings, regulatedinvestment companies, real estate investment trusts, U.S. expatriates,investors liable for the alternative minimum tax, partnerships and otherpass-through entities, investors that own or are treated as owning 10% or moreof our voting stock, investors that hold the ordinary shares or warrants aspart of a straddle, hedge, conversion or constructive sale transaction or otherintegrated transaction, and U.S. holders whose functional currency is not theU.S. dollar) may be subject to special tax rules.

 

As used below, a “U.S.Holder” is a beneficial owner of an ordinary share or warrant that is, for U.S.federal income tax purposes, (i) a citizen or resident alien individual ofthe United States, (ii) a corporation (or an entity taxable as acorporation) created or organized under the law of the United States, any Statethereof or the District of Columbia, (iii) an estate, the income of whichis subject to U.S. federal income tax without regard to its source, or (iv) atrust if (1) a court within the United States is able to exercise primarysupervision over the administration of the trust, and one or more U.S. personshave the authority to control all substantial decisions of the trust, or (2) thetrust has a valid election in effect under applicable U.S. Treasury Regulationsto be treated as a U.S. person. For purposes of this discussion, a “Non-USHolder” is a beneficial owner of an ordinary share or warrant that is (i) anon-resident alien individual, (ii) a corporation (or an entity taxable asa corporation) created or organized in or under the law of a country other thanthe United States or a political subdivision thereof or (iii) an estate ortrust that is not a U.S. holder. This discussion does not address any aspect ofU.S. federal gift or estate tax, or state, local or non-U.S. tax laws.Additionally, the discussion does not consider the tax treatment ofpartnerships or other pass-through entities or persons who hold ordinary sharesthrough such entities. If a partnership (including for this purpose any entitytreated as a partnership for U.S. federal tax purposes) is a beneficial ownerof ordinary shares or warrants, the U.S. federal tax treatment of a partner inthe partnership generally will depend on the status of the partner and theactivities of the partnership. A holder of ordinary shares or warrants that isa partnership and partners in that partnership are urged to consult their owntax advisers regarding the U.S. federal income tax consequences of purchasing,holding and disposing of ordinary shares or warrants.

 

We have not sought a rulingfrom the IRS or an opinion of counsel as to any U.S. federal income taxconsequence described herein. The IRS may disagree with the description herein,and its determination may be upheld by a court.

 

**GIVEN THE COMPLEXITY OF THE TAX LAWSAND BECAUSE THE TAX CONSEQUENCES TO ANY PARTICULAR INVESTOR MAY BEAFFECTED BY MATTERS NOT DISCUSSED HEREIN, PROSPECTIVE INVESTORS ARE URGED TOCONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO THE SPECIFIC TAX CONSEQUENCES OFTHE ACQUISITION, OWNERSHIP AND DISPOSITION OF ORDINARY SHARES OR WARRANTS,INCLUDING THE APPLICABILITY AND EFFECT OF STATE, LOCAL AND NON-U.S. TAX LAWS,AS WELL AS U.S. FEDERAL TAX LAWS.**

 

**TO ENSURE COMPLIANCE WITHREQUIREMENTS IMPOSED BY THE IRS UNDER TREASURY CIRCULAR 230, WE INFORM YOUTHAT (1) ANY DISCUSSION OF U.S.**

 

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**FEDERAL INCOME TAX ISSUES CONTAINEDHEREIN (INCLUDING ANY ATTACHMENTS), UNLESS OTHERWISE SPECIFICALLY STATED, WASNOT INTENDED OR WRITTEN TO BE USED, AND CANNOT BE USED, FOR THE PURPOSE OFAVOIDING PENALTIES UNDER THE UNITED STATES INTERNAL REVENUE CODE, AND (2) EACHU.S. HOLDER SHOULD SEEK ADVICE BASED UPON THEIR PARTICULAR CIRCUMSTANCES FROMAN INDEPENDENT TAX ADVISOR.**

 

**Allocation of Purchase Price BetweenOrdinary Shares and Warrants**

 

A U.S. Holder that purchasedour ordinary shares and warrants as a unit on their initial issuance generallywill be required to allocate the purchase price of such unit between eachordinary share and each warrant that comprise the unit based on the relativefair market value of each. Of the purchase price for any unit that we offered,we allocated a portion to each ordinary share and to each warrant comprisingpart of such unit, as described in the prospectus supplement relating thereto.For U.S. Holders that purchased our ordinary shares and warrants as a unit ontheir initial issuance, the price allocated to each ordinary share and eachwarrant generally will be such U.S. Holder’s tax basis in such share orwarrant, as the case may be. While uncertain, the IRS, by analogy to the rules relatingto the allocation of the purchase price to components of a unit consisting ofdebt and equity, may take the position that our allocation of the purchaseprice will be binding on a U.S. Holder of a unit, unless the U.S. Holderexplicitly discloses in a statement attached to the U.S. Holder’s timely filedU.S. federal income tax return for the taxable year that includes theacquisition date of the unit that the U.S. Holder’s allocation of the purchaseprice between each ordinary share and each warrant that comprise the unit isdifferent than our allocation. Our allocation would not, however, be binding onthe IRS.

 

Each U.S. Holder thatpurchased our ordinary shares and warrants as a unit on their initial issuanceis urged to consult their own tax advisor with respect to the risks associatedwith an allocation of the purchase price between the ordinary shares and eachwarrant that comprise a unit that is inconsistent with our allocation of thepurchase price.

 

***Taxationof Distributions***

 

*U.S.Holders.*In general, subject to thepassive foreign investment company (“PFIC”) rules discussed below, adistribution on an ordinary share will constitute a dividend for U.S. federalincome tax purposes to the extent that it is made from our current oraccumulated earnings and profits as determined under U.S. federal income taxprinciples. If a distribution exceeds the amount of our current and accumulatedearnings and profits, it will be treated as a non-taxable reduction of basis tothe extent of the U.S. Holder’s tax basis in the ordinary share on which it ispaid, and to the extent it exceeds that basis it will be treated as a capitalgain. For purposes of this discussion, the term “dividend” means a distributionthat constitutes a dividend for U.S. federal income tax purposes.

 

The gross amount of anydividend on an ordinary share (which will include the amount of any Australiantaxes withheld) generally will be subject to U.S. federal income tax as foreignsource dividend income and will not be eligible for the corporate dividendsreceived deduction. The amount of a dividend paid in Australian currency willbe its value in U.S. dollars based on the prevailing spot market exchange ratein effect on the day that the U.S. Holder receives the dividend, whether or notthe dividend is converted into U.S. dollars. A U.S. holder will have a taxbasis in any distributed 

 

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Australian currency equal to its U.S. dollar amount onthe date of receipt, and any gain or loss realized on a subsequent conversionor other disposition of the Australian currency generally will be treated asU.S. source ordinary income or loss. If dividends paid in Australian currencyare converted into U.S. dollars on the date they are received by a U.S. Holder,the U.S. Holder generally should not be required to recognize foreign currencygain or loss in respect of the dividend income. U.S. Holders are urged toconsult their own tax advisers regarding the treatment of any foreign currencygain or loss if any Australian currency received by the U.S. Holder is notconverted into U.S. dollars on the date of receipt.

 

Subject to certainexceptions for short-term and hedged positions, any dividend that anon-corporate holder receives on an ordinary share in a taxable year beginningbefore January 1, 2011 will be subject to a maximum tax rate of 15% if thedividend is a “qualified dividend.” A dividend on an ordinary share will be aqualified dividend if (i) either (a) the ordinary shares are readilytradable on an established securities market in the U.S. or (b) we areeligible for the benefits of a comprehensive income tax treaty with the U.S.that the U.S. Secretary of the Treasury determines is satisfactory for purposesof these rules and that includes an exchange of information program, and (ii) wewere not, in the year prior to the year the dividend was paid, and are not, inthe year the dividend is paid, a PFIC. The ordinary shares are listed on the NasdaqCapital Market, which should qualify them as readily tradable on an establishedsecurities market in the United States. In any event, the double tax treatybetween Australia and the U.S. (the “Treaty”) satisfies the requirements ofclause (i)(b), and, although the matter is not free from doubt, we believe thatwe should be a resident of Australia entitled to the benefits of the Treaty.However, because the facts relating to our entitlement to the benefits of theTreaty can change over time, there can be no assurance that we will be entitledto the benefits of the Treaty for any taxable year. Based on our auditedfinancial statements and relevant market and shareholder data, we believe wewere a PFIC for U.S. federal income tax purposes for our June 30, 2009taxable year. Based on our audited financial statements and our currentexpectations regarding the value and nature of our assets, the sources andnature of our income, and relevant market and shareholder data, it is possiblethat we could be classified as a PFIC for our June 30, 2010 taxableyear.  Given that the determination ofPFIC status involves the application of complex tax rules, and that it is basedon the nature of our income and assets from time to time, no assurances can beprovided that we will not be considered a PFIC for the current (or any past orfuture) taxable year. In addition, as described in the section below entitled “PassiveForeign Investment Company Rules,” if we were a PFIC in a year while a U.S.Holder held an ordinary share, and if the U.S. Holder has not made a qualifiedelecting fund election effective for the first year the U.S. Holder held theordinary share, the ordinary share remains an interest in a PFIC for all futureyears or until such an election is made. The IRS takes the position that that rule willapply for purposes of determining whether an ordinary share is an interest in aPFIC in the year a dividend is paid or in the prior year, even if the Companydoes not satisfy the tests to be a PFIC in either of those years.

 

Even if dividends on theordinary shares would otherwise be eligible for qualified dividend treatment,in order to qualify for the reduced qualified dividend tax rates, anon-corporate holder must hold the ordinary share on which a dividend is paidfor more than 60 days during the 120-day period beginning 60 days before theex-dividend date, disregarding for this purpose any period during which thenon-corporate holder has an option to sell, is under a contractual obligationto sell or has made (and not closed) a short sale of substantially identicalstock or securities, is the grantor of an option to buy substantially identicalstock or securities or, pursuant to Treasury regulations, has diminished theirrisk of loss by holding one or more other positions with respect tosubstantially 

 

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similar or related property. In addition, to qualifyfor the reduced qualified dividend tax rates, the non-corporate holder must notbe obligated to make related payments with respect to positions insubstantially similar or related property. Payments in lieu of dividends fromshort sales or other similar transactions will not qualify for the reducedqualified dividend tax rates. A non-corporate holder that receives anextraordinary dividend eligible for the reduced qualified dividend rates musttreat any loss on the sale of the stock as a long-term capital loss to the extentof the dividend. For purposes of determining the amount of a non-corporateholder’s deductible investment interest expense, a dividend is treated asinvestment income only if the non-corporate holder elects to treat the dividendas not eligible for the reduced qualified dividend tax rates. Speciallimitations on foreign tax credits with respect to dividends subject to thereduced qualified dividend tax rates apply to reflect the reduced rates of tax.

 

The U.S. Treasury hasannounced its intention to promulgate rules pursuant to whichnon-corporate holders of stock of non-U.S. corporations, and intermediariesthough whom the stock is held, will be permitted to rely on certifications fromissuers to establish that dividends are treated as qualified dividends. Becausethose procedures have not yet been issued, it is not clear whether we will beable to comply with them.

 

Non-corporate holders ofordinary shares are urged to consult their own tax advisers regarding theavailability of the reduced qualified dividend tax rates in the light of theirown particular circumstances.

 

Any Australian withholdingtax 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 applicablelimitations under U.S. federal income tax law. For purposes of computing thoselimitations separately under current law for specific categories of income, adividend generally will constitute foreign source “passive income” or, in thecase of certain holders, “financial services income” for purposes of taxableyears beginning before January 1, 2007. For taxable years beginning after December 31,2006, “passive income” generally will be treated as “passive category income,”and “financial services income” generally will be treated as “general categoryincome.” A U.S. Holder will be denied a foreign tax credit with respect toAustralian income tax withheld from dividends received with respect to theordinary shares to the extent the U.S. Holder has not held the ordinary sharesfor at least 16 days of the 30-day period beginning on the date which is 15days before the ex-dividend date or to the extent the U.S. Holder is under anobligation to make related payments with respect to substantially similar orrelated property. Any days during which a U.S. Holder has substantiallydiminished its risk of loss on the ordinary shares are not counted towardmeeting the 16-day holding period required by the statute. The rules relatingto the determination of the foreign tax credit are complex, and U.S. Holdersare urged to consult with their own tax advisers to determine whether and towhat extent they will be entitled to foreign tax credits as well as withrespect to the determination of the foreign tax credit limitation (includingchanges in the rules for taxable years beginning after December 31,2006). Alternatively, any Australian withholding tax may be taken as adeduction against taxable income, provided the U.S. Holder takes a deductionand not a credit for all foreign income taxes paid or accrued in the sametaxable year. In general, special rules will apply to the calculation offoreign tax credits in respect of dividend income that is subject topreferential rates of U.S. federal income tax.

 

*Non-U.S.Holders.*   A dividend paidto a Non-U.S. Holder on an ordinary share will not be subject to U.S. federalincome tax unless the dividend is effectively connected with the conduct oftrade or business by the non-U.S. Holder within the United States (and isattributable to a permanent 

 

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establishment or fixed base the Non-U.S. Holdermaintains in the United States if an applicable income tax treaty so requiresas a condition for the Non-U.S. Holder to be subject to U.S. taxation on a netincome basis on income from the ordinary share). A Non-U.S. Holder generallywill be subject to tax on an effectively connected dividend in the same manneras a U.S. Holder. A corporate Non-U.S. Holder may also be subject under certaincircumstances to an additional “branch profits tax,” the rate of which may bereduced pursuant to an applicable income tax treaty.

 

***Taxationof Capital Gains***

 

*U.S. Holders.*   Subject to the passive foreign investment company rules discussedbelow, on a sale or other taxable disposition of an ordinary share or warrant,a U.S. Holder will recognize capital gain or loss in an amount equal to thedifference between the U.S. holder’s adjusted basis in the ordinary share orwarrant and the amount realized on the sale or other disposition, eachdetermined in U.S. dollars.  See “Exerciseor Lapse of a Warrant” below for a discussion regarding a U.S. Holder’s basisin an ordinary share acquired pursuant to the exercise of a warrant.

 

Such capital gain or losswill be long-term capital gain or loss if at the time of the sale or othertaxable disposition the ordinary share or warrant has been held for more thanone year. In general, any adjusted net capital gain of an individual for ataxable year beginning before January 1, 2011 is subject to a maximum taxrate of 15%. In subsequent years, the maximum tax rate on the net capital gainof an individual will be 20%. Capital gains recognized by corporate U.S.Holders generally are subject to U.S. federal income tax at the same rate asordinary income. The deductibility of capital losses is subject to variouslimitations.

 

Any gain a U.S. Holderrecognizes generally will be U.S. source income for U.S. foreign tax creditpurposes, and, subject to certain exceptions, any loss will generally be a U.S.source loss. If an Australian tax is withheld on a sale or other disposition ofan ordinary share or warrant, the amount realized will include the gross amountof the proceeds of that sale or disposition before deduction of the Australiantax. The generally applicable limitations under U.S. federal income tax law oncrediting foreign income taxes may preclude a U.S. Holder from obtaining aforeign tax credit for any Australian tax withheld on a sale of an ordinaryshare or warrant. The rules relating to the determination of the foreigntax credit are complex, and U.S. Holders are urged to consult with their owntax advisers regarding the application of such rules. Alternatively, anyAustralian withholding tax may be taken as a deduction against taxable income,provided the U.S. Holder takes a deduction and not a credit for all foreignincome taxes paid or accrued in the same taxable year.

 

*Non-U.S.Holders.*   A Non-U.S.Holder will not be subject to U.S. federal income tax on a gain recognized on asale or other disposition of an ordinary share or warrant unless (i) thegain is effectively connected with the conduct of a trade or business by theNon-U.S. Holder within the United States (and is attributable to a permanentestablishment or fixed base that the Non-U.S. Holder maintains in the UnitedStates if an applicable income tax treaty so requires as a condition for theNon-U.S. Holder to be subject to U.S. taxation on a net income basis on incomefrom the ordinary share or warrant), or (ii) in the case of a Non-U.S.Holder who is an individual, the Non-U.S. Holder is present in the UnitedStates for 183 or more days in the taxable year of the sale or otherdisposition and certain other conditions apply. Any effectively connected gainof a corporate Non-U.S. Holder may also be subject under certain circumstancesto an additional “branch profits tax”, the rate of which may be reducedpursuant to an applicable income tax treaty.

 

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***Exercise orLapse of a Warrant***

 

Subject to the discussion ofthe PFIC rules below, a U.S. Holder generally will not recognize gain orloss upon the exercise of a warrant. Ordinary shares acquired pursuant to theexercise of a warrant for cash generally will have a tax basis equal to theU.S. Holder’s tax basis in the warrant, increased by the amount paid toexercise the warrant. The holding period of such ordinary shares generallywould begin on the day after the date of exercise of the warrant. If the termsof a warrant provide for any adjustment to the number of shares of ordinaryshares for which the warrant may be exercised or to the exercise price of thewarrant, such adjustment may, under certain circumstances, result inconstructive distributions that could be taxable to a U.S. Holder of thewarrant. Conversely, the absence of an appropriate adjustment similarly mayresult in a constructive distribution that could be taxable to a U.S. Holder ofthe warrant. A constructive distribution to a U.S. Holder of a warrantgenerally will be taxed in the manner described above under “U.S. FederalIncome Tax Considerations-Taxation of Distributions,” although it is unclearwhether a constructive distribution on a warrant that is taxed as a dividend toa non-corporate holder of the warrant would be eligible for the reducedqualified dividend tax rates. If a warrant is allowed to lapse unexercised, aU.S. Holder generally will recognize a capital loss equal to such holder’s taxbasis in the warrant. U.S. Holders who exercise a warrant other than by payingthe exercise price in cash are urged to consult their own tax advisorsregarding the tax treatment of such an exercise, which may vary from thatdescribed above.

 

***PassiveForeign Investment Company Rules***

 

A special set of U.S.federal income tax rules applies to a foreign corporation that is a PFICfor U.S. federal income tax purposes. As noted above, based on our audited financialstatements and relevant market and shareholder data, we believe we were a PFICfor U.S. federal income tax purposes for our June 30, 2009 taxable year.Moreover, given that the determination of PFIC status involves the applicationof complex tax rules, and that it is based on the nature of our income andassets from time to time, no assurances can be provided that we will not beconsidered a PFIC for the current (or any past or future) taxable year.

 

In general, a foreigncorporation is a PFIC if at least 75% of its gross income for the taxable yearis passive income or if at least 50% of its assets for the taxable year producepassive 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 royaltiesderived in the active conduct of trade or business), annuities, net gains fromdispositions of certain assets, net foreign currency gains, income equivalentto interest, income from notional principal contracts and payments in lieu ofdividends. The determination of whether a foreign corporation is a PFIC is afactual determination made annually and is therefore subject to change. Subjectto exceptions pursuant to certain elections that generally require the paymentof tax, once stock or a warrant in a foreign corporation is classified as stockin a PFIC in the hands of a particular shareholder that is a U.S. person, itremains stock or a warrant in a PFIC in the hands of that shareholder.

 

Unfavorable tax consequencesfor a U.S. Holder can occur if we are treated as a PFIC for any year while aU.S. Holder owns ordinary shares or warrants. These tax consequences can bemitigated with respect to a U.S. Holder’s ordinary shares (but not a U.S.Holder’s warrants) if the U.S. Holder makes, or has made, a timely qualifiedelecting fund election or election to mark to market the holder’s ordinaryshares, and such election is in effect for the first taxable year during whichthe U.S. 

 

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Holder owns ordinary shares that we are a PFIC. If weare treated as a PFIC, and neither election is made, then contrary to the taxconsequences described in “U.S. Federal Income Tax Considerations-Taxation ofDistributions” and “U.S. Federal Income Tax Considerations-Taxation of CapitalGains” above, in any year in which the U.S. Holder either disposes of anordinary share or a warrant at a gain or receives one or more “excessdistributions” in respect of our ordinary shares, special rules apply tothe taxation of the gain or the excess distributions. For purposes of theserules, a U.S. Holder will be treated as receiving an “excess distribution” tothe extent that actual or constructive distributions received in the currenttaxable year exceed 125% of the average distributions (whether actual orconstructive and whether or not out of earnings and profits) received by suchU.S. Holder in respect of our ordinary shares during the three preceding yearsor, if shorter, the U.S. Holder’s holding period. A disposition of an ordinaryshare or a warrant, for purposes of these rules, includes many transactions onwhich gain or loss is not realized under general U.S. federal income tax rules (butgenerally should not include the exercise of a warrant, as discussed below).The gain or the excess distributions must be allocated ratably to each day the U.S.Holder has held the ordinary share or the warrant, as the case may be. Amountsallocated to each year are taxable as ordinary income in their entirety (andare not eligible for the reduced qualified dividend rates) and not as capitalgain, and amounts allocable to prior years may not be offset by any deductionsor losses. Amounts allocated to each such prior year are taxable at the highestrate in effect for that year and are subject to an interest charge at the ratesapplicable to deficiencies for income tax for those periods. In addition, aU.S. Holder’s tax basis in an ordinary share or a warrant that is acquired froma decedent would not receive a step-up to fair market value as of the date ofthe decedent’s death but instead would be equal to the decedent’s basis, iflower.

 

The special PFIC rules describedabove will not apply to a U.S. Holder’s ordinary shares if the U.S. Holdermakes a timely election, which remains in effect, to treat us as a qualifiedelecting fund, or QEF, for the first taxable year in which the U.S. Holder ownsan ordinary share and in which we are classified as a PFIC, provided that wecomply with certain reporting requirements. Instead, a U.S. Holder that hasmade a QEF election is required for each taxable year to include in income apro rata share of our ordinary earnings as ordinary income and a pro rata shareof its net capital gain as long-term capital gain, subject to a separateelection to defer payment of taxes, which deferral is subject to an interestcharge. In order for such a QEF election to be valid, we must provide U.S.Holders either (1) a statement showing such U.S. Holder’s pro rata shareof our ordinary earnings and net capital gain (calculated for U.S. taxpurposes) for the Company’s taxable year, (2) sufficient information toenable the U.S. Holder to calculate its pro rata share for such year, or (3) astatement that the Company has permitted the U.S. Holder to inspect and copyits permanent books of account, records, and such other documents as may bemaintained by us that are necessary to establish that PFIC ordinary earningsand net capital gain are computed in accordance with U.S. income taxprinciples. We have not yet determined whether, in years in which we areclassified as a PFIC, we will make the computations necessary to supply U.S.Holders with the information needed to report income and gain pursuant to a QEFelection. It is, therefore, possible that U.S. Holders would not be able tomake or retain that election in any year we are a PFIC. The QEF election ismade on a shareholder-by-shareholder basis and can be revoked only with theconsent of the IRS. A U.S. Holder generally makes a QEF election by attaching acompleted IRS Form 8621 (Return by a Shareholder of a Passive ForeignInvestment Company or Qualified Electing Fund), including the informationprovided in a PFIC annual information statement, to a timely filed U.S. federalincome tax return for the tax year to which the election relates. RetroactiveQEF elections may only be made by filing a protective statement with suchreturn or with the consent of the IRS. A U.S. Holder may 

 

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make a separate election to defer the payment of taxeson undistributed income inclusions under the QEF rules, but if deferred, anysuch taxes will be subject to an interest charge.

 

If a U.S. Holder has electedthe application of the QEF rules to the U.S. Holder’s ordinary shares, andthe special tax and interest charge rules described in the secondpreceding paragraph do not apply to such shares (because of a timely QEFelection for the first tax year of the U.S. Holder’s holding period for suchshares, or, as described below, a purge of the PFIC taint pursuant to a specialpurging election), any gain realized on the disposition of an ordinary sharegenerally will be taxable as capital gain and no interest charge will beimposed. As discussed above, U.S. Holders of a QEF are currently taxed on theirpro rata shares of the QEF’s earnings and profits, whether or not distributed.In such case, a subsequent distribution of such earnings and profits that werepreviously included in income generally will not be taxable as a dividend. Thetax basis of a U.S. Holder’s shares in a QEF will be increased by amounts thatare included in income, and decreased by amounts distributed but not taxed asdividends, under the above rules. Similar basis adjustments apply to propertyif by reason of holding such property the U.S. Holder is treated underapplicable attribution rules as owning shares in a QEF.

 

A U.S. Holder may not make aQEF election with respect to a warrant. As a result, if a U.S. Holder sells orotherwise disposes of a warrant (other than upon exercise of a warrant), anygain recognized generally will be subject to the special tax and interestcharge rules applicable to gains and excess distributions, as described inthe third preceding paragraph, if we were classified as a PFIC at any timeduring the period the U.S. Holder held the warrants. If a U.S. Holder thatexercises such warrants properly makes a QEF election with respect to the newlyacquired ordinary shares (or has previously made a QEF election with respect toany ordinary shares already held), the QEF election will apply to the newlyacquired shares, but the adverse tax consequences of the PFIC rules describedin the third preceding paragraph will continue to apply to such shares (whichgenerally will be deemed to have a holding period for the purposes of such PFICrules that includes the period the U.S. Holder held the warrants), unlessthe holder makes a purging election. The purging election creates a deemed saleof such shares at their fair market value. The gain recognized by the purgingelection will be subject to the special tax and interest charge rules describedin the third preceding paragraph. As a result of the purging election, the U.S.Holder will have a new basis and holding period in the ordinary shares acquiredupon the exercise of the warrants for purposes of the PFIC rules.

 

If a QEF election is notmade for the first taxable year in which the U.S. Holder owns an ordinary shareand in which we are a PFIC, certain elections can be made while we continue to satisfythe definition of a PFIC that, combined with a QEF election, can cause the QEFelection to be treated as having been made for that first taxable year. Thoseelections may require the electing shareholder to recognize gain on aconstructive sale or to be taxable on the shareholder’s share of certainundistributed profits of the foreign corporation. If gain or income isrecognized pursuant to one of those elections, the special PFIC rules setforth in the fourth preceding paragraph would apply to that gain or income.Even if a QEF election ceases to apply because in a later taxable year we ceaseto satisfy the tests to be a PFIC, the QEF election will apply again in anysubsequent year in which the Company again satisfies the tests to be a PFIC.Moreover, if a U.S. Holder sells all of the ordinary shares they own and laterreacquires other ordinary shares, any QEF election the U.S. Holder has madethat remains in effect will apply to the ordinary shares acquired later. Theapplicable Treasury regulations provide that the Commissioner of the IRS hasthe discretion to invalidate or terminate a QEF election if the U.S. Holder orwe, or an intermediary, fails to satisfy the requirements for the QEF election.

 

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The special PFIC rules describedin the fifth preceding paragraph will not apply to a U.S. Holder’s ordinaryshares if the U.S. Holder elects to mark the U.S. Holder’s ordinary shares tomarket each year, provided that the ordinary shares are considered “marketablestock” within the meaning of the applicable Treasury regulations. A U.S. Holderthat makes this election will recognize as ordinary income or loss each year anamount equal to the difference, if any, as of the close of the taxable yearbetween the fair market value of the U.S. Holder’s ordinary shares and the U.S.Holder’s adjusted tax basis in the ordinary shares. Losses would be allowedonly to the extent of net mark-to-market gain previously included in income bythe U.S. Holder under the election for prior taxable years, reduced by lossesallowed in prior taxable years. If the mark-to-market election were made, thenthe special PFIC rules set forth in the fifth preceding paragraph wouldnot apply for periods covered by the election. In general, the ordinary shareswill be marketable stock within the meaning of the applicable Treasuryregulations if they are traded, other than in de minimis quantities, on atleast 15 days during each calendar quarter on a “qualified exchange or othermarket” within the meaning of the applicable Treasury regulations and certainother requirements are met. Nasdaq (which should include the Nasdaq CapitalMarket) and the Australian Securities Exchange are each a qualified exchangewithin the meaning of the applicable Treasury regulations. Thus, the ordinaryshares should be “marketable stock” within the meaning of the applicableTreasury regulations. If a U.S. Holder makes a mark-to-market election, butdoes not make that election for the first taxable year in which the U.S. Holderowns an ordinary share and in which the Company is classified as a PFIC, and ifthe U.S. Holder had not made a QEF election for that first such taxable year,the rules set forth in the fifth preceding paragraph will apply to anydistributions on an ordinary share in the year of the mark-to-market election,to any gain recognized on an actual sale of an ordinary share in that year, andto any gain recognized in that year pursuant to the mark-to-market election.The mark-to-market rules generally continue to apply to a U.S. Holder whomakes the mark-to-market election, even in years we do not satisfy the tests tobe a PFIC. A mark-to-market election will not be available with respect to aU.S. Holder’s warrants.

 

A U.S. Holder who ownsordinary shares during a year in which we are classified as a PFIC generallywill remain subject to the rules set forth in the sixth precedingparagraph for all taxable years if the U.S. Holder has not made a QEF electionor a mark-to-market election for the first taxable year in which the U.S.Holder owns an ordinary share and in which we are classified as a PFIC. In thatevent, those rules will apply to any gains on dispositions of ordinaryshares and to any “excess distributions.”  It is, however, possible for aU.S. Holder to avoid this “once a PFIC, always a PFIC” result by electing totreat all of the U.S. Holder’s ordinary shares as sold for their fair marketvalue as of the last day of the last taxable year we satisfy the tests to be aPFIC, provided the statute of limitations has not run for that year. If a gainis recognized on that constructive sale, the rules set forth in the sixthpreceding paragraph would apply to that gain.

 

If we are classified as aPFIC for a taxable year, and, at any time during such taxable year, has anon-U.S. subsidiary that is classified as a PFIC, U.S. Holders generally wouldbe deemed to own a portion of the shares of such lower-tier PFIC, and generallycould incur liability for the deferred tax and interest charge described in theseventh preceding paragraph, if we receive a distribution from, or dispose ofall or part of its interest in, the lower-tier PFIC. We have not yet determinedwhether, if we are classified as a PFIC, we would make the computationsnecessary to supply U.S. Holders with the information needed to make ormaintain a QEF election with respect to the lower-tier PFIC. It is, therefore,possible that U.S. Holders would not be able to make or retain that election inany taxable year that we are classified as a PFIC and has a non-U.S. subsidiarythat is 

 

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also classified as a PFIC. U.S. Holders are urged toconsult their own tax advisors regarding the tax issues raised by lower-tierPFICs.

 

A dividend from a foreigncorporation that otherwise would qualify for reduced qualified dividend ratesdoes not qualify for that rate if the foreign corporation is a PFIC in eitherthe taxable year of the dividend or the preceding taxable year.

 

A U.S. Holder who owns (oris deemed to own) shares in a PFIC during any taxable year, such U.S. Holdermay have to file an IRS Form 8621 (whether or not a QEF or mark-to-marketelection is made).

 

**GIVEN THE COMPLEXITIES OF THE PFICRULES AND THEIR POTENTIALLY ADVERSE TAX CONSEQUENCES, U.S. HOLDERS OF ORDINARYSHARES OR WARRANTS ARE URGED TO CONSULT THEIR TAX ADVISERS ABOUT THE PFICRULES, INCLUDING THE CONSEQUENCES TO THEM OF MAKING A QEF ELECTION OR AMARK-TO-MARKET ELECTION WITH RESPECT TO THE ORDINARY SHARES IN THE EVENT THATTHE COMPANY QUALIFIES AS A PFIC FOR ANY TAXABLE YEAR.**

 

**Information Reporting and BackupWithholding**

 

*U.S.Holders.*   Dividends paidon, and proceeds from the sale or other disposition of, an ordinary share orwarrant generally may be subject to information reporting requirements and maybe subject to backup withholding at the rate of 28% unless a U.S. Holderprovides an accurate taxpayer identification number or otherwise demonstratesthat they are exempt. The amount of any backup withholding collected from apayment to a U.S. Holder will be allowed as a credit against the U.S. Holder’sU.S. federal income tax liability and may entitle the U.S. Holder to a refund,provided that certain required information is submitted to the Internal RevenueService.

 

*Non-U.S.Holders.  *Non-U.S. Holdersgenerally will be exempt from these information reporting requirements andbackup withholding tax but may be required to comply with certain certificationand identification procedures in order to establish their eligibility forexemption.

 

**THE DISCUSSION ABOVE IS NOT INTENDEDTO CONSTITUTE A COMPLETE ANALYSIS OF ALL TAX CONSIDERATIONS APPLICABLE TO ANINVESTMENT IN ORDINARY SHARES OR WARRANTS. HOLDERS AND POTENTIAL HOLDERS AREURGED TO CONSULT THEIR TAX ADVISER(S) CONCERNING THE TAX CONSEQUENCESRELEVANT TO THEM IN THEIR PARTICULAR SITUATION.**

 

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# **ITEM 11.         QUANTITATIVEAND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

#  

The primaryobjective of our investment activities is to preserve principal and, at thesame time, maximize income without significantly increasing risk. At June 30,2009, our cash and cash equivalents consisted primarily of highly liquidinvestments with maturities of three months or less. We believe that theseinvestments do not constitute any material market risk exposure.

 

In fiscal 2009 the majority of our operating expenseswere denominated in Australian dollars, however there were expenses incurred inU.S. dollars in relation to the wind-down of our Phase 3 trial of PI-88 andfunding our U.S. subsidiary Progen Pharmaceuticals, Inc. From time totime, in order to reduce our exposure to foreign currency exchange rate risks,we buy and hold foreign currencies to cover our operating expenses denominatedin those currencies. We also, from time to time, attempt to hedge our currencyexchange risk. At June 30, 2008, we held a foreign currency forwardcontract of $5.0 million in U.S. dollars as we had a large holding of U.S.Dollars at that time.  Following thewind-down of the PATHWAY trial, we have significantly reduced our U.S. dollarholdings and subsequently our exposure to currency exchange risk.

 

The main risks arising from the Group’s financialinstruments are cash flow interest rate risk, foreign currency risk and creditrisk. The Group uses different methods to measure and manage different types ofrisks to which it is exposed. These include monitoring levels of exposure tointerest rate and foreign exchange rates and assessments of market forecastsfor interest rate and foreign exchange. Ageing analyses is undertaken to managecredit risk.

 

The Board reviews and agrees policies for managingeach of these risks which are summarized below.

 

**Credit risk**

 

The Group trades only with recognized, creditworthythird parties. All receivables, including other receivables and intercompanyreceivable, are current (i.e. none are contractually overdue).

 

Receivable balances are monitored on an ongoingbasis with the result that the Group’s exposure to bad debts is notsignificant. All the Group’s material cash balances are with a large nationalAustralian bank and are not exposed to the US banking market risks. There areno significant concentrations of credit risk.

 

**Liquidity risk**

 

The Group’s objective is to maintain a balancebetween continuity of project research utilizing an optimal combination ofequity funding and available credit lines. Prudent liquidity risk managementimplies maintaining sufficient cash and marketable securities. The Group has nofinancial assets/liabilities due after twelve months.

 

The table below reflects all payables andderivative financial instruments as of June 30, 2009 and 2008. Forderivative financial instruments the market value is presented, whereas for theother obligations the respective undiscounted cash flows for the respectiveupcoming fiscal years are presented. Cash flows for financial assets andliabilities without fixed amount or timing are based on the conditions existingat June 30, 2009.

 

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The remaining contractual maturities of the Group’sand parent entity’s financial liabilities are (in AUD thousands):

 
| ** **       | ** ** | **June 30,** | ** ** |
|------------------|------------|-------------------|------------|
| ** **       | ** ** | **2009**          | ** ** | **2008** | ** ** |
| 6 months or less |       | 3,879             |       | 12,043 |   |

 

**Foreign currency risk**

 

During the first half of 2009, the Groupsignificantly reduced its U.S. dollar holdings following the cancellation ofthe PATHWAY Phase 3 trials.

 

At June 30, 2009 and 2008, the Group had thefollowing exposure to US$ currency that is not designated in cash flow hedges(in AUD thousands):

 
| ** **                | ** ** | **June 30,** | ** ** |
|---------------------------|------------|--------------|------------|
| ** **                | ** ** | **2009**     | ** ** | **2008** | ** ** |
| **Financial assets**      |       |         |       |   |   |
| Cash and cash equivalents |       | 4,897        |       | 29,441 |   |
|                      |       | 4,897        |       | 29,441 |   |
| **Financial liabilities** |       |         |       |   |   |
| Trade and other payables  |       | 504          |       | 4,655 |   |
|                      |       | 504          |       | 4,655 |   |
| Net exposure              |       | 4,393        |       | 24,786 |   |

 

At June 30, 2009 and 2008, had the AustralianDollar moved, as illustrated in the table below, with all other variables heldconstant, post tax profit and equity would have been affected as follows (inAUD thousands):

 
| ** **       | ** ** | **Post tax loss  (Higher)/Lower** | ** ** | **Equity  Higher/(Lower)** | ** ** |
|------------------|------------|-----------------------------------|------------|----------------------------|------------|
| ** **       | ** ** | **2009**                          | ** ** | **2008**                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| **Consolidated** |       |                              |       |                       |       |   |   |   |   |
| AUD/USD + 20%    |       | (732                              | )          | (1,180                     | )          | — |   | (3 | ) |
| AUD/USD -15%     |       | 775                               |       | 2,754                      |       | — |   | 6 |   |
|             |       |                              |       |                       |       |   |   |   |   |
| **Parent**       |       |                              |       |                       |       |   |   |   |   |
| AUD/USD +20%     |       | (734                              | )          | (1,171                     | )          | — |   | — |   |
| AUD/USD -15%     |       | 778                               |       | 2,734                      |       | — |   | — |   |

 

The sensitivity is lower in 2009 than 2008 due tosignificant reduction in US Dollar cash and cash equivalents in 2009. Thesensitivity analysis for the foreign currency exposure was determined based onhistorical movements over the past two years.

 

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**Interest rate risk**

 

The Group’s exposure to market interest ratesrelates primarily to the Group’s cash and short-term deposits. These depositsare held to fund the Group’s ongoing and future drug development activities.Refer note 8 on page F-24 for details on the Groups cash and cashequivalents at 30 June 2009.

 

The following sensitivity analysis is based on theweighted average interest rates applicable to the Group’s cash and short-termdeposits in existence at the balance sheet date.

 

At June 30, 2009 and 2008, if interest rateshad moved, as illustrated in the table below, with all other variables heldconstant, post tax loss and equity would have been affected as follows (in AUDthousands):

 
| ** **              | ** ** | **Post tax loss  (Higher)/Lower** | ** ** | **Equity Higher/(Lower)** | ** ** |
|-------------------------|------------|-----------------------------------|------------|---------------------------|------------|
| ** **              | ** ** | **2009**                          | ** ** | **2008**                  | ** ** | **2009** | ** ** | **2008** | ** ** |
|                    |       |                              |       |                      |       |   |   |   |   |
| **Consolidated**        |       |                              |       |                      |       |   |   |   |   |
| + .5% (50 basis points) |       | 421                               |       | 384                       |       | — |   | — |   |
| - 1% (100 basis points) |       | (140                              | )          | (767                      | )          | — |   | — |   |
|                    |       |                              |       |                      |       |   |   |   |   |
| **Parent**              |       |                              |       |                      |       |   |   |   |   |
| + .5% (50 basis points) |       | 409                               |       | 382                       |       | — |   | — |   |
| - 1% (100 basis points) |       | (136                              | )          | (765                      | )          | — |   | — |   |

 

The 2009 sensitivity is based on a significantlylower cash balance due primarily to the $39.4 million off-market share buy-backexecuted in April 2009.  Followingthe significant fall in interest rates during 2009, the potential upside ininterest rates has been increased over the 2008 analysis, thereby increasingsensitivity.  The sensitivity in interestrates were determined based on historical movements over the past two years andmanagement expectations of reasonable movements.

 

# **ITEM 12.         DESCRIPTIONOF SECURITIES OTHER THAN EQUITY SECURITIES**

#  

Not applicable.

 

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**PART II**

 

# **ITEM 13.****                                             ****DEFAULTS, DIVIDEND ARREARAGES ANDDELIQUENCIES**

#  

None.

 

# **ITEM 14.               MATERIALMODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS**

#  

None.

 

# **ITEM 15.****                                             ****CONTROLS AND PROCEDURES**

#  

**Disclosure Controls and Procedures**

 

Management of the Company maintaindisclosure controls and procedures as such term is defined in Rules 13 a -15 (e) and 15 d - 15 (e) under the Securities Exchange Act of 1934(the “Exchange Act”), as amended, that are designed to ensure that informationrequired to be disclosed in the reports that are filed or submitted under theSecurities Exchange Act of 1934 is recorded, processed, summarized and reportedwithin the time periods specified in the rules and forms of the Securitiesand Exchange Commission.  Disclosurecontrols and procedures include, without limitation, controls and proceduresdesigned to ensure that information required to be disclosed in our reportsfiled or submitted under the Securities Exchange Act of 1934 is accumulated andcommunicated to management, including the Chief Executive Officer and theGeneral Manager of Finance, as appropriate, to allow timely decisions regardingrequired disclosure.  Disclosure controlsand procedures, no matter how well designed and operated, can only providereasonable assurance of achieving the desired control objectives.

 

Managementhas carried out an evaluation, under the supervision and with the participationof the Chief Executive Officer and the General Manager of Finance, of theeffectiveness of the disclosure controls and procedures as of June 30,2009.  Based on that evaluation,including the material weaknesses noted below, the Chief Executive Officer andthe General Manager of Finance concluded that the Company’s disclosure controlsand procedures were ineffective as of June 30, 2009.

 

**Management’s Annual Report on Internal Controlover Financial Reporting**

 

Managementof the Company is responsible for establishing and maintaining adequateinternal control over financial reporting for the Company, as defined in Rules 13a-15(f) and15d-15(f) under the Securities Exchange Act of 1934, as amended. TheCompany’s internal control over financial reporting is designed to provide reasonableassurance regarding the reliability of financial reporting and the preparationof financial statements for external purposes in accordance with generallyaccepted accounting principles. A Company’s internal control over financialreporting includes those policies and procedures that (1) pertain to themaintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the Company; (2) providereasonable assurance that transactions are recorded as necessary to permit the

 

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preparationof financial statements in accordance with generally accepted accountingprinciples and that receipts and expenditures of the company are being madeonly in accordance with authorizations of our Board of Directors; and (3) providereasonable assurance regarding prevention or timely detection of unauthorizedacquisition, use or disposition of the Company’s assets that could have amaterial effect on the financial statements.

 

Acontrol system, no matter how well conceived and operated, can provide onlyreasonable, not absolute, assurance that the objectives of the control systemare met. In particular, the design of a control system must be consideredrelative to their costs. Additionally, the design of a control system is basedin part upon certain assumptions about the likelihood of future events, andthere can be no assurance that any design will succeed in achieving its statedobjectives under all potential future conditions. Because of its inherentlimitations, internal control over financial reporting may not prevent ordetect all misstatements to the financial statements. Also, projections of anyevaluation of effectiveness to future periods are subject to the risk thatcontrols may become inadequate because of changes in conditions, or that thedegree of compliance with the policies or procedures may deteriorate.

 

TheCompany’s management has assessed the effectiveness of the Company’s internalcontrol over financial reporting as of June 30, 2009 based on the criteriaestablished in Internal Control-Integrated Framework, issued by the Committeeof Sponsoring Organizations of the Treadway Commission (COSO).

 

Inperforming the assessment as of June 30, 2009, the following MaterialWeaknesses in internal control over financial reporting were identified:

 

·                  *Deficiencies in the financialstatement close process*.    Due to various structuralchanges in the company during fiscal 2009, the finance structure no longerincludes a Chief Financial Officer. Effective controls over the financial statement close process were notmaintained which affected our ability to complete and report our consolidatedfinancial statements without material auditor-identified adjustments.Specifically, audit adjustments were identified after the close process, whichwere not identified by the review and approval controls in place relating tothe settlement of financial instruments, as well as the reversal of expenserelated to the forfeiture of share-based payments.  The absence of a CFO removed an additionalreview layer from the financial reporting process which resulted in a number ofpost-closing adjustments to our books and records.

 

·                  *The Company did not maintain anadequate segregation of duties with respect to internal control over financialreporting*. Due tovarious structural changes in the company during fiscal 2009, the financestructure no longer includes a Chief Financial Officer. Specifically, theCompany did not design or implement controls to ensure that the duties andresponsibilities related to reconciliation of transactions in equity and thecutoff of accruals were performed by individuals who had incompatible roles andresponsibilities or were otherwise not monitored by those in charge ofgovernance.  This control deficiency didnot result in material adjustments to the financial statements, however thereis a reasonable possibility that a material misstatement of the annualfinancial statements would not have been prevented or detected on a timelybasis due to the failure to design and implement appropriate segregation ofduty controls.

 

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Basedupon its assessment, because of the material weaknesses described above,Management has concluded that, as of June 30, 2009, the internal controlover financial reporting is not effective based upon the abovementionedcriteria.

 

ThisAnnual Report does not include an attestation report of the company’sregistered public accounting firm regarding internal control over financialreporting.  Management’s report was notsubject to attestation by the company’s registered public accounting firmpursuant to temporary rules of the Securities and Exchange Commission thatpermit the company to provide only management’s report in this Annual Report.

 

**Changes in Internal Control over FinancialReporting**

 

Except as described above, there have been no othersignificant changes in the Company’s internal control over financial reportingthat have materially affected, or are reasonably likely to materially affectinternal control over financial reporting during the period covered by thisAnnual Report.

 

*Remediationplans*

 

*Deficienciesin the financial statement close process. *We plan tomitigate this deficiency by consulting with and / or hiring outside accountingadvisers with respect to the technical requirements applicable to our financialstatements.  The company plans to addressthe failure to design and put into operation appropriate controls around thefinancial statement close process during the 2010 year by implementing moresensitive oversight and review processes to be performed by the Audit Committeeand Board.

 

*Segregationof duties*.  The Company plans to remediate the identifiedsegregation of duties conflicts by implementing appropriate access controlswithin the payables and cash applications, as well as additional review andoversight responsibilities to individuals who are independent to the processingof transactions for these significant accounts.

 

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# **ITEM 16.****                                             ****[RESERVED]**

#  

# **ITEM 16A.****                                    ****AUDIT COMMITTEE FINANCIAL EXPERT**

#  

TheCompany’s board of directors has determined that audit committee member Mr. S.James is an independent audit committee financial expert as defined under the rules andregulations of the Securities and Exchange Commission.

 

# **ITEM 16B.****                                    ****CODE OF ETHICS**

#  

Wehave adopted a code of ethics that applies to our executive directors and chieffinancial officer. A copy of this Code of Ethics is available on the Company’swebsite at www.progen-pharma.com.

 

Nowaivers to this Code of Ethics were granted to our executive directors or chieffinancial officer during the fiscal year ended June 30, 2009.

 

# **ITEM 16C.****                                    ****PRINCIPAL ACCOUNTANT FEES ANDSERVICES**

#  

The aggregate fees and expenses for professionalservices rendered by our independent registered public accounting firm Ernst &Young, for the audit of our annual financial statements for the years ended June 30,2009 and 2008 and for other listed services rendered in those years are setforth in the following table:

 

| ** **             | ** ** | **2009** | ** **  | **2008**   | ** ** |
|------------------------|------------|----------|-------------|------------|------------|
| Audit Fees             |       | $        | 255,500     |       | $          | 210,500 |   |
| Audit-Related Fees (1) |       | 15,000   |        | 105,000    |       |
| Tax Fees (2)           |       | —   |        | —     |       |
| All Other Fees (3)     |       | —   |        | 40,105     |       |
| **Total Fees**         | ** ** | **$**    | **270,500** | ** ** | **$**      | **355,605** | ** ** |

 

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(1)                                  Audit-related services rendered by ourprincipal accountant were in relation to Sarbanes-Oxley internal control audit.

 

(2)                                  There were no professional servicesrendered by our principal accountant for tax compliance, tax advice or taxplanning.

 

(3)                                  Other professional services rendered byour principal accountant in 2008 were agreed upon procedures related servicesprovided by Ernst & Young Palo Alto, U.S.A, in relation to the Group’sacquisition of CellGate, Inc.

 

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***AuditCommittee Pre-Approval Policies and Procedures***

 

All audit and non-audit services performed by ourindependent auditors must be specifically pre-approved by our audit committee.Consistent with this policy, for the year ended June 30, 2009, all auditand non-audit services initiated by Ernst & Young were pre-approved byour audit committee.

 

# **ITEM 16D.****                                    ****EXEMPTIONS FROM THE LISTINGSTANDARDS FOR AUDIT COMMITTEES**

#  

Not applicable.

 

# **ITEM 16E.****                                      ****PURCHASES OF EQUITY SECURITIES BYTHE ISSUER AND AFFILIATED PURCHASERS**

#  

Not applicable.

 

**ITEM 16G.****                                    ****CORPORATE GOVERNANCE**

 

Progen Pharmaceuticals Limited (the Company) is a duallisted Australian company. Our primary listing is on the Australian SecuritiesExchange (ASX) and our secondary listing is on the US Nasdaq Capital Market(Nasdaq).

 

The Board has the ultimate responsibility for thestrategy and performance of the Company on behalf of the shareholders to whomthey are accountable. The Board are committed to achieving and demonstratingthe highest standard of corporate governance through setting values andpolicies which underlie business activities ensuring transparency andprotecting stakeholders’ interests.

 

In setting these values and policies, the Company hasconsidered the ASX Corporate Governance Council’s Principles andRecommendations (2nd Edition) (ASX Recommendations) and relevant USrequirements arising from our Nasdaq listing and continuously strives todevelop and improve corporate governance processes and standards.

 

Formal written policies and/or disclosure practiceshave been disseminated throughout the organisation and measures are in place toachieve compliance.  Further informationconcerning our corporate governance practices and compliance with the ASXrecommendations is available on the Company’s website.

 

The Company has no significant deviations from therelevant Nasdaq Corporate Governance Requirements contained in the Rule 5600Series.

 

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**PART III**

 

# **ITEM 17.****                                             ****FINANCIAL STATEMENTS**

#  

Not Applicable.

 

# **ITEM 18.****                                             ****FINANCIAL STATEMENTS**

#  

**Financial Statements - Index toFinancial Statements**

 
| Report of Independent Registered Public Accounting  Firm                              | F-1               |
|---------------------------------------------------------------------------------------|-------------------|
| Statements  of Income for the years ended June 30, 2007, 2008 and 2009           | F-2               |
| Balance  Sheets as of June 30, 2008 and 2009                                     | F-3               |
| Statements  of Change in Equity for the years ended June 30, 2007, 2008 and 2009 | F-4               |
| Statements  of Cash Flow for the years ended June 30, 2007, 2008 and 2009        | F-7               |
| Notes to  Financial Statements                                                        | F-8 through F- 48 |

#  

# **ITEM 19.****                                             ****EXHIBITS**

 
| **Exhibit Number** | ** ** | **Description**                                                                                                                                                                                                                                                    |
|-------------------------|------------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                    |       |                                                                                                                                                                                                                                                               |
| 4(a)(1)                 |       | Global  TransBiotech Inc. License agreement with PharmaSynth (1)                                                                                                                                                                                                   |
| 4(a)(2)                 |       | Merger  Implementation Agreement dated as of December 22, 2008 between Avexa  Limited and Progen Pharmaceuticals Limited ^                                                                                                                                    |
| 4(d)                    |       | 2008 Lease 16  Benson Street Toowong ~                                                                                                                                                                                                                             |
| 4(c)(3)                 |       | Progen Pharmaceuticals  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 * |
| 7(a)                    |       | Deeds of Settlement and Release — Section 606 litigation (1)                                                                                                                                                                                             |
| 10(a)                   |       | ASA Termination  Agreement #                                                                                                                                                                                                                                       |
| 12.1                    |       | Certification of  John Chiplin under Rule 13a-14(a) (1)                                                                                                                                                                                                  |
| 12.2                    |       | Certification of  Paul G. E. J. Dixon under Rule 13a-14(a) (1)                                                                                                                                                                                           |
| 13                      |       | Certification of John  Chiplin and Paul G. E. J. Dixon under Section 1350 of Chapter 63 of  Title 18 of the United States Code (1)                                                                                                                            |
| 15.1                    |       | Consent of  Independent Registered Public Accounting Firm (1)                                                                                                                                                                                                      |

 

----

| (1) | Filed herewith.                                                                                                          |
|-----|--------------------------------------------------------------------------------------------------------------------------|
| #   | Incorporated by  reference to exhibits filed with the Annual Report on Form 20-F, filed  on December 18, 2007. |
| ~   | Incorporated by  reference to exhibits filed with the Annual Report on Form 20-F, filed  on January 9, 2009.   |
| ^   | Incorporated by  reference to the exhibit filed on Form 6-K dated December 22, 2008.                           |
| *   | Incorporated by  reference to exhibits filed with the Annual Report on Form 20-F, filed  on December 20, 2004. |

 

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**SIGNATURES**

 

The registrant hereby certifies that it meets all ofthe requirements for filing on Form 20-F and that it has duly caused andauthorized the undersigned to sign this annual report on its behalf.

 
|                                | **PROGEN  PHARMACEUTICALS LIMITED** |
|-------------------------------------|-------------------------------------|
|                                |                                |
|                                | By:                                 | /s/ John Chiplin |
|                                | John Chiplin                        |
|                                | Chief Executive  Officer            |
|                                |                                |
| Dated:  December 22, 2009 |                                |

 

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**Report ofIndependent Registered Public Accounting Firm**

 

**The Board of Directors and Shareholders of ProgenPharmaceuticals Limited**

 

We have audited the accompanying balance sheets of ProgenPharmaceuticals Limited as of June 30, 2009 and 2008, and the relatedstatements of income, stockholders’ equity, and cash flows for each of thethree years in the period ended June 30, 2009. These financial statementsare the responsibility of the Company’s management. Our responsibility is toexpress an opinion on these financial statements based on our audits.

 

We conducted our audits in accordance with the standards of the PublicCompany Accounting Oversight Board (United States). Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. We were not engagedto perform an audit of the Company’s internal control over financial reporting.Our audits included consideration of internal control over financial reportingas a basis for designing audit procedures that are appropriate in thecircumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control over financial reporting.Accordingly, we express no such opinion. An audit also includes examining, on atest basis, evidence supporting the amounts and disclosures in the financialstatements, assessing the accounting principles used and significant estimatesmade by management, and evaluating the overall financial statementpresentation. We believe that our audits provide a reasonable basis for ouropinion.

 

In our opinion, the financial statements referred to above present fairly,in all material respects, the financial position of Progen PharmaceuticalsLimited at June 30, 2009 and 2008, and the results of its operations andits cash flows for each of the three years in the period ended June 30,2009, in conformity with International Financial Reporting Standards as issuedby the International Accounting Standards Board.

 

Ernst & Young

Brisbane, Australia

December 18, 2009

 

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**ProgenPharmaceuticals Limited**

**Income Statement**

**Forthe year ended 30 June 2009**

** **
| ** **                                                             | ** ** | **Note**   | ** ** | **2009**   | ** ** | **2008**   | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------|------------|------------|------------|------------|------------|------------|------------|----------|------------|
| ** **                                                             | ** ** | ** ** | ** ** | **$000**   | ** ** | **$000**   | ** ** | **$000** | ** ** |
| ** **                                                             |       |       |       |       | ** ** | ** ** |       |     |       |
| **REVENUE**                                                            |       | 4 (a)      |       | **4,940**  |       | 6,478      |       | 2,666    |       |
|                                                                   |       |       |       |       |       |       |       |     |       |
| Other income  from ordinary activities                                 |       | 4 (b)      |       | **7,021**  |       | 1,121      |       | 1,113    |       |
|                                                                   |       |       |       |       |       |       |       |     |       |
| Research and  development expenses                                     | ** ** | ** ** |       | **7,049**  |       | 16,145     |       | 6,992    |       |
| Manufacturing  facility expenses                                       | ** ** | ** ** |       | **1,683**  |       | 2,721      |       | 2,373    |       |
| Administrative  and corporate expenses                                 | ** ** | ** ** |       | **8,689**  |       | 10,833     |       | 5,438    |       |
| Finance costs                                                          |       | 4 (c)      |       | **7**      |       | 19         |       | 15       |       |
| Impairment  loss                                                       |       | 10         | ** ** | **—** |       | —     |       | 1,769    |       |
| Other expenses                                                         |       | 4(h),10    | ** ** | **—** |       | 4,029      |       | 9,646    |       |
|                                                                   |       |       |       |       |       |       |       |     |       |
| **LOSS BEFORE INCOME TAX EXPENSE**                                     | ** ** |       |       | **(5,467** | **)**      | (26,148    | )          | (22,454  | )          |
|                                                                   |       |       |       |       |       |       |       |     |       |
| **INCOME TAX EXPENSE**                                                 |       | 5          |       | —     |       | —     |       | —   |       |
|                                                                   |       |       |       |       |       |       |       |     |       |
| **NET LOSS ATTRIBUTABLE TO MEMBERS OF PROGEN PHARMACEUTICALS LIMITED** |       |       |       | **(5,467** | **)**      | (26,148    | )          | (22,454  | )          |
|                                                                   |       |       |       |       |       |       |       |     |       |
| Basic and diluted loss per share (cents per  share)                    |       | 6          |       | (10.0      | )          | (43.3      | )          | (50.2    | )          |
|                                                                   |       |       |       |       |       |       |       |     |       |
| Dividends per  share (cents per share)                                 |       |       | ** ** | **—** |       | —     |       | —   |       |

 

Theabove income statement should be read in conjunction with the accompanyingnotes

 

The functionaland presentation currency of Progen Pharmaceuticals Limited is Australiandollars ($).

 

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**ProgenPharmaceuticals Limited**

**Balance Sheet**

**Asat 30 June 2009**

 
| ** **                        | ** ** | **Note**   | ** ** | **2009**     | ** ** | **2008** | ** ** |
|-----------------------------------|------------|------------|------------|--------------|------------|----------|------------|
| ** **                        | ** ** | ** ** | ** ** | **$000**     | ** ** | **$000** | ** ** |
| **ASSETS**                        |       |       |       |         |       |     |       |
| **Current Assets**                |       |       |       |         |       |     |       |
| Cash and cash  equivalents        |       | 8          | ** ** | **28,045**   |       | 76,748   |       |
| Trade and  other receivables      |       | 9          | ** ** | **294**      |       | 722      |       |
| Prepayments                       | ** ** | ** ** |       | **138**      |       | 187      |       |
| Government  grants                | ** ** | ** ** |       | **—**   |       | 302      |       |
| **Total Current Assets**          | ** ** | ** ** |       | **28,477**   |       | 77,959   |       |
|                              |       |       |       |         |       |     |       |
| **Non-current Assets**            |       |       |       |         |       |     |       |
| Short-term  deposits              | ** ** | ** ** |       | **100**      |       | 98       |       |
| Prepayments                       | ** ** | ** ** |       | **199**      |       | —   |       |
| Plant and  equipment              |       | 11         | ** ** | **881**      |       | 1,170    |       |
| Intangible  assets                |       | 12         | ** ** | **3,005**    |       | 3,364    |       |
| **Total Non-current Assets**      | ** ** | ** ** |       | **4,185**    |       | 4,632    |       |
|                              |       |       |       |         |       |     |       |
| **TOTAL ASSETS**                  | ** ** | ** ** |       | **32,662**   |       | 82,591   |       |
|                              |       |       |       |         |       |     |       |
| **LIABILITIES**                   |       |       |       |         |       |     |       |
| **Current  Liabilities**          |       |       |       |         |       |     |       |
| Trade and  other payables         |       | 14         | ** ** | **1,433**    |       | 6,525    |       |
| Provisions                        |       | 15         | ** ** | **229**      |       | 312      |       |
| Derivative  financial instruments |       | 16         | ** ** | **—**   |       | 249      |       |
| Government  grants                | ** ** | ** ** |       | **—**   |       | 9        |       |
| **Total Current Liabilities**     | ** ** | ** ** |       | **1,662**    |       | 7,095    |       |
|                              |       |       |       |         |       |     |       |
| **Non-current Liabilities**       |       |       |       |         |       |     |       |
| Provisions                        |       | 15         | ** ** | **210**      |       | 237      |       |
| **Total Non-current Liabilities** | ** ** | ** ** |       | **210**      |       | 237      |       |
|                              |       |       |       |         |       |     |       |
| **TOTAL LIABILITIES**             | ** ** | ** ** |       | **1,872**    |       | 7,332    |       |
|                              |       |       |       |         |       |     |       |
| **NET ASSETS**                    | ** ** | ** ** |       | **30,790**   |       | 75,259   |       |
|                              |       |       |       |         |       |     |       |
| **EQUITY**                        |       |       |       |         |       |     |       |
| Contributed  equity               |       | 17         | ** ** | **152,217**  |       | 191,357  |       |
| Reserves                          |       | 18         | ** ** | **3,300**    |       | 3,162    |       |
| Accumulated  losses               |       | 18         | ** ** | **(124,727** | **)**      | (119,260 | )          |
|                              |       |       | ** ** | ** **   | ** ** |     |       |
| **TOTAL EQUITY**                  | ** ** | ** ** |       | **30,790**   |       | 75,259   |       |

 

The above balance sheet should be read in conjunctionwith the accompanying notes

 

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**ProgenPharmaceuticals Limited**

**Statement ofChanges in Equity**

**For the year ended 30 June 2009**

 
| ** **                                                               | ** ** | **Number of  ordinary  shares** | ** ** | **Amount**  | ** ** | **Accumulated  losses** | ** ** | **Reserves** | ** ** | **Total**   | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------|------------|-------------|------------|-------------------------|------------|--------------|------------|-------------|------------|
| ** **                                                               | ** ** | ** **                      | ** ** | **$000**    | ** ** | **$000**                | ** ** | **$000**     | ** ** | **$000**    | ** ** |
|                                                                     |       |                            |       |        |       |                    |       |         |       |        |       |
| **At 1 July 2006**                                                  | ** ** | **40,589,793**                  | ** ** | **88,476**  | ** ** | **(70,658**             | **)**      | **102**      | ** ** | **17,920**  | ** ** |
| Income and expense recognised directly in  equity                        |       | —                          |       | —      |       | —                  |       | —       |       | —      |       |
| Loss of the period                                                       |       | —                          |       | —      |       | (22,454                 | )          | —       |       | (22,454     | )          |
| **Total income/expense for the period**                                  |       | —                          |       | —      | ** ** | **(22,454**             | **)**      | ** **   | ** ** | **(22,454** | **)**      |
| Exercise of options — employee                                      |       | 60,000                          |       | 167         |       | —                  |       | —       |       | 167         |       |
| Exercise of options — consultant                                    |       | 13,498                          |       | 60          |       | —                  |       | —       |       | 60          |       |
| Private Placements                                                       |       | 3,690,037                       |       | 20,000      |       | —                  |       | —       |       | 20,000      |       |
| less transaction costs                                                   |       | —                          |       | (1,208      | )          | —                  |       | —       |       | (1,208      | )          |
| Share purchase plan                                                      |       | 989,156                         |       | 5,362       |       | —                  |       | —       |       | 5,362       |       |
| less transaction costs                                                   |       | —                          |       | (60         | )          | —                  |       | —       |       | (60         | )          |
| US placement                                                             |       | 6,900,000                       |       | 39,591      |       | —                  |       | —       |       | 39,591      |       |
| less transaction costs                                                   |       | —                          |       | (3,108      | )          | —                  |       | —       |       | (3,108      | )          |
| Rights entitlements offer                                                |       | 5,941,343                       |       | 34,101      |       | —                  |       | —       |       | 34,101      |       |
| less transaction costs                                                   |       | —                          |       | (2,502      | )          | —                  |       | —       |       | (2,502      | )          |
| Equity-settled transactions:                                             |       |                            |       |        |       |                    |       |         |       |        |       |
| Ordinary shares issued as part of  termination agreement (refer note 10) |       | 1,232,600                       |       | 8,325       |       | —                  |       | —       |       | 8,325       |       |
| less transaction costs                                                   |       | —                          |       | (10         | )          | —                  |       | —       |       | (10         | )          |
| Options issued as part of termination  agreement (refer note 10)         |       | —                          |       | —      |       | —                  |       | 1,322        |       | 1,322       |       |
| Share-based payments to employees                                        |       | —                          |       | —      |       | —                  |       | 419          |       | 419         |       |
| Share-based payments to consultants                                      |       | —                          |       | —      |       | —                  |       | 52           |       | 52          |       |
| **At 30 June 2007**                                                 | ** ** | **59,416,427**                  | ** ** | **189,194** | ** ** | **(93,112**             | **)**      | **1,895**    | ** ** | **97,977**  | ** ** |

 

Theabove statement of changes in equity should be read in conjunction with theaccompanying notes

 

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**ProgenPharmaceuticals Limited**

**Statement of Changes inEquity**

**For the year ended 30 June 2009**

 
| ** **                                                               | ** ** | **Number of  ordinary  shares** | ** ** | **Amount**  | ** ** | **Accumulated  losses** | ** ** | **Reserves** | ** ** | **Total**   | ** ** |
|--------------------------------------------------------------------------|------------|---------------------------------|------------|-------------|------------|-------------------------|------------|--------------|------------|-------------|------------|
| ** **                                                               | ** ** | ** **                      | ** ** | **$000**    | ** ** | **$000**                | ** ** | **$000**     | ** ** | **$000**    | ** ** |
|                                                                     |       |                            |       |        |       |                    |       |         |       |        |       |
| **At 1 July 2007**                                                  | ** ** | **59,416,427**                  | ** ** | **189,194** | ** ** | **(93,112**             | **)**      | **1,895**    | ** ** | **97,977**  | ** ** |
| Loss of the period                                                       |       | —                          |       | —      |       | (26,148                 | )          | —       |       | (26,148     | )          |
| Foreign currency translation reserve                                     |       | —                          |       | —      |       | —                  |       | (61          | )          | (61         | )          |
| **Total income/expense for the  period**                                 |       | —                          |       | —      | ** ** | **(26,148**             | **)**      | **(61**      | **)**      | **(26,209** | **)**      |
| Transaction costs related to shares  issued prior to 30 June 2007   |       | —                          |       | (265        | )          | —                  |       | —       |       | (265        | )          |
| Ordinary shares issued as part of  acquisition agreement (refer note 20) |       | 604,959                         |       | 1,119       |       | —                  |       | —       |       | 1,119       |       |
| less transaction costs                                                   |       | —                          |       | (5          | )          | —                  |       | —       |       | (5          | )          |
| Ordinary shares issued as part of  acquisition agreement (refer note 20) |       | 201,265                         |       | 372         |       | —                  |       | —       |       | 372         |       |
| less transaction costs                                                   |       | —                          |       | (3          | )          | —                  |       | —       |       | (3          | )          |
| Ordinary shares issued as part of  termination agreement (refer note 10) |       | 171,240                         |       | 947         |       | —                  |       | —       |       | 947         |       |
| less transaction costs                                                   |       | —                          |       | (2          | )          | —                  |       | —       |       | (2          | )          |
| Share-based payments to employees                                        |       | —                          |       | —      |       | —                  |       | 1,328        |       | 1,328       |       |
| **At 30 June 2008**                                                 | ** ** | **60,393,891**                  | ** ** | **191,357** | ** ** | **(119,260**            | **)**      | **3,162**    | ** ** | **75,259**  | ** ** |

 

The above statement of changes in equity should beread in conjunction with the accompanying notes

 

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** **

**Progen Pharmaceuticals Limited****Statementof Changes in EquityFor the year ended 30 June 2009**

 
| ** **                                                        | ** ** | **Number of  ordinary  shares** | ** ** | **Amount**  | ** ** | **Accumulated   losses** | ** ** | **Reserves** | ** ** | **Total**  | ** ** |
|-------------------------------------------------------------------|------------|---------------------------------|------------|-------------|------------|--------------------------|------------|--------------|------------|------------|------------|
| ** **                                                        | ** ** | ** **                      | ** ** | **$000**    | ** ** | **$000**                 | ** ** | **$000**     | ** ** | **$000**   | ** ** |
|                                                              |       |                            |       |        |       |                     |       |         |       |       |       |
| **At 1 July 2008**                                           | ** ** | **60,393,891**                  | ** ** | **191,357** | ** ** | **(119,260**             | **)**      | **3,162**    | ** ** | **75,259** | ** ** |
| Loss of the period                                                |       | —                          |       | —      |       | (5,467                   | )          | —       |       | (5,467     | )          |
| Foreign currency translation reserve                              |       | —                          |       | —      |       | —                   |       | 100          |       | 100        |       |
| **Total income/expense for the  period**                          |       | —                          |       | —      | ** ** | **(5,467**               | **)**      | **100**      | ** ** | **(5,367** | **)**      |
| Ordinary shares issued as part of  Cellgate acquisition agreement |       | 151,240                         |       | 280         |       | —                   |       | —       |       | 280        |       |
| Off market share buy-back                                         |       | (35,836,034                     | )          | (39,420     | )          | —                   |       | —       |       | (39,420    | )          |
| Share-based payments to employees                                 |       | —                          |       | —      |       | —                   |       | 38           |       | 38         |       |
| **At 30 June 2009**                                          | ** ** | **24,709,097**                  | ** ** | **152,217** | ** ** | **(124,727**             | **)**      | **3,300**    | ** ** | **30,790** | ** ** |

 

Theabove statement of changes in equity should be read in conjunction with theaccompanying notes

 

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**ProgenPharmaceuticals Limited**

**Cash Flow Statement**

**Forthe year ended 30 June 2009**

 
| ** **                                         | ** ** | **Note**   | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007**   | ** ** |
|----------------------------------------------------|------------|------------|------------|-------------|------------|----------|------------|------------|------------|
| ** **                                         | ** ** | ** ** | ** ** | **$000**    | ** ** | **$000** | ** ** | **$000**   | ** ** |
| **CASH FLOWS FROM OPERATING ACTIVITIES**           | ** ** | ** ** | ** ** | ** **  |       |     |       |       |       |
| Receipts from  customers                           |       |       | ** ** | **1,767**   |       | 1,629    |       | 179        |       |
| Payments to  suppliers, employees and others       |       |       | ** ** | **(21,814** | **)**      | (23,315  | )          | (11,806    | )          |
| Receipt of  government grants                      |       |       | ** ** | **376**     |       | 973      |       | 1,097      |       |
| Interest  received                                 |       |       | ** ** | **3,833**   |       | 5,109    |       | 1,447      |       |
| Finance costs                                      |       |       | ** ** | **(8**      | **)**      | (19      | )          | (15        | )          |
| NET CASH FLOWS  (USED IN) OPERATING ACTIVITIES     |       | 8          | ** ** | **(15,846** | **)**      | (15,623  | )          | (9,098     | )          |
|                                               |       |       | ** ** | ** **  |       |     |       |       |       |
| **CASH FLOWS FROM INVESTING ACTIVITIES**           | ** ** | ** ** | ** ** | ** **  |       |     | ** ** | ** ** | ** ** |
| Purchase of  property, plant & equipment  |       | 11         | ** ** | **(109**    | **)**      | (381     | )          | (254       | )          |
| Payments for  short-term deposits                  |       |       | ** ** | **1**       |       | —   |       | —     |       |
| Acquisition of  net assets                         |       | 20         | ** ** | **—**  |       | 570      |       | —     |       |
| Costs incurred  on acquisition of net assets       |       | 20         | ** ** | **—**  |       | (1,148   | )          | —     |       |
| Payment from  settlement of derivative             |       |       | ** ** | **259**     |       | —   |       | —     |       |
| NET CASH FLOWS  (USED IN) INVESTING ACTIVITIES     |       |       | ** ** | **151**     |       | (959     | )          | (254       | )          |
|                                               |       |       | ** ** | ** **  |       |     |       |       |       |
| **CASH FLOWS FROM FINANCING ACTIVITIES**           | ** ** | ** ** |       |        |       |     | ** ** | ** ** | ** ** |
| Off-market  share buy-back                         |       |       | ** ** | **(39,420** | **)**      | —   |       | —     |       |
| Exercise of  options                               |       |       | ** ** | **—**  |       | —   |       | 227        |       |
| Share  placement                                   |       |       | ** ** | **—**  |       | —   |       | 99,054     |       |
| Transaction  costs on issue of shares              |       | 17(b)      | ** ** | **—**  |       | (275     | )          | (6,878     | )          |
| Repayment of  loan                                 |       | 20         | ** ** | **—**  |       | (803     | )          | —     |       |
| NET CASH FLOWS  FROM FINANCING ACTIVITIES          |       |       | ** ** | **(39,420** | **)**      | (1,078   | )          | 92,403     |       |
| NET  INCREASE/(DECREASE) IN CASH HELD              |       |       | ** ** | **(55,115** | **)**      | (17,660  | )          | 83,051     |       |
| Net foreign  exchange differences                  |       |       | ** ** | **6,412**   |       | (3,815   | )          | (700       | )          |
| Cash and cash  equivalents at beginning of period  |       |       | ** ** | **76,748**  |       | 98,223   |       | 15,872     |       |
| **CASH AND CASH EQUIVALENTS AT END OF THE PERIOD** |       | 8          | ** ** | **28,045**  |       | 76,748   |       | 98,223     |       |

 

Theabove cash flow statement should be read in conjunction with the accompanyingnotes

 

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**1. CORPORATE INFORMATION**

 

The financial report of Progen Pharmaceuticals Limited (the Group) for theyear ended 30 June 2009 was authorised for issue in accordance with aresolution of the directors on 16 December 2009.

 

ProgenPharmaceuticals Limited (the parent) is a company limited by sharesincorporated in Australia whose shares are publicly traded on the AustralianSecurities Exchange (ASX) and the NASDAQ Capital Market.

 

The nature ofthe operations and principal activities of the Group are described in Note 3.

 

**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

 

**Basis of preparation**

 

The financial report complies with Australian Accounting Standards asissued by the Australian Accounting Standards Boards and InternationalFinancial Reporting Standards (IFRS) as issued by the International AccountingStandards Board.

 

The financial report has been prepared on a historical cost basis.

 

The financial report is presented in Australian dollars and all values arerounded to the nearest thousand dollars ($000) unless otherwise stated underthe option available to the Group under ASIC Class Order 98/100. The Groupis an entity to which the class order applies.

 

**Statement of compliance**

 

The financial report complies with Australian Accounting Standards asissued by the Australian Accounting Standards Boards and InternationalFinancial Reporting Standards (IFRS) as issued by the International AccountingStandards Board.

 

**New accounting standards**

 

AustralianAccounting Standards that have recently been issued or amended but are not yeteffective have not been adopted for the annual reporting period ended 30 June 2009.  The Group’s assessment of the impact of thenew standards and interpretations considered relevant to it is set out below:

 

i.                      AASB 8 (IFRS 8) *Operating Segments* and related consequential amendingstandard AASB 2007-3 *Amendments to AustralianAccounting Standards*

 

AASB 8 (IFRS 8) is applicable to reporting periodscommencing on or after 1 January 2009. AASB 8 (IFRS 8) is a new standard replacing AASB 114 *Segment Reporting*(IAS 14), which adopts a managementapproach to segment reporting. AASB 8 (IFRS 8) is a disclosure standard so willhave no direct impact on the amounts included in the Group’s financialstatements, although it may indirectly impact the level at which goodwill istested for impairment. In addition, the amendments may have an impact on theGroup’s segment disclosure.

 

ii.                   AASB 2008-1 *Amendment toAustralian Accounting Standard — Share-based Payments: Vesting Conditions andCancellations* [AASB 2 (IFRS 2)]

 

The amendment of AASB 2 (IFRS 2) is applicable toreporting periods commencing on or after 1 January 2009.  The amendment to AASB 2 (IFRS 2) requiresinstances where a failure to satisfy a non-vesting condition that is within thecontrol of either the entity or the counterparty to be accounted for as acancellation.

 

iii.                AASB 3 (IFRS 3) *BusinessCombinations* and AASB 127 (IAS 27) *Consolidatedand Separate Financial Statements* and AASB 2008-3 Amendment toAustralian Accounting Standards arising from AASB 3 (IFRS 3) and AASB 127 (IAS27)

 

These amendments are applicable to reporting periodscommencing on or after 1 July 2009. The Group has not yet assessed the impact they may have on futurefinancial reports.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**New accounting standards(cont’d)**

 

iv.                AASB 101 (IAS 1) and related consequentialamending standard AASB 2007-8 *Presentation of FinancialStatements and consequential amendments to other Australian AccountingStandards.*

 

These amendments introduce a statement ofcomprehensive income. Other revisions include impacts on the presentation ofitems in the statement of changes in equity, new presentation requirements forrestatements or reclassifications of items in the financial statements, changesin the presentation requirements for dividends and changes to the titles of thefinancial statements.

 

These amendments are applicable to reporting periodscommencing on or after 1 January 2009. The Group has not yet assessed the impact this may have on future financialreports.

 

v.                   AASB 2008-5, AASB 2008-7, AASB 2009-4, andAASB 2009-7 *Amendments to Australian Accounting Standardsarising from the Annual Improvements Project*and AASB 2008-6 andAASB 2009-5 *Further Amendments to Australian AccountingStandards arising from the Annual improvements Project*(*IASB Standard Improvements to IFRSs issued May 2008 andImprovements to IFRSs issued April 2009).*

 

The improvements project is an annual project thatprovides a mechanism for making non-urgent, but necessary, amendments to IFRSs.The amendments to some Standards result in accounting changes for presentation,recognition or measurement purposes, while other amendments related toterminology and editorial changes are expected to have no or minimal effect onaccounting.

 

AASB 2008-5 is applicable to reporting periodscommencing on or after 1 January 2009 and AASB 2008-6 is applicable toreporting periods commencing on or after 1 July 2009. The Group has notyet assessed the impact these amendments may have on future financial reports.

 

vi.                AASB 2009-2 *Amendmentsto Australian Accounting Standards — Improving Disclosures about FinancialInstruments (IASB Amendments to IFRS 7 issued March 2009)*.

 

The main amendment to AASB 7 requires fair valuemeasurements to be disclosed by the source of inputs, using the followingthree-level hierarchy:

 

·                                level 1 — quoted prices(unadjusted) in active markets for identical assets or liabilities;

·                                level 2 — inputs other thanquoted prices included in level 1 that are observable for the asset orliability, either directly (as prices) or indirectly (derived from prices);

·                                level 3 — inputs for the assetor liability that are not based on observable market data (unobservableinputs).

 

AASB 2009-2 is applicable to reporting periodscommencing on or after 1 January 2009. The Group has determined that theirassets and liabilities at fair value (financial instruments) are in the level 1hierarchy.

 

vii.             IFRS 9 *Financial Instruments*

 

On 12 November 2009, the International AccountingStandards Board published the first phase of IFRS 9*FinancialInstruments*, the accounting standard that will eventually replaceIAS 39*Financial Instruments: Recognition and Measurement*and is applicable to annual reporting periods beginningon or after 1 January 2013. The Standard introduces a number ofsignificant changes in the classification and measurement of financial assets.It requires that at initial recognition, all financial assets are measured atfair value (plus transaction costs for those items measured at amortised cost).For subsequent measurement of debt instruments, the financial assets areclassified as amortised cost or fair value on the basis of both the entity’sbusiness model for managing the financial assets and the contractual cash flowcharacteristics of the financial assets. Debt instruments may be subsequently measuredat amortised cost if the asset is held within a business model whose objectiveis to hold the assets to collect the contractual cash flows and the contractualterms of the financial asset give rise, on specified dates, to cash flows thatare solely payments of principal and interest on the principal amount.

 

The Standard also requires that all financial assetsthat are equity investments be measured at fair value either through OtherComprehensive Income (OCI) or profit and loss. This is an irrevocable choicethe entity makes by instrument unless the equity investments are held fortrading, in which case they must be measured at fair value through profit andloss. The Group has not yet determined the extent of the impact of thisStandard, if any.

 

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**Basisof consolidation**

 

Thefinancial statements comprise the financial statements of ProgenPharmaceuticals Limited and its subsidiaries for each year (the Group).

 

Subsidiariesare all those entities over which the Group has the power to govern thefinancial and operating policies so as to obtain benefits from theiractivities. The existence and effect of potential voting rights that arecurrently exercisable are considered when assessing whether a group controlsanother entity.

 

Inpreparing the financial statements, all intercompany balances and transactions,income and expenses and profit and losses resulting from intra-grouptransactions have been eliminated in full.

 

Subsidiariesare fully consolidated from the date on which control is obtained by the Groupand cease to be consolidated from the date on which control is transferred outof the Group.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Basisof consolidation (cont’d)**

 

Investmentsin subsidiaries held by Progen Pharmaceuticals Limited are accounted for atcost in the separate financial statements of the parent entity.

 

Theacquisition of subsidiaries is accounted for using the purchase method ofaccounting. The purchase method of accounting involves allocating the cost ofthe business combination to the fair value of the assets acquired and theliabilities and contingent liabilities assumed at the date of acquisition.

 

**Businesscombinations and asset acquisitions — refer note 20**

 

Thepurchase method of accounting is used to account for all business combinationsregardless of whether equity instruments or other assets are acquired. Cost ismeasured as the fair value of the assets given, shares issued or liabilitiesincurred or assumed at the date of exchange plus costs directly attributable tothe combination. Where equity instruments are issued in a business combination,the fair value of the instruments is their published market price as at thedate of exchange. Transaction costs arising on the issue of equity instrumentsare recognised directly in equity.

 

Allidentifiable assets acquired and liabilities and contingent liabilities assumedin a business combination are measured initially at their fair values at theacquisition date. The excess of the cost of the business combination over thenet fair value of the Group’s share of the identifiable net assets acquired isrecognised as goodwill. If the cost of acquisition is less than the Group’sshare of the net fair value of the identifiable net assets of the subsidiary,the difference is recognised as a gain in the income statement, but only aftera reassessment of the identification and measurement of the net assetsacquired.

 

Acquisitionsof entities that do not meet the definition of a business contained in AASB 3 *Business Combinations*(IFRS 3) are not accounted for asbusiness combinations. In such cases the Group identifies and recognises theindividual identifiable assets acquired (including those assets that meet thedefinition of, and recognition criteria for, intangible assets in AASB 138 *Intangible Assets*(IAS 38)) and liabilities assumed. Thecost of the group of net assets is then allocated to the individualidentifiable assets and liabilities on the basis of their relative fair valuesat the date of purchase. Such a transaction or event does not give rise togoodwill.

 

**Significant accountingjudgements, estimates and assumptions**

 

The carryingamounts of certain assets and liabilities are often determined based onestimates and assumptions of future events. The key estimates and assumptionsthat have a significant risk of causing a material adjustment to the carryingamounts of certain assets and liabilities within the next annual reportingperiod are:

 

*(i) Sharebased payments*

 

The costs of equity-settledtransactions are measured by reference to the fair value of the equityinstruments at the date at which they are granted. The fair value of rightsover shares is determined using a binomial model, further details of which aregiven in note 13.  The accountingestimates and assumptions relating to equity-settled share-based payments wouldhave no impact on the carrying amounts of assets and liabilities within thenext annual reporting period but may impact expenses and equity.

 

*(ii) Impairmentof intangibles with definite useful lives (patents)*

 

The Group assesses impairment of intangibles with definite useful livesat each reporting date by evaluating conditions specific to the Group and tothe particular intangibles that may lead to impairment.  If an impairment trigger exists, therecoverable amount of the asset is determined. The Group engaged a third party valuation expert to prepare anindependent valuation report, which valued the intangible assets using a ‘valuein use calculation’, which incorporated a number of key estimates andassumptions.

 

**Revenue recognition —refer note 4**

 

Revenue isrecognised to the extent that it is probable that the economic benefits willflow to the Group and the revenue can be reliably measured. The followingspecific recognition criteria must also be met before revenue is recognised:

 

*(i) Renderingof services*

 

Revenue fromthe provision of contract manufacturing services is recognised by reference tothe stage of completion. Stage of completion is measured by reference to theoutcome achieved to date as a percentage of the total outcome required for eachcontract.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

*ii) Interest income*

 

Revenue isrecognised as interest accrues using the effective interest method. This is amethod of calculating the amortised cost of a financial asset and allocatingthe interest income over the relevant period using the effective interest rate,which is the rate that exactly discounts estimated future cash receipts throughthe expected life of the financial asset to the net carrying amount of thefinancial asset.

 

**Government grants — refernote 4 and 23**

 

Governmentgrants are recognised as revenue when there is reasonable assurance that thegrant will be received and all attaching conditions will be complied with. Whengrants are received prior to being earned, they are recognised as a liabilityin the balance sheet.

 

When the grantrelates to an expense item, it is recognised as income over the periodsnecessary to match the grant on a systematic basis to the costs that it isintended to compensate.

 

When the grantrelates to an asset, the fair value is credited to a deferred income accountand is released to the income statement over the expected useful life of therelevant asset by equal annual instalments.

 

**Borrowing costs — refernote 4**

 

Borrowingcosts are recognised as an expense when incurred.

 

**Leases — refer note 21**

 

Thedetermination of whether an arrangement is or contains a lease is based on thesubstance of the arrangement and requires an assessment of whether thefulfilment of the arrangement is dependent on the use of a specific asset orassets and the arrangement conveys a right to use the asset.

 

Operatinglease payments are recognised as an expense in the income statement on astraight-line basis over the lease term. Lease incentives are recognised in theincome statement as an integral part of the total lease expense. There are nofinance leases.

 

**Cash and cash equivalents —refer note 8**

 

Cash andshort-term deposits in the balance sheet comprise cash at bank and in hand andshort term deposits with an original maturity of three months or less.

 

For thepurposes of the Cash Flow Statement, cash and cash equivalents consist of cashand cash equivalents as defined above.

 

**Restricted short-termdeposits**

 

As at 30 June 2009restricted term deposits totalling $100,000 (2008: $98,000) were held underbank guarantees relating to the Group’s leased premises.

 

**Trade and otherreceivables — refer note 9**

 

Tradereceivables, which generally have 30-90 day terms, are recognised and carriedat original invoice amount less an allowance for any uncollectible amounts.

 

An allowancefor doubtful debts is made when there is objective evidence that the Group willnot be able to collect the debts. Bad debts are written off when identified.

 

Intercompanyreceivables that are not expected to be recovered are fully provided for.

 

**Derivative financialinstruments — refer note 16**

 

The Group usesderivative financial instruments (forward currency contract) to manage therisks associated with foreign currency fluctuation. Such derivative financialinstruments are initially recognised at fair value on the date on which aderivative contract is entered into and are subsequently remeasured to fairvalue using current forward exchange rates for contracts with similar maturityprofiles.

 

Derivatives arecarried as assets when their fair value is positive and as liabilities whentheir fair value is negative.

 

Any gains orlosses arising from the changes in the fair value of derivatives are takendirectly to profit or loss for the year.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Investment and otherfinancial assets**

 

Investmentsand financial assets in the scope of AASB 139 (IAS 39) *Financialinstruments: Recognition and Measurement* and AASB 7 *Financial instruments: Disclosure* are categorised as eitherfinancial assets at fair value through profit or loss, loans and receivables,held-to-maturity investments, or available-for-sale financial assets. Theclassification depends on the purpose for which the investments were acquired.Designation is re-evaluated at each financial year end, but there arerestrictions on reclassifying to other categories.

 

When financialassets are recognised initially, they are measured at fair value, plus, in thecase of assets not at fair value through profit or loss, directly attributabletransaction costs. The only financial assets are receivables, which aresubsequently measured at amortised cost, and derivatives, which aresubsequently measured at fair value through profit or loss.

 

*Recognition andDerecognition*

 

All regularway purchases and sales of financial assets are recognised on the trade datei.e. the date that the Group commits to purchase the asset. Regular waypurchases or sales are purchases or sales of financial assets under contractsthat require delivery of the assets within the period established generally byregulation or convention in the market place. Financial assets are derecognisedwhen the right to receive cash flows from the financial assets have expired orbeen transferred.

 

**Foreign currencytranslation**

 

*(i) Functional andpresentation currency*

 

The functionaland presentation currency of Progen Pharmaceuticals Limited is Australiandollars ($). The United States subsidiaries’ functional currency is UnitedStates dollars which is translated to presentation currency (see below).

 

*(ii) Transactions &balances*

 

Transactionsin foreign currencies are initially recorded in the functional currency byapplying the exchange rates ruling at the date of the transaction. Monetaryassets and liabilities denominated in foreign currencies are retranslated atthe rate of exchange ruling at the balance sheet date.

 

Non-monetaryitems that are measured in terms of historical cost in a foreign currency aretranslated using the exchange rate as at the date of the initial transaction.Non-monetary items measured at fair value in a foreign currency are translatedusing the exchange rates at the date when the fair value was determined.

 

*(iii) Translation ofGroup Companies functional currency to presentation currency*

 

The results ofthe United States subsidiary are translated into Australian dollars as at thedate of each transaction. Assets and liabilities are translated at exchangerates prevailing at balance date.

 

Exchangevariations resulting from the translation are recognised in the foreigncurrency translation reserve in equity.

 

**Income tax — refer note 5**

 

Current taxassets and liabilities for the current and prior periods are measured at theamount expected to be recovered from or paid to the taxation authorities. Thetax rates and tax laws used to compute the amount are those that are enacted orsubstantively enacted by the balance sheet date.

 

Deferredincome tax is provided on all temporary differences at the balance sheet datebetween the tax bases of assets and liabilities and their carrying amounts forfinancial reporting purposes.

 

Deferredincome tax liabilities are recognised for all taxable temporary differencesexcept:

 

·                  when the deferred income tax liabilityarises from the initial recognition of goodwill or an asset or liability in atransaction that is not a business combination and that, at the time of thetransaction, affects neither the accounting profit or loss nor taxable profitor loss; or

·                  when the taxable temporary difference isassociated with investments in subsidiaries, and the timing or the reversal ofthe temporary difference can be controlled and it is probably that thetemporary difference will not reverse in the foreseeable future.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Income tax — refer note 5(cont’d)**

 

Deferredincome tax assets are recognised for all deductible temporary differences,carry-forward of unused tax assets and unused tax losses, to the extent that itis probable that taxable profit will be available against which the deductibletemporary differences and the carry-forward of unused tax credits and unusedtax losses can be utilised, except:

 

·                  when the deferred income tax asset relatingto the deductible temporary difference arises from the initial recognition ofan asset or liability in a transaction that is not a business combination and,at the time of the transaction, affects neither the accounting profit nortaxable profit or loss; or

·                  when the deductible temporary difference isassociated with investments in subsidiaries, in which case a deferred tax assetis only recognised to the extent that it is probable that the temporarydifference will reverse in the foreseeable future and taxable profit will beavailable against which the temporary difference can be utilised.

 

The carryingamount of deferred income tax assets is reviewed at each balance sheet date andreduced to the extent that it is no longer probable that sufficient taxableprofit will be available to allow all or part of the deferred income tax assetto be utilised.

 

Unrecogniseddeferred income tax assets are reassessed at each balance sheet date and arerecognised to the extent that it has become probable that future taxable profitwill allow the deferred tax asset to be recovered.

 

Deferredincome tax assets and liabilities are measured at the tax rates that areexpected to apply to the year when the asset is realised or the liability issettled, based on tax rates (and tax laws) that have been enacted orsubstantively enacted at the balance sheet date.

 

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

 

**Other taxes**

 

Revenues,expenses and assets are recognised net of the amount of GST except:

 

·                  when the GST incurred on a purchase ofgoods and services is not recoverable from the taxation authority, in whichcase the GST is recognised as part of the cost of acquisition of the asset oras part of the expense item as applicable; and

·                  receivables and payables, which are statedwith the amount of GST included.

 

The net amountof GST recoverable from, or payable to, the taxation authority is included aspart of receivables or payables in the balance sheet.

 

Cash flows areincluded in the Cash Flow Statement on a gross basis and the GST component ofcash flows arising from investing and financing activities, which isrecoverable from, or payable to, the taxation authority are classified asoperating cash flows.

 

Commitmentsand contingencies are disclosed net of the amount of GST recoverable from, orpayable to, the taxation authority.

 

**Plant and equipment —refer note 11**

 

Plant andequipment is stated at cost less accumulated depreciation and any accumulatedimpairment losses.

 

Depreciationis calculated on a straight-line basis over the estimated useful life of theassets as follows:

 
| Plant and  equipment            |   | 5 to 10  years |
|---------------------------------|--------|----------------|
| Office  furniture and equipment |   | 3 to 10  years |
| Leasehold  improvements         |   | 3 to 6 years   |

 

The assets’residual values, useful lives and amortisation methods are reviewed, andadjusted if appropriate, at each financial year end.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Plant and equipment —refer note 11 (cont’d)**

 

*(i) Impairment*

 

The carryingvalues of plant and equipment are reviewed for impairment at each reportingdate, with recoverable amount being estimated when events or changes incircumstances indicate that the carrying value may be impaired.

 

Therecoverable amount of plant and equipment is the higher of fair value lesscosts to sell and value in use. In assessing value in use, the estimated futurecash flows are discounted to their present value using a pre-tax discount ratethat reflects current market assessments of the time value of money and therisks specific to the asset.

 

For an assetthat does not generate largely independent cash inflows, recoverable amount isdetermined for the cash-generating unit to which the asset belongs, unless theasset’s value in use can be estimated to be close to its fair value.

 

An impairmentexists when the carrying value of an asset or cash-generating units exceeds itsestimated recoverable amount. The asset or cash-generating unit is then writtendown to its recoverable amount.

 

*(ii) Derecognitionand disposal*

 

An item ofproperty, plant and equipment is derecognised upon disposal or when no furtherfuture economic benefits are expected from its use or disposal.

 

Any gain orloss arising on derecognition of the asset (calculated as the differencebetween the net disposal proceeds and the carrying amount of the asset) isincluded in profit or loss in the year the asset is derecognised.

 

**Intangible assets — refernote 12**

 

Intangibleassets acquired separately or in a business combinations are initially measuredat cost. The cost of an intangible asset acquired in a business combination oras an asset acquisition is its fair value as at the date of acquisition.Following initial recognition, intangible assets are carried at cost less anyaccumulated amortisation and any accumulated impairment losses. Internallygenerated intangible assets, excluding capitalised development costs, are notcapitalised and expenditure is recognised in profit or loss in the year inwhich the expenditure is incurred.

 

The usefullives of intangible assets are assessed to be either finite or indefinite.Intangible assets with finite lives are amortised over the useful life andtested for impairment whenever there is an indication that the intangible assetmay be impaired. The amortisation period and the amortisation method for anintangible assets with a finite useful life is reviewed at least each financialyear-end. Changes in the expected useful life of the expected pattern ofconsumption of future economic benefits embodied in the asset are accounted forprospectively by changing the amortisation period or method, as appropriate,which is a change in accounting estimate. The amortisation expense onintangible assets with finite lives is recognised in profit or loss in theexpense category consistent with the function of the intangible asset.

 

Asummary of the policy applies to the Group’s intangible assets is as follows:

** **
| **Intellectual Property Rights**                                                                                |
|-----------------------------------------------------------------------------------------------------------------|
| *Useful life*                                                                                                   |
| Finite                                                                                                          |
| *Amortisation method used*                                                                                      |
| Amortised over the period of expected  future benefit from the related project on a straight line basis         |
| *Internally generated or acquired*                                                                              |
| Acquired                                                                                                        |
| *Impairment testing*                                                                                            |
| Conducted when an impairment indicator  arises. The amortisation method is reviewed at each financial year-end. |

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Trade and other payables —refer note 14**

 

Trade payablesand other payables are carried at amortised costs and their fair valueapproximates their carrying value due to their short term nature. Theyrepresent liabilities for goods and services provided to the Group prior to theend of the financial year that are unpaid and arise when the Group becomesobliged to make future payments in respect of the purchase of these goods andservices.

 

**Provisions — refer note 15**

 

Provisions arerecognised when the Group has a present obligation (legal or constructive) as aresult of a past event, it is probable that an outflow of resources embodyingeconomic benefits will be required to settle the obligation and a reliableestimate can be made of the amount of the obligation.

 

When the Groupexpects some or all of a provision to be reimbursed, for example under aninsurance contract, the reimbursement is recognised as a separate asset butonly when the reimbursement is virtually certain. The expense relating to anyprovision is presented in the income statement net of any reimbursement.

 

If the effectof the time value of money is material, provisions are discounted using acurrent pre-tax rate that reflects the risks specific to the liability.

 

Whendiscounting is used, the increase in the provision due to the passage of timeis recognised as a borrowing cost.

 

**Make good provision**

 

Provision ismade for the anticipated costs of future restoration of our leasedmanufacturing and corporate premises. The provision includes future cost estimates associated with therestoration of these premises to their original condition at the end of thelease term.  These future cost estimatesare discounted to their present value.

 

**Employee leave benefits**

 

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

 

Liabilitiesfor wages and salaries, including non-monetary benefits expected to be settledwithin 12 months of the reporting date are recognised in other payables inrespect of employees’ services up to the reporting date. Annual leave accruedand expected to be settled within 12 months of the reporting date is recognisedin current provisions. They are measured at the amounts expected to be paidwhen the liabilities are settled. Liabilities for non accumulating sick leaveare recognised when the leave is taken and are measured at the rates paid orpayable.

 

*(ii) Long serviceleave*

 

The liabilityfor long service leave is recognised in the provision for employee benefits andmeasured as the present value of expected future payments to be made in respectof services provided by employees up to the reporting date using the projectedunit credit method. Consideration is given to expected future wage and salarylevels, experience of employee departures, and periods of service. Expectedfuture payments are discounted using market yields at the reporting date onnational government bonds with terms to maturity and currencies that match, asclosely as possible, the estimated future cash outflows.

 

**Share-based paymenttransactions — refer note 13**

 

*(i) Equity-settledtransactions:*

 

The Groupprovides benefits to employees (including senior executives) and consultants ofthe Group in the form of share-based payments, whereby employees and consultantsrender services in exchange for shares or rights over shares (equity-settledtransactions).

 

The cost ofthese equity-settled transactions are measured by reference to the fair valueof the equity instruments at the date at which they are granted. The fair valueof rights over shares is determined using a binomial model, further details ofwhich are given in note 13. The fair value of shares is determined by themarket value of the Group’s shares at grant date.

 

In valuingequity-settled transactions, no account is taken of any performance conditions,other than conditions linked to the price of the shares of the Group (marketconditions) if applicable.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Share-based paymenttransactions — refer note 13 (cont’d)**

 

The cost ofequity-settled transactions is recognised, together with a corresponding increasein equity, over the period in which the performance and/or service conditionsare fulfilled, ending on the date on which the relevant employees become fullyentitled to the award (the vesting period).

 

The cumulativeexpense recognised for equity-settled transactions at each reporting date untilvesting date reflects

 

(i) theextent to which the vesting period has expired; and

(ii) theGroup’s best estimate of the number of equity instruments that will ultimatelyvest.

 

No adjustmentis made for the likelihood of market performance conditions being met as theeffect of these conditions is included in the determination of fair value atgrant date. The income statement charge or credit for a period represents themovement in cumulative expense recognised as at the beginning and end of thatperiod.

 

No expense isrecognised for awards that do not ultimately vest, except for awards wherevesting is only conditional upon a market condition.

 

If the termsof an equity-settled award are modified, as a minimum an expense is recognisedas if the terms had not been modified. In addition, an expense is recognisedfor any modification that increases the total fair value of the share-basedpayment arrangement, or is otherwise beneficial to the employee, as measured atthe date of modification.

 

If anequity-settled award is cancelled, it is treated as if it had vested on thedate of cancellation, and any expense not yet recognised for the award isrecognised immediately. However, if a new award is substituted for thecancelled award and designated as a replacement award on the date that it isgranted, the cancelled and new award are treated as if they were a modificationof the original award, as described in the previous paragraph.

 

The dilutiveeffect, if any, of outstanding options is reflected as additional sharedilution in the computation of earnings per share.

 

**Contributed equity — refernote 17**

 

Ordinaryshares are classified as equity. Incremental costs directly attributable to theissue of new shares or options are shown in equity as a deduction, net of tax,from the proceeds.

 

**Earnings per share — refernote 6**

 

Basic earningsper share is calculated as net profit attributable to members of the Group,adjusted to exclude any costs of servicing equity, divided by the weightedaverage number of ordinary shares, adjusted for any bonus element.

 

Dilutedearnings per share is calculated as net profit attributable to members of theGroup, adjusted for:

 

·                  costs of servicing equity;

·                  the after tax effect of dividends andinterest associated with dilutive potential ordinary shares that have beenrecognised as expenses; and

·                  other non-discretionary changes in revenuesor expenses during the period that would result from the dilution of potentialordinary shares divided by the weighted average number of ordinary shares anddilutive potential ordinary shares, adjusted for any bonus element.

 

**Segment reporting — refernote 3**

 

A businesssegment is a distinguishable component of the entity that is engaged inproviding products or services that are subject to risks and returns that aredifferent to those of other operating business segments.

 

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**2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES(cont’d)**

 

**Research and developmentcosts**

Research costsare expensed as incurred. An intangible asset arising from developmentexpenditure on an internal project is recognised only when the Group candemonstrate the technical feasibility of completing the intangible asset sothat it will be available for use or sale, its intention to complete and itsability to use or sell the asset, how the asset will generate future economicbenefits, the availability or resources to complete the development and theability to measure reliably the expenditure attributable to the intangibleasset during its development. Following the initial recognition of thedevelopment expenditure, the cost model is applied requiring the asset to becarried at cost less any accumulated amortisation and accumulated impairmentlosses. Any expenditure so capitalised is amortised over the period of expectedbenefit from the related project. There are no capitalised development costs.

 

**3. SEGMENT INFORMATION**

 

TheGroup operates predominantly in the biotechnology industry.  The Group’s primary segment reporting formatis business segments as the Group’s risks and rates of return are affectedpredominantly by differences in the products and services produced. The Group’sactivities comprise the research, development, and manufacture ofbiopharmaceuticals.

 

*Businesssegments*

The operatingbusinesses are organised and managed separately according to the nature of theproducts and services provided, with each segment representing a strategicbusiness unit that offers different products and serves different markets.There are no intersegment transactions.

 

On 2 July 2008the Company spun-out its manufacturing business as a wholly owned subsidiarycompany, PharmaSynth Pty Ltd.

 

*Geographical Segments*

Geographical segments are determined based on the location of the Group’sresearch and development operations.  TheGroup operates research and development segments in both Australia and the USA.

 
| **Business segments**                    | ** ** | **Research &  Development** | ** ** | **Manufacturing** | ** ** | **Total**  | ** ** |
|------------------------------------------|------------|--------------------------------------|------------|-------------------|------------|------------|------------|
| ** **                               | ** ** | **$000**                             | ** ** | **$000**          | ** ** | **$000**   | ** ** |
| **2009**                                 |       |                                 |       |              |       |       |       |
| **Operating revenue**                    |       |                                 |       |              |       |       |       |
| Sales to external customers              |       | —                               |       | 1,724             |       | 1,724      |       |
| Total segment revenue                    |       | —                               |       | 1,724             |       | 1,724      |       |
|                                     |       |                                 |       |              |       |       |       |
| Unallocated revenue                      |       |                                 |       |              |       | 3,216      |       |
| Total revenue                            |       |                                 |       |              |       | 4,940      |       |
| ** **                               |       |                                 |       |              |       |       |       |
| **Segment result**                       |       | (6,966                               | )          | 41                |       | (6,925     | )          |
|                                     |       |                                 |       |              |       |       |       |
| Unallocated revenues & expenses |       |                                 |       |              |       | 1,458      |       |
| **Operating loss**                       |       |                                 |       |              |       | (5,467     | )          |
| ** **                               |       |                                 |       |              |       |       |       |
| **2009**                                 | ** ** | ** **                           | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Assets**                               |       |                                 |       |              |       |       |       |
| Segment assets                           |       | 3,273                                |       | 498               |       | 3,771      |       |
| Unallocated assets                       |       |                                 |       |              |       | 28,891     |       |
| Total assets                             |       |                                 |       |              |       | 32,662     |       |
|                                     |       |                                 |       |              |       |       |       |
| **Liabilities**                          |       |                                 |       |              |       |       |       |
| Segment liabilities                      |       | 870                                  |       | 142               |       | 1,012      |       |
| Unallocated liabilities                  |       |                                 |       |              |       | 860        |       |
| Total liabilities                        |       |                                 |       |              |       | 1,872      |       |

 

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**3.SEGMENT INFORMATION (cont’d)**

 
| ** **                                                                                     | ** ** | **Research & Development** | ** ** | **Manufacturing** | ** ** | **Total** | ** ** |
|------------------------------------------------------------------------------------------------|------------|-------------------------------------|------------|-------------------|------------|-----------|------------|
| ** **                                                                                     | ** ** | **$000**                            | ** ** | **$000**          | ** ** | **$000**  | ** ** |
| **Other segment information**                                                                  |       |                                |       |              |       |      |       |
| Acquisition of property, plant &  equipment, and other non-current assets             |       | 6                                   |       | 98                |       | 104       |       |
| Unallocated acquisition of property,  plant & equipment, and other non-current assets |       |                                |       |              |       | 5         |       |
| Depreciation                                                                                   |       | 440                                 |       | 240               |       | 680       |       |
| Unallocated depreciation and amortisation                                                      |       |                                |       |              |       | 80        |       |

 
| **Business segments**                                                                          | ** ** | **Research &  Development** | ** ** | **Manufacturing** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------|------------|------------|------------|
| ** **                                                                                     | ** ** | **$000**                             | ** ** | **$000**          | ** ** | **$000**   | ** ** |
| **2008**                                                                                       |       |                                 |       |              |       |       |       |
| **Operating revenue**                                                                          |       |                                 |       |              |       |       |       |
| Sales to external customers                                                                    |       | —                               |       | 1,086             |       | 1,086      |       |
| Total segment revenue                                                                          |       | —                               |       | 1,086             |       | 1,086      |       |
|                                                                                           |       |                                 |       |              |       |       |       |
| Unallocated revenue                                                                            |       |                                 |       |              |       | 5,392      |       |
| Total revenue                                                                                  |       |                                 |       |              |       | 6,478      |       |
| ** **                                                                                     |       |                                 |       |              |       |       |       |
| **Segment result**                                                                             |       | (14,828                              | )          | (1,635            | )          | (16,463    | )          |
|                                                                                           |       |                                 |       |              |       |       |       |
| Unallocated revenues & expenses                                                       |       |                                 |       |              |       | (9,685     | )          |
| **Operating loss**                                                                             |       |                                 |       |              |       | (26,148    | )          |
| ** **                                                                                     |       |                                 |       |              |       |       |       |
| **2008**                                                                                       | ** ** | ** **                           | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Assets**                                                                                     |       |                                 |       |              |       |       |       |
| Segment assets                                                                                 |       | 4,057                                |       | 639               |       | 4,696      |       |
| Unallocated assets                                                                             |       |                                 |       |              |       | 77,895     |       |
| Total assets                                                                                   |       |                                 |       |              |       | 82,591     |       |
|                                                                                           |       |                                 |       |              |       |       |       |
| **Liabilities**                                                                                |       |                                 |       |              |       |       |       |
| Segment liabilities                                                                            |       | 5,498                                |       | 208               |       | 5,706      |       |
| Unallocated liabilities                                                                        |       |                                 |       |              |       | 1,626      |       |
| Total liabilities                                                                              |       |                                 |       |              |       | 7,332      |       |
| ** **                                                                                     |       |                                 |       |              |       |       |       |
| **Other segment information**                                                                  |       |                                 |       |              |       |       |       |
| Acquisition of property, plant &  equipment, and other non-current assets             |       | 3,557                                |       | 168               |       | 3,725      |       |
| Unallocated acquisition of property,  plant & equipment, and other non-current assets |       |                                 |       |              |       | 171        |       |
| Depreciation                                                                                   |       | 79                                   |       | 264               |       | 343        |       |
| Unallocated depreciation and amortisation                                                      |       |                                 |       |              |       | 231        |       |

 

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**3. SEGMENT INFORMATION(cont’d)**

 
| **Business segments**                                                                          | ** ** | **Research &  Development** | ** ** | **Manufacturing** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|-------------------|------------|------------|------------|
| ** **                                                                                     | ** ** | **$000**                             | ** ** | **$000**          | ** ** | **$000**   | ** ** |
| **2007**                                                                                       | ** ** | ** **                           | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Operating revenue**                                                                          |       |                                 |       |              |       |       |       |
| Sales to external customers                                                                    |       | —                               |       | 920               |       | 920        |       |
| Total segment revenue                                                                          |       | —                               |       | 920               |       | 920        |       |
|                                                                                           |       |                                 |       |              |       |       |       |
| Unallocated revenue                                                                            |       |                                 |       |              |       | 1,746      |       |
| Total revenue                                                                                  |       |                                 |       |              |       | 2,666      |       |
|                                                                                           |       |                                 |       |              |       |       |       |
| **Segment result**                                                                             |       | (5,919                               | )          | (1,453            | )          | (7,372     | )          |
|                                                                                           |       |                                 |       |              |       |       |       |
| Unallocated revenues & expenses                                                       |       |                                 |       |              |       | (15,082    | )          |
| **Operating loss**                                                                             |       |                                 |       |              |       | (22,454    | )          |
| ** **                                                                                     |       |                                 |       |              |       |       |       |
| **2007**                                                                                       |       |                                 |       |              |       |       |       |
| **Assets**                                                                                     |       |                                 |       |              |       |       |       |
| Segment assets                                                                                 |       | 342                                  |       | 721               |       | 1,063      |       |
| Unallocated assets                                                                             |       |                                 |       |              |       | 99,577     |       |
| Total assets                                                                                   |       |                                 |       |              |       | 100,640    |       |
|                                                                                           |       |                                 |       |              |       |       |       |
| **Liabilities**                                                                                |       |                                 |       |              |       |       |       |
| Segment liabilities                                                                            |       | 1,310                                |       | 244               |       | 1,554      |       |
| Unallocated liabilities                                                                        |       |                                 |       |              |       | 1,109      |       |
| Total liabilities                                                                              |       |                                 |       |              |       | 2,663      |       |
|                                                                                           |       |                                 |       |              |       |       |       |
| **Other segment information**                                                                  |       |                                 |       |              |       |       |       |
| Acquisition of property, plant &  equipment, and other non-current assets             |       | 46                                   |       | 170               |       | 216        |       |
| Unallocated acquisition of property,  plant & equipment, and other non-current assets |       |                                 |       |              |       | 38         |       |
| Depreciation                                                                                   |       | 127                                  |       | 320               |       | 447        |       |
| Unallocated depreciation                                                                       |       |                                 |       |              |       | 54         |       |

 

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**3.   SEGMENT INFORMATION (cont’d)**

 
| **Geographical segments**                                                          | ** ** | **Australia** | ** ** | **United States** | ** ** | **Total**  | ** ** |
|------------------------------------------------------------------------------------|------------|---------------|------------|-------------------|------------|------------|------------|
| ** **                                                                         | ** ** | **$000**      | ** ** | **$000**          | ** ** | **$000**   | ** ** |
| **2009**                                                                           |       |          |       |              |       |       |       |
| **Operating revenue**                                                              |       |          |       |              |       |       |       |
| Sales to external customers                                                        |       | 1,724         |       | —            |       | 1,724      |       |
| Total segment revenue                                                              |       | 1,724         |       | —            |       | 1,724      |       |
|                                                                               |       |          |       |              |       |       |       |
| Unallocated revenue                                                                |       | —        |       |              |       | 3,216      |       |
| Total revenue                                                                      |       |          |       |              |       | 4,940      |       |
|                                                                               |       |          |       |              |       |       |       |
| **Segment result**                                                                 | ** ** | **(1,319**    | **)**      | **(4,148**        | **)**      | **(5,467** | **)**      |
| ** **                                                                         | ** ** | ** **    | ** ** | ** **        | ** ** | ** ** | ** ** |
| **2009**                                                                           |       |          |       |              |       |       |       |
| **Assets**                                                                         |       |          |       |              |       |       |       |
| Segment assets                                                                     | ** ** | **32,385**    | ** ** | **277**           | ** ** | **32,662** | ** ** |
|                                                                               | ** ** | ** **    | ** ** | ** **        | ** ** | ** ** | ** ** |
| **Liabilities**                                                                    | ** ** | ** **    | ** ** | ** **        | ** ** | ** ** | ** ** |
| Segment liabilities                                                                | ** ** | **1,648**     | ** ** | **224**           | ** ** | **1,872**  | ** ** |
| ** **                                                                         |       |          |       |              |       |       |       |
| **Other segment information**                                                      |       |          |       |              |       |       |       |
| Acquisition of property, plant &  equipment, and other non-current assets |       | 109           |       | —            |       | 109        |       |
| Depreciation and amortisation                                                      |       | 748           |       | 12                |       | 760        |       |

 
| **Geographical segments**                                                          | ** ** | **Australia** | ** ** | **United States** | ** ** | **Total**   | ** ** |
|------------------------------------------------------------------------------------|------------|---------------|------------|-------------------|------------|-------------|------------|
| ** **                                                                         | ** ** | **$000**      | ** ** | **$000**          | ** ** | **$000**    | ** ** |
| **2008**                                                                           |       |          |       |              |       |        |       |
| **Operating revenue**                                                              |       |          |       |              |       |        |       |
| Sales to external customers                                                        |       | 1,086         |       | —            |       | 1,086       |       |
| Total segment revenue                                                              |       | 1,086         |       | —            |       | 1,086       |       |
|                                                                               |       |          |       |              |       |        |       |
| Unallocated revenue                                                                |       | —        |       |              |       | 5,392       |       |
| Total revenue                                                                      |       |          |       |              |       | 6,478       |       |
|                                                                               |       |          |       |              |       |        |       |
| **Segment result**                                                                 | ** ** | **(24,344**   | **)**      | **(1,804**        | **)**      | **(26,148** | **)**      |
|                                                                               | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| **2008**                                                                           | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| **Assets**                                                                         |       |          |       |              |       |        |       |
| Segment assets                                                                     | ** ** | **82,189**    | ** ** | **402**           | ** ** | **82,591**  | ** ** |
|                                                                               | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| **Liabilities**                                                                    | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| Segment liabilities                                                                | ** ** | **7,201**     | ** ** | **131**           | ** ** | **7,332**   | ** ** |
| ** **                                                                         |       |          |       |              |       |        |       |
| **Other segment information**                                                      |       |          |       |              |       |        |       |
| Acquisition of property, plant &  equipment, and other non-current assets |       | 3,858         |       | 12                |       | 3,870       |       |
| Depreciation and amortisation                                                      |       | 569           |       | 4                 |       | 573         |       |

 

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**3.   SEGMENT INFORMATION (cont’d)**

 
| **Geographical segments**                                                          | ** ** | **Australia** | ** ** | **United States** | ** ** | **Total**   | ** ** |
|------------------------------------------------------------------------------------|------------|---------------|------------|-------------------|------------|-------------|------------|
| ** **                                                                         | ** ** | **$000**      | ** ** | **$000**          | ** ** | **$000**    | ** ** |
| **2007**                                                                           |       |          |       |              |       |        |       |
| **Operating revenue**                                                              |       |          |       |              |       |        |       |
| Sales to external customers                                                        |       | 920           |       | —            |       | 920         |       |
| Total segment revenue                                                              |       | 920           |       | —            |       | 920         |       |
|                                                                               |       |          |       |              |       |        |       |
| Unallocated revenue                                                                |       |          |       |              |       | 1,746       |       |
| Total revenue                                                                      |       |          |       |              |       | 2,666       |       |
|                                                                               |       |          |       |              |       |        |       |
| **Segment result**                                                                 | ** ** | **(22,454**   | **)**      | **—**        | ** ** | **(22,454** | **)**      |
|                                                                               | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| **2007**                                                                           | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| **Assets**                                                                         |       |          |       |              |       |        |       |
| Segment assets                                                                     | ** ** | **100,640**   | ** ** | **—**        | ** ** | **100,640** | ** ** |
|                                                                               | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| **Liabilities**                                                                    | ** ** | ** **    | ** ** | ** **        | ** ** | ** **  | ** ** |
| Segment liabilities                                                                | ** ** | **2,663**     | ** ** | **—**        | ** ** | **2,663**   | ** ** |
| ** **                                                                         |       |          |       |              |       |        |       |
| **Other segment information**                                                      |       |          |       |              |       |        |       |
| Acquisition of property, plant &  equipment, and other non-current assets |       | 254           |       | —            |       | 254         |       |
| Depreciation and amortisation                                                      |       | 501           |       | —            |       | 501         |       |

 

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**4.  REVENUE AND EXPENSES**

 
| ** **                                                                                                                                                    | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                                    | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
| **(a) Revenue**                                                                                                                                          |       |       |       |     |       |     |       |
| Manufacturing  services revenue                                                                                                                               | ** ** | **1,724**  |       | 1,086    |       | 920      |       |
| Interest  revenue                                                                                                                                             | ** ** | **3,216**  |       | 5,392    |       | 1,746    |       |
| Total revenue  from continuing operations                                                                                                                     | ** ** | **4,940**  |       | 6,478    |       | 2,666    |       |
| ** **                                                                                                                                                    |       |       |       |     |       |     |       |
| **(b) Other income**                                                                                                                                     |       |       |       |     |       |     |       |
| Government  grants                                                                                                                                            | ** ** | **83**     |       | 1,316    |       | 1,073    |       |
| Gain (loss) on  derivative                                                                                                                                    | ** ** | **508**    |       | (249     | )          | —   |       |
| Net foreign  exchange gain                                                                                                                                    | ** ** | **6,319**  |       | —   |       | —   |       |
| Other                                                                                                                                                         | ** ** | **111**    |       | 54       |       | 40       |       |
| Total other  income                                                                                                                                           | ** ** | **7,021**  |       | 1,121    |       | 1,113    |       |
| ** **                                                                                                                                                    |       |       |       |     |       |     |       |
| **(c) Finance cost**                                                                                                                                     | ** ** | ** ** |       |     |       |     |       |
| Other loans                                                                                                                                                   | ** ** | **4**      |       | 17       |       | 15       |       |
| Make good  provision discount adjustment                                                                                                                      | ** ** | **3**      |       | 2        |       | —   |       |
| Total finance  costs                                                                                                                                          | ** ** | **7**      |       | 19       |       | 15       |       |
|                                                                                                                                                          |       |       |       |     |       |     |       |
| **(d) Depreciation, amortisation and foreign exchange differences  included in the income statement**                                                    | ** ** | ** ** |       |     |       |     |       |
| Depreciation                                                                                                                                                  | ** ** | **401**    |       | 423      |       | 501      |       |
| Amortisation  of Intellectual Property rights                                                                                                                 | ** ** | **359**    |       | 151      |       | —   |       |
| Net foreign  exchange loss                                                                                                                                    | ** ** | **169**    |       | 3,860    |       | 717      |       |
|                                                                                                                                                          | ** ** | ** ** |       |     |       |     |       |
| **(e) Lease payments and other expenses included in the income statement**                                                                               | ** ** | ** ** |       |     |       |     |       |
| Minimum lease  payments — operating leases                                                                                                               | ** ** | **552**    |       | 342      |       | 295      |       |
|                                                                                                                                                          |       |       |       |     |       |     |       |
| **(f) Employee benefit expenses**                                                                                                                        |       |       |       |     |       |     |       |
| Wages and  salaries                                                                                                                                           | ** ** | **3,370**  |       | 4,905    |       | 4,170    |       |
| Long service  leave provision                                                                                                                                 | ** ** | **88**     |       | 25       |       | 20       |       |
| Share-based  payments expenses                                                                                                                                | ** ** | **38**     |       | 1,328    |       | 419      |       |
| ** **                                                                                                                                                    | ** ** | ** ** |       |     |       |     |       |
| **(g) Write off receivables due to un-collectability**                                                                                                   |       |       |       |     |       |     |       |
|                                                                                                                                                          | ** ** | ** ** |       |     |       |     |       |
| Bad debt  expense                                                                                                                                             | ** ** | **—** |       | 121      |       | —   |       |
| ** **                                                                                                                                                    | ** ** | ** ** |       |     |       |     |       |
| **(h) Other expenses**                                                                                                                                   | ** ** | ** ** |       |     |       |     |       |
| Fair value of  171,240 Progen shares issued (2007: 1,232,600) and 561,360 Progen shares  purchased on-market as part of termination agreement (refer note 10) | ** ** | **—** |       | 2,029    |       | 8,325    |       |
| Issue of  1,000,000 options as part of termination agreement (refer note 10)                                                                                  | ** ** | **—** |       | —   |       | 1,321    |       |
| Cash paid to  Medigen as part of termination agreement (refer note 10)                                                                                        | ** ** | **—** |       | 2,000    |       | —   |       |
|                                                                                                                                                          | ** ** | **—** |       | 4,029    |       | 9,646    |       |

 

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**5.  INCOME TAX**

 
| ** **                                                                                                                                                                     | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                                                                                                                                                     | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
| The prima  facie tax, using tax rates applicable in the country of operation, on  operating loss differs from the income tax provided in the financial  statements as follows: |       |       |       |     |       |     |       |
| Prima facie  tax on loss from operating activities @ 30%                                                                                                                       | ** ** | **(1,640** | **)**      | (7,844   | )          | (6,736   | )          |
| Tax effect of  amounts which are not deductible (taxable) in calculating taxable income:                                                                                       | ** ** | ** ** |       |     |       |     |       |
| - Impairment  of available-for-sale investment                                                                                                                                 | ** ** | **—** |       | —   |       | 531      |       |
| - Non  deductible items                                                                                                                                                        | ** ** | **22**     |       | 447      |       | 561      |       |
| - Other  differences                                                                                                                                                           | ** ** | **584**    |       | 291      |       | (265     | )          |
| - Additional  deduction for research and development expenditure                                                                                                               | ** ** | **(458**   | **)**      | (1,621   | )          | (262     | )          |
| Prior year  R&D true-up                                                                                                                                                    | ** ** | **(663**   | **)**      | (595     | )          | —   |       |
| Foreign tax  rate adjustment                                                                                                                                                   | ** ** | **(462**   | **)**      | (193     | )          | —   |       |
| Income tax  benefit attributable to current year losses as reported in the Income  Statement                                                                                   | ** ** | **(2,617** | **)**      | (9,515   | )          | (6,171   | )          |
| Deferred tax  asset not brought to account as realisation of the asset is not regarded as  probable                                                                            | ** ** | **2,617**  |       | 9,515    |       | 6,171    |       |
| Income tax  attributable to operating loss                                                                                                                                     | ** ** | **—** |       | —   |       | —   |       |

 
| ** **                                                     | ** ** | **2009**    | ** ** | **2008**   | ** ** | **2007**   | ** ** |
|----------------------------------------------------------------|------------|-------------|------------|------------|------------|------------|------------|
| ** **                                                     | ** ** | **$000**    | ** ** | **$000**   | ** ** | **$000**   | ** ** |
| **Deferred income tax**                                        | ** ** | ** **  |       |       |       |       |       |
| Deferred  income tax at 30 June relates to the following: |       |        |       |       |       |       |       |
| *Deferred tax liabilities*                                     | * *   | * *    | * *   | * *   | ** ** | ** ** | ** ** |
| Interest on  short-term investments                            | ** ** | **(5**      | **)**      | (193       | )          | (90        | )          |
| Grant income  not yet assessable                               | ** ** | ** **  |       | (91        | )          | —     |       |
| * *                                                       | ** ** | ** **  |       |       |       |       |       |
| *Deferred tax assets*                                          | ** ** | ** **  |       |       |       |       |       |
| Unrealised  foreign currency loss                              | ** ** | **—**  |       | 1,134      |       | 210        |       |
| Sundry  creditors and accruals                                 | ** ** | **78**      |       | 67         |       | 63         |       |
| Depreciation                                                   | ** ** | **188**     |       | 181        |       | 202        |       |
| Employee  entitlements                                         | ** ** | **95**      |       | 118        |       | 110        |       |
| Make good  obligation                                          | ** ** | **47**      |       | 46         |       | 45         |       |
| Share issue  transaction costs                                 | ** ** | **1,274**   |       | 1,330      |       | 1,709      |       |
| Patent costs                                                   | ** ** | **304**     |       | 146        |       | 143        |       |
| Losses  available for offset against future taxable income     | ** ** | **41,660**  |       | 39,043     |       | 29,528     |       |
| Deferred tax  asset                                            | ** ** | **43,641**  |       | 41,781     |       | 31,920     |       |
| Net deferred  tax asset not recognised                         | ** ** | **(43,641** | **)**      | (41,781    | )          | (31,920    | )          |
| Net deferred  income tax assets                                | ** ** | **—**  | ** ** | **—** |       | —     |       |

 

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**5.  INCOME TAX (cont’d)**

 

Thedeferred tax asset will only be obtained if:

(i)                                     future assessable income of anature and of an amount sufficient to enable the benefit to be realised;

(ii)                                  the conditions fordeductibility imposed by tax legislation continue to be complied with;  and

(iii)                               no changes in tax legislationadversely affect the Group in realising the benefit.

 

**TheGroup has tax losses arising in Australia of $137,871,000 (2008: $127,756,000)that are available indefinitely for offset against future taxable profits ofthe companies in which the losses arose, subject to satisfying the relevantincome tax loss carry forward rules. The Company has US federal and state netoperating loss carry-forwards of approximately US$3,380,000 and US$3,830,000,respectively, which have a carry forward period between 2028 – 2029 areavailable a maximum of 20 years, subject to a continuity of ownership test.**

** **

**6. EARNINGS/(LOSS) PER SHARE**

** **

The followingreflects the income and share data used in the basic and diluted earnings pershare computations:

 
| ** **                                                | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|-----------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                                | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
|                                                      |       |       |       |     |       |     |       |
| Loss used in  calculating basic earnings/(loss) per share | ** ** | **(5,467** | **)**      | (26,148  | )          | (22,454  | )          |

 
| ** **                                                                                                | ** ** | **Number  of  shares** | ** ** | **Number  of  shares** | ** ** | **Number  of  shares** | ** ** |
|-----------------------------------------------------------------------------------------------------------|------------|------------------------|------------|------------------------|------------|------------------------|------------|
| Weighted  average number of ordinary shares on issue used in the calculation of basic  earnings per share | ** ** | **54,481,888**         |       | 60,339,594             |       | 44,768,450             |       |
|                                                                                                      | ** ** | ** **             |       |                   |       |                   |       |
| Basic and  diluted earnings/(loss) per share (cents per share)                                            | ** ** | **(10.0**              | **)**      | (43.3                  | )          | (50.2                  | )          |

 

Basic loss pershare amounts are calculated by dividing the net loss for the year attributableto ordinary equity holders of the parent by the weighted average number ofordinary shares outstanding during the year. Diluted loss per share amounts arecalculated by dividing the net loss attributable to ordinary equity holders ofthe parent by the weighted average number of ordinary shares outstanding duringthe year plus the weighted average number of ordinary share that would beissued on conversion of all dilutive potential ordinary shares into ordinaryshares.

 

Thereare 4,085,538 options that have been excluded because the loss position makesany potential ordinary share anti-dilutive**.**

 

**7. DIVIDENDS PAID AND PROPOSED**

 

The entity has not declared or paid dividends and does not anticipatedeclaring or paying any dividends in the immediate term.

 

**8.CURRENT ASSETS - CASH AND CASH EQUIVALENTS**

 
| ** **                | ** ** | **2009**   | ** ** | **2008** | ** ** |
|---------------------------|------------|------------|------------|----------|------------|
| ** **                | ** ** | **$000**   | ** ** | **$000** | ** ** |
| Cash at bank and in hand  | ** ** | **12,509** |       | 1,247    |       |
| Short-term deposits       | ** ** | **15,536** |       | 75,501   |       |
| Cash and cash equivalents | ** ** | **28,045** |       | 76,748   |       |

 

Cash at bankearns interest at floating rates based on daily bank deposit rates.

 

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Short-termdeposits are made for varying periods of between one month and three months,depending on the immediate cash requirements of the Group, and earn interest atthe respective short-term deposit rates.

 

**8.CURRENT ASSETS - CASH AND CASH EQUIVALENTS (cont’d)**

** **
| ** **                                                                                           | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| ** **                                                                                           | ** ** | **$000**    | ** ** | **$000** | ** ** | **$000** | ** ** |
| ** **                                                                                           | ** ** | ** **  |       |     |       |     |       |
| **Reconciliation of net loss after tax to net cash flows from operations**                           | ** ** | ** **  |       |     |       |     |       |
| Net loss                                                                                             | ** ** | **(5,467**  | **)**      | (26,148  | )          | (22,454  | )          |
| Adjustments  for:                                                                                    | ** ** | ** **  |       |     |       |     |       |
| Depreciation                                                                                         | ** ** | **401**     |       | 423      |       | 501      |       |
| Impairment of  available-for-sale financial assets                                                   | ** ** | **—**  |       | —   |       | 1,769    |       |
| Make good  provision                                                                                 | ** ** | **3**       |       | 2        |       | —   |       |
| Amortisation  of Intellectual Property rights                                                        | ** ** | **359**     |       | 151      |       | —   |       |
| Share options  expensed                                                                              | ** ** | **38**      |       | 1,328    |       | 471      |       |
| Equity based  payments issued as part of termination agreement (refer note 10) – shares  issued | ** ** | **—**  |       | 947      |       | 9,646    |       |
| Net fair value  change on derivatives (loss)                                                         | ** ** | **(508**    | **)**      | 249      |       | —   |       |
| Net loss on  disposal of property, plant and equipment                                               | ** ** | **3**       |       | 1        |       | —   |       |
| Foreign  exchange (gain) loss                                                                        | ** ** | **(6,320**  | **)**      | 3,781    |       | 700      |       |
| ** **                                                                                           |       |        |       |     |       |     |       |
| **Changes  in assets and liabilities**                                                               | ** ** | ** **  |       |     |       |     |       |
| (Increase)/decrease  in trade and other receivables                                                  | ** ** | **428**     |       | 302      |       | (869     | )          |
| (Increase)/decrease  in prepayments                                                                  | ** ** | **(150**    | **)**      | (63      | )          | 357      |       |
| (Decrease)/increase  in trade and other payables                                                     | ** ** | **(4,816**  | **)**      | 3,716    |       | 823      |       |
| (Decrease)/increase  in provisions                                                                   | ** ** | **(110**    | **)**      | 31       |       | 35       |       |
| (Decrease)/increase  in government grants                                                            | ** ** | **293**     |       | (343     | )          | (77      | )          |
| Net cash used  in operating activities                                                               | ** ** | **(15,846** | **)**      | (15,623  | )          | (9,098   | )          |

 

**9. TRADE AND OTHER RECEIVABLES**

 

**Current**

 
| ** **                                | ** ** | **2009** | ** ** | **2008** | ** ** |
|-------------------------------------------|------------|----------|------------|----------|------------|
| ** **                                | ** ** | **$000** | ** ** | **$000** | ** ** |
| Trade receivables                         | ** ** | **73**   |       | 9        |       |
| Other receivables (i)                     | ** ** | **221**  |       | 713      |       |
| Total current trade and other receivables | ** ** | **294**  |       | 722      |       |

 

----

(i) Other receivables are non-interestbearing and are generally on 30-90 day terms.

 

**10.****      ****NON-CURRENT ASSETS - INVESTMENT IN SUBSIDIARIES**

 
| ** **                                           | ** ** | **Consolidated** | ** ** | **Parent** | ** ** |
|------------------------------------------------------|------------|------------------|------------|------------|------------|
| ** **                                           | ** ** | **2009**         | ** ** | **2008**   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                                           | ** ** | **$000**         | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
| Investment in controlled entities – at  cost(1) |       | —           |       | —     |       | 3,814 |   | 3,278 |   |

 

----

(1) On 2 July 2008 the Company spun-out itsmanufacturing business as a wholly owned subsidiary company, PharmaSynth PtyLtd.  Progen transferred $628,000 netbook value worth of plant and equipment into Pharmasynth Pty Ltd on this date(see note 11). On 29 June 2009 Progen transferred the rights of theintellectual property for PI-88 to PharmaSynth at book value which was nil asthe research and development had been expensed as incurred.

 

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**11. NON-CURRENT ASSETS -PLANT & EQUIPMENT**

** **
| ** **                      | ** ** | **1 July 2008** | ** ** | **Translation  Adjustment** | ** ** | **Additions** | ** ** | **Disposals** | ** ** | **Depreciation** | ** ** | **30 June 2009** | ** ** |
|---------------------------------|------------|----------------------|------------|-----------------------------|------------|---------------|------------|---------------|------------|------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **$000**             | ** ** | **$000**                    | ** ** | **$000**      | ** ** | **$000**      | ** ** | **$000**         | ** ** | **$000**              | ** ** |
| **Plant &  equipment** |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| At cost                         |       | 4,931                |       | —                      |       | 103           |       | (301          | )          | —           |       | 4,733                 |       |
| Accumulated  depreciation       |       | (4,110               | )          | —                      |       | —        |       | 301           |       | (283             | )          | (4,092                | )          |
|                            |       | 821                  |       | —                      |       | 103           |       | —        |       | (283             | )          | 641                   |       |
| ** **                      | ** ** | ** **           | ** ** | ** **                  | ** ** | ** **    | ** ** | ** **    | ** ** | ** **       | ** ** | ** **            | ** ** |
| **Office  equipment**           | ** ** | ** **           | ** ** | ** **                  | ** ** | ** **    | ** ** | ** **    | ** ** | ** **       | ** ** | ** **            | ** ** |
| At cost                         |       | 567                  |       | —                      |       | 6             |       | (19           | )          | —           |       | 554                   |       |
| Acquisition of  assets          |       | 27                   |       | —                      |       | —        |       | —        |       | —           |       | 27                    |       |
| Translation  adjustment         |       | —               |       | 7                           |       | —        |       | —        |       | —           |       | 7                     |       |
| Accumulated  depreciation       |       | (404                 | )          | —                      |       | —        |       | 15            |       | (82              | )          | (471                  | )          |
|                            |       | 190                  |       | 7                           |       | 6             |       | (4            | )          | (82              | )          | 117                   |       |
|                            |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| **Leasehold  improvements**     |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| At cost                         |       | 852                  |       | —                      |       | —        |       | —        |       | —           |       | 852                   |       |
| Accumulated  depreciation       |       | (693                 | )          | —                      |       | —        |       | —        |       | (36              | )          | (729                  | )          |
|                            |       | 159                  |       | —                      |       | —        |       | —        |       | (36              | )          | 123                   |       |
|                            |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| **TOTAL**                       | ** ** | **1,170**            | ** ** | **7**                       | ** ** | **109**       |       | (4            | )          | **(401**         | **)**      | **881**               | ** ** |

 
| ** **                      | ** ** | **1 July 2007** | ** ** | **Translation  Adjustment** | ** ** | **Additions** | ** ** | **Disposals** | ** ** | **Depreciation** | ** ** | **30 June 2008** | ** ** |
|---------------------------------|------------|----------------------|------------|-----------------------------|------------|---------------|------------|---------------|------------|------------------|------------|-----------------------|------------|
| ** **                      | ** ** | **$000**             | ** ** | **$000**                    | ** ** | **$000**      | ** ** | **$000**      | ** ** | **$000**         | ** ** | **$000**              | ** ** |
| **Plant &  equipment** |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| At cost                         |       | 4,766                |       | —                      |       | 165           |       | —        |       | —           |       | 4,931                 |       |
| Accumulated  depreciation       |       | (3,805               | )          | —                      |       | —        |       | —        |       | (305             | )          | (4,110                | )          |
|                            |       | 961                  |       | —                      |       | 165           |       | —        |       | (305             | )          | 821                   |       |
| ** **                      | ** ** | ** **           | ** ** | ** **                  | ** ** | ** **    | ** ** | ** **    | ** ** | ** **       | ** ** | ** **            | ** ** |
| **Office  equipment**           | ** ** | ** **           | ** ** | ** **                  | ** ** | ** **    | ** ** | ** **    | ** ** | ** **       | ** ** | ** **            | ** ** |
| At cost                         |       | 421                  |       | —                      |       | 148           |       | (2            | )          | —           |       | 567                   |       |
| Acquisition of  assets          |       | —               |       | —                      |       | 27            |       | —        |       | —           |       | 27                    |       |
| Accumulated  depreciation       |       | (326                 | )          | —                      |       | —        |       | 1             |       | (79              | )          | (404                  | )          |
|                            |       | 95                   |       | —                      |       | 175           |       | (1            | )          | (79              | )          | 190                   |       |
|                            |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| **Leasehold  improvements**     |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| At cost                         |       | 811                  |       | —                      |       | 41            |       | —        |       | —           |       | 852                   |       |
| Accumulated  depreciation       |       | (654                 | )          | —                      |       | —        |       | —        |       | (39              | )          | (693                  | )          |
|                            |       | 157                  |       | —                      |       | 41            |       | —        |       | (39              | )          | 159                   |       |
|                            |       |                 |       |                        |       |          |       |          |       |             |       |                  |       |
| **TOTAL**                       | ** ** | **1,213**            | ** ** | **—**                  | ** ** | **381**       |       | (1            | )          | **(423**         | **)**      | **1,170**             | ** ** |

### ** **

### **12. NON-CURRENT ASSETS - INTANGIBLE ASSETS**

### ** **

### **Intellectual property rights**

### **Reconciliation ofcarrying amount at the beginning and end of the period:**

 
| ** **                    | ** ** | **2009**   | ** ** | **2008** | ** ** |
|-------------------------------|------------|------------|------------|----------|------------|
| ** **                    | ** ** | **$000**   | ** ** | **$000** | ** ** |
| **Year  end 30 June**         | ** ** | ** ** |       |     |       |
| Cost (gross  carrying amount) | ** ** | **3,515**  |       | 3,515    |       |
| Accumulated  amortisation     | ** ** | **(510**   | **)**      | (151     | )          |
| Net carrying  amount          | ** ** | **3,005**  |       | 3,364    |       |

 

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Intellectualproperty rights were acquired through a business combination and are carried atcost less accumulated amortisation. This intangible asset has been determinedto have a useful life until 15 October 2017, which is the patent expiry ofthe lead compound acquired through the acquisition of CellGate, Inc.(refer note 20) and is being amortised using the straight line method over thisperiod. The amortisation has been recognised in the income statement in theline item “administrative and corporate expenses”. If an impairment indicationarises, the recoverable amount is estimated and an impairment loss isrecognised to the extent that the recoverable amount is lower than the carryingamount.

 

### **13. SHARE BASED PAYMENTS**

### ** **

**(a) Employee optionplan**

The ProgenDirectors and Employee Option Incentive Plan (“the Employee Plan”) was lastapproved by shareholders at the 2007 annual general meeting.

 

Optionsgranted to Company employees are issued under the Employee Plan.  Options are granted under the Employee Planfor no consideration and once capable of exercise entitle the holder tosubscribe for one fully-paid ordinary share upon exercise at the exerciseprice.  The exercise price, except forthe 500,000 options granted to the CEO, is based on the weighted averageclosing price at which the Group’s shares are traded on the AustralianSecurities Exchange during the five trading days immediately before they aregranted.

 

Optionsgranted under the Employee Plan that have not vested at the time an optionholder becomes ineligible (ie. no longer an employee), are forfeited and notcapable of exercise.  When an optionholder becomes ineligible and the options have already vested then the optionholder has 3 months to exercise or they expire. Options must be exercised by the expiry dates or they lapse. The vestingperiod is 12 months of service from the grant date.

 

At 30 June 2009there were 1,095,000 (2008: 1,649,000) options over ordinary sharesoutstanding. No new options were issued from the Employee Plan during the 2009financial year.

 

**(b) Consultantoption plan**

On 16 February 2005the Directors approved the Progen Consultants and Advisors Option IncentivePlan (‘the Consultant Plan”).  TheConsultant Plan rules are consistent with the Employee Plan rules, in thatthe consultants provide similar services to employees so the awards areaccounted for in the same way as employee awards and the options vest over 12months.

 

At 30 June 2009there were a total of 20,000 (2008: 20,000) consultant options over ordinaryshares outstanding.  No options wereissued to consultants during the 2009 financial year.

 

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**13. SHARE BASED PAYMENTS(cont’d)**

 

Information with respect to the number ofall options granted is as follows:

 
| ** **                      | ** ** | **2009**               | ** ** | **2008**                               | ** ** | **2007**               | ** ** |
|---------------------------------|------------|------------------------|------------|----------------------------------------|------------|------------------------|------------|
| ** **                      | ** ** | **Number of  options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Number  of options** | ** ** | **Weighted  average  exercise  price** | ** ** | **Number  of options** | ** ** | **Weighted  average  exercise  price** | ** ** |
| ** **                      | ** ** | ** **             | ** ** | **$**                                  | ** ** | ** **             | ** ** | **$** | ** ** | ** ** | ** ** | **$** | ** ** |
| Beginning of the financial year |       | 2,669,000              |       | 5.39                                   |       | 1,637,000              |       | 6.61 |   | 30,000 |   | 3.09 |   |
| - granted(1)                    |       | —                 |       |                                   |       | 1,317,250              |       | 3.46 |   | 1,667,000 |   | 6.69 |   |
| - forfeited                     |       | (127,500               | )          | 3.61                                   |       | (159,750               | )          | 3.61 |   | — |   | — |   |
| - expired                       |       | (1,426,500             | )          | 6.05                                   |       | (125,500               | )          | 3.30 |   | — |   | — |   |
| - exercised                     |       | —                 |       | —                                 |       | —                 |       | — |   | (60,000 | ) | 2.79 |   |
| Balance at end of year          |       | 1,115,000              |       | 3.54                                   |       | 2,669,000              |       | 5.39 |   | 1,637,000 |   | 6.61 |   |
| Exercisable at end of year      |       | 1,085,000              |       | 3.56                                   |       | 1,864,834              |       | 5.75 |   | 1,303,667 |   | 6.79 |   |

 

----

(1) No options were granted during the 2009financial year.  The weighted averagefair value at grant date in 2008 financial year was $1.17.

 

The following table summarises information about alloptions outstanding at 30 June 2009:

 
| ** **              | ** ** | ** **                 | ** ** | **Balance beginning of year** | ** ** | **Balance end of year**             | ** ** |
|-------------------------|------------|----------------------------|------------|-------------------------------|------------|-------------------------------------|------------|
| **Grant date**          | ** ** | **Expiry date**            | ** ** | **Number of  options**        | ** ** | **Average  option  exercise price** | ** ** | **Number of  options** | ** ** | **Average  option  exercise  price** | ** ** |
| ** **              | ** ** | ** **                 | ** ** | ** **                    | ** ** | **$**                               | ** ** | ** ** | ** ** | **$** | ** ** |
| 8  April 2006      |       | 8  November 2008      |       | 30,000                        |       | 3.09                                |       | — |   | — |   |
| 29  August 2006    |       | 29  August 2011(1)    |       | 39,000                        |       | 2.79                                |       | 30,000 |   | 2.79 |   |
| 30  November 2006  |       | 1  March 2011         |       | 166,667                       |       | 7.80                                |       | 166,667 |   | 7.80 |   |
| 30  November 2006  |       | 1  March 2011         |       | 166,667                       |       | 2.59                                |       | 166,667 |   | 2.59 |   |
| 30  November 2006  |       | 1  March 2011         |       | 166,666                       |       | 1.07                                |       | 166,666 |   | 1.07 |   |
| 25  January 2007   |       | 25  January 2010      |       | 20,000                        |       | 5.42                                |       | 20,000 |   | 5.42 |   |
| 6  June 2007       |       | 6  June 2009          |       | 1,000,000                     |       | 7.11                                |       | — |   | — |   |
| 14  September 2007 |       | 13  September 2012(2) |       | 955,000                       |       | 3.61                                |       | 440,000 |   | 3.61 |   |
| 1  February 2008   |       | 1  February 2013      |       | 100,000                       |       | 2.22                                |       | 100,000 |   | 2.22 |   |
| 10  March 2008     |       | 10  March 2013        |       | 25,000                        |       | 1.42                                |       | 25,000 |   | 1.42 |   |
|                    |       |                       |       | 2,669,000                     |       |                                |       | 1,115,000 |   |   |   |

 

----

(1) 9,000 options expired during the year. Forthis tranche of options, when an employee resigns the non-vested optionsimmediately vest and then expire 3 months from the resignation date.

(2) 127,500 options were forfeited and 387,500options expired during the year. When an employee resigns the vested optionsexpire 3 months from the resignation date.

 

The fair value of the equity-settled share options granted under theoption plans is estimated as at the date of grant using a binomial model takinginto account the terms and conditions upon which the options were granted.

 

Fair value of shares issued on exercise of options is estimated to be themarket price of shares of Progen Pharmaceuticals Limited on the ASX as at theclose of trading on their respective issue dates.

 

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**13.SHARE BASED PAYMENTS (cont’d)**

 

The following table lists the weighted average inputs to the model usedfor the year ended 30 June 2008. Data inputs for option models were not required for the year ended 30 June 2009as no options were issued.

 
| ** **                    | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|-------------------------------|------------|----------|------------|----------|------------|----------|------------|
| Expected volatility           |       | —   |       | 65       | %          | 63       | %          |
| Risk-free rate average        |       | —   |       | 6.26     | %          | 6.12     | %          |
| Expected life average (years) |       | —   |       | 2.50     |       | 1.57     |       |
| Dividend yield                |       | —   |       | nil      |       | Nil      |       |
| Option exercise price         |       | —   |       | $        | 3.46       |     | $          | 6.79 |   |
| Share price at grant date     |       | —   |       | $        | 3.39       |     | $          | 6.69 |   |

 

The expected life of the options is based on historical data and is notnecessarily indicative of exercise patterns that may occur. The expectedvolatility reflects the assumption that the historical volatility is indicativeof future trends, which may also not necessarily be the actual outcome. Noother features of options granted were incorporated into the measurement offair value.

 

Theexpense recognised for the above options issued during the course of the yearis shown in the table below:

** **
| ** **                                                   | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|--------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                                   | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
| **Option type**                                              | ** ** | ** ** |       |     |       |     |       |
| Employee (refer note 4(f))                                   | ** ** | **38**     |       | 1,328    |       | 419      |       |
| Consultant                                                   | ** ** | **—** |       | —   |       | 52       |       |
| Medigen (refer note 4(h))                                    | ** ** | **—** |       | —   |       | 1,322    |       |
| Total expense arising from share-based  payment transactions | ** ** | **38**     |       | 1,328    |       | 1,793    |       |

 

**14.CURRENT LIABILITIES - TRADE AND OTHER PAYABLES**

** **
| ** **           | ** ** | **2009**  | ** ** | **2008** | ** ** |
|----------------------|------------|-----------|------------|----------|------------|
| ** **           | ** ** | **$000**  | ** ** | **$000** | ** ** |
| Trade creditors (i)  | ** ** | **654**   |       | 621      |       |
| Other creditors (ii) | ** ** | **779**   |       | 5,904    |       |
|                 | ** ** | **1,433** |       | 6,525    |       |

 

**Australian dollar equivalents**

Australian dollar equivalent of amountspayable in foreign currencies - $504,000 (2008: $4,545,000).

 

**Terms and conditions**

Terms and conditions relating to the above financial instruments:

 

(i)    Trade creditors arenon-interest bearing and are normally settled on 30 day terms.

(ii)   Other creditors arenon-interest bearing and have a term between 30 days and 12 months. In 2008there was one significant creditor balance of $3.4 million.

 

**15.PROVISIONS**

 

**Makegood provision**

In accordance with the lease agreement terms, the parent must restoreits leased premises situated at Darra, Brisbane and Toowong, Brisbane to theiroriginal condition at the end of the lease term.  For the Darra premises the parent providednil in the year 2009 as the provision has reached the full estimated cost torestore the facility, i.e. $128,668 (fully provided in 2007).  For the Toowong premises a provision of$3,000 was amortised during this financial year (2008: $2,000, 2007: $2,500).

 

Because of the long-term nature of the liability,the greatest uncertainty in estimating the provision is the costs that willultimately be incurred. The provision has been calculated using a discount rateof 10 per cent.

 

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**15.PROVISIONS (cont’d)**

 

**Longservice leave provision**

Referto note 2 for the relevant accounting policy and a discussion of thesignificant estimations and assumptions applied in the measurement of thisprovision.

 
| ** **                      | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------------|------------|------------|------------|------------|------------|
| ** **                      | ** ** | **$000**   | ** ** | **$000**   | ** ** |
| ** **                      | ** ** | ** ** | ** ** | ** ** | ** ** |
| Make good  provision            | ** ** | **157**    |       | 154        |       |
|                            | ** ** | ** ** |       |       |       |
| **Employee benefits provision** | ** ** | ** ** |       |       |       |
| Long service  leave             | ** ** | **97**     |       | 134        |       |
| Annual leave                    | ** ** | **185**    |       | 261        |       |
|                            | ** ** | **282**    |       | 395        |       |
|                            | ** ** | **439**    |       | 549        |       |

 

**Movementin provision**

 
| ** **               | ** ** | **Make  good  provision** | ** ** | **Long  service  leave** | ** ** | **Annual  leave** | ** ** | **Total**  | ** ** |
|--------------------------|------------|---------------------------|------------|--------------------------|------------|-------------------|------------|------------|------------|
| ** **               | ** ** | **$000**                  | ** ** | **$000**                 | ** ** | **$000**          | ** ** | **$000**   | ** ** |
| ** **               | ** ** | ** **                | ** ** | ** **               | ** ** | ** **        | ** ** | ** ** | ** ** |
| At 1  July 2008     |       | 154                       |       | 134                      |       | 261               |       | 549        |       |
| Arising during  the year |       | —                    |       | 88                       |       | 188               |       | 276        |       |
| Amortised                |       | 3                         |       | —                   |       | —            |       | 3          |       |
| Utilised                 |       | —                    |       | (125                     | )          | (264              | )          | (389       | )          |
| At 30  June 2009    | ** ** | **157**                   | ** ** | **97**                   | ** ** | **185**           | ** ** | **439**    | ** ** |
|                     | ** ** | ** **                | ** ** | ** **               | ** ** | ** **        | ** ** | ** ** | ** ** |
| Current 2009             |       | —                    |       | 44                       |       | 185               |       | 229        |       |
| Non-current  2009        |       | 157                       |       | 53                       |       | —            |       | 210        |       |
|                     |       | 157                       |       | 97                       |       | 185               |       | 439        |       |
|                     |       |                      |       |                     |       |              |       |       |       |
| Current 2008             |       | —                    |       | 51                       |       | 261               |       | 312        |       |
| Non-current  2008        |       | 154                       |       | 83                       |       | —            |       | 237        |       |
|                     |       | 154                       |       | 134                      |       | 261               |       | 549        |       |

 

**16.DERIVATIVE FINANCIAL INSTRUMENTS**

 
| ** **                 | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|----------------------------|------------|------------|------------|------------|------------|
| ** **                 | ** ** | **$000**   | ** ** | **$000**   | ** ** |
| **Current  Liabilities**   | ** ** | ** ** | ** ** | ** ** | ** ** |
| Forward  currency contract | ** ** | **—** | ** ** | **249**    | ** ** |

 

During 2008 the Group had a significant portion of future financialcommitments in United States Dollars (USD), including payments to serviceproviders in relation to the PI-88 PATHWAY trial and the funding of ProgenPharmaceuticals Inc., based in the United States of America.  Following the termination of the PATHWAYtrial in July 2008, the level of currency exposure was reduced to aninsignificant level, thereby eliminating the need to enter into further forwardcurrency contracts. The final derivative contract was closed out on 31 August 2008,resulting in a foreign exchange gain of $508,000.

 

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**17.**** ****CONTRIBUTEDEQUITY**

 

**a) Issued and paid up capital**

 
| ** **                  | ** ** | **2009**    | ** ** | **2008** | ** ** |
|-----------------------------|------------|-------------|------------|----------|------------|
| ** **                  | ** ** | **$000**    | ** ** | **$000** | ** ** |
| Ordinary  shares fully paid | ** ** | **152,217** |       | 191,357  |       |

 

**b) Movements in shares on issue**

 
| ** **                                                                   | ** ** | **2009**              | ** ** | **2008**    | ** ** |
|------------------------------------------------------------------------------|------------|-----------------------|------------|-------------|------------|
| ** **                                                                   | ** ** | **Number of  shares** | ** ** | **$000**    | ** ** | **Number of  shares** | ** ** | **$000** | ** ** |
| Beginning of the financial year                                              | ** ** | **60,393,891**        | ** ** | **191,357** | ** ** | **59,416,427** | ** ** | **189,194** | ** ** |
| Issued during the year:                                                      | ** ** | ** **            | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| - transaction costs in relation to shares  issued prior to 30 June 2007 | ** ** | **—**            | ** ** | **—**  | ** ** | **—** | ** ** | **(265** | **)** |
| - equity issued as part of CellGate  acquisition (note 20)                   | ** ** | **151,240**           | ** ** | **280**     | ** ** | **806,224** | ** ** | **1,491** | ** ** |
| less transaction costs                                                       | ** ** | **—**            | ** ** | **—**  | ** ** | **—** | ** ** | **(8** | **)** |
| - equity settled transactions (1)                                            | ** ** | **—**            | ** ** | **—**  | ** ** | **171,240** | ** ** | **947** | ** ** |
| less transaction costs                                                       | ** ** | **—**            | ** ** | **—**  | ** ** | **—** | ** ** | **(2** | **)** |
| Off-market share buy-back                                                    | ** ** | **(35,836,034**       | **)**      | **(39,420** | **)**      | **—** | ** ** | **—** | ** ** |
|                                                                         | ** ** | ** **            | ** ** | ** **  | ** ** | ** ** | ** ** | ** ** | ** ** |
| End of the financial year                                                    | ** ** | **24,709,097**        | ** ** | **152,217** | ** ** | **60,393,891** | ** ** | **191,357** | ** ** |

 

----

(1) This equity issue was made under the terms of theMedigen termination agreement. The total obligation was the issue of 732,600shares ($2,029,000), of which 561,360 shares ($1,082,000) were acquiredon-market and transferred to Medigen, and 171,240 new shares were issued toMedigen.

 

**c)  Share options**

At 30 June 2009 there were a totalof 4,085,538 (2008: 5,639,538) unissued ordinary shares in respect of whichoptions were outstanding, comprising of:

 

*Unlisted Share Options*

*(i) Consultant options:*

At 30 June 2009 there were a totalof 20,000 (2008: 20,000) unlisted options over ordinary shares outstanding,which were issued to a consultant during 2008.

 

(ii) *Employee andexecutive share incentive scheme:*

During the 2009 financial year, nooptions were granted to employees or executives.  There were a total of 1,095,000 options overordinary shares outstanding under the employee incentive scheme (2008:1,649,000).

 

*(iii) Medigen options:*

Under the terms of an agreement Progenissued Medigen Biotechnology Corporation 1,000,000 options on 6 June 2007.These options were granted for nil consideration, and were exercisable from thedate of issue and had an exercise price of $7.11. The expiry date of theseoptions was 6 June 2009. The grant date fair value of each option was$1.32. At 30 June 2009 the options issued to Medigen had expired (2008:1,000,000).

 

Refer to note 13 for more detail onunlisted options.

 

*Listed Share Options*

(iv) *Rights**entitlements offer*

In its prospectus dated 10 May 2007, Progen invited applications byway of 1 for 9 non-renounceable entitlement offer for 5,941,343 new shares at$5.74 per share with one free option for each two new shares. The exerciseprice of the options is $8.40. The options are exercisable at any time on orprior to the option expiry date of 28 May 2010. In total 2,970,538 listedoptions were issued over ordinary shares and remain outstanding as at 30 June 2009.

 

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**18.**** ****ACCUMULATED LOSSES AND RESERVES**

 

**Accumulatedlosses**

Movement in accumulated losses were as follows:

 
| ** **       | ** ** | **2009**     | ** ** | **2008** | ** ** |
|------------------|------------|--------------|------------|----------|------------|
| ** **       | ** ** | **$000**     | ** ** | **$000** | ** ** |
| Balance 1 July   | ** ** | **(119,260** | **)**      | (93,112  | )          |
| Net loss         | ** ** | **(5,467**   | **)**      | (26,148  | )          |
| Balance 30  June | ** ** | **(124,727** | **)**      | (119,260 | )          |

 

**Reserves**

**Optionsreserve**

The options reserve is used to record the value of share based paymentsprovided to employees, including key management personnel, as part of theirremuneration. The reserve also includes options issued to consultants and toMedigen.

 

**Foreigncurrency translation reserve**

The foreign currency translation reserve is used to record exchangedifferences arising from the translation of the financial statements of foreignsubsidiaries.

 
| ** **                    | ** ** | **Options  reserve** | ** ** | **Foreign  currency  translation** | ** ** | **Total** | ** ** |
|-------------------------------|------------|----------------------|------------|------------------------------------|------------|-----------|------------|
| ** **                    | ** ** | **$000**             | ** ** | **$000**                           | ** ** | **$000**  | ** ** |
| Balance 1  July 2007     |       | 1,895                |       | —                             |       | 1,895     |       |
| Employee  option reserve      |       | 1,328                |       | —                             |       | 1,328     |       |
| Foreign  currency translation |       | —               |       | (61                                | )          | (61       | )          |
| Balance 30  June 2008    | ** ** | **3,223**            | ** ** | **(61**                            | **)**      | **3,162** | ** ** |
|                          |       |                 |       |                               |       |      |       |
| Balance 1  July 2008     |       | 3,223                |       | (61                                | )          | 3,162     |       |
| Employee  option reserve      |       | 38                   |       | —                             |       | 38        |       |
| Consultant  option reserve    |       | —               |       | —                             |       | —    |       |
| Medigen option  reserve       |       | —               |       | —                             |       | —    |       |
| Foreign  currency translation |       | —               |       | 100                                |       | 100       |       |
| Balance 30  June 2009    | ** ** | **3,261**            | ** ** | **39**                             | ** ** | **3,300** | ** ** |

 

**19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES**

 

The Group’s principal financial instruments comprise cash and short-termdeposits.

 

The Group manages its exposure to key financial risks, includinginterest rate and currency risk in accordance with the Group’s financial riskmanagement policy. The objective of the policy is to support the delivery ofthe Group’s financial targets whilst protecting future financial security.

 

The Group enters into derivative transactions, principally forwardcurrency contracts from time to time. The purpose is to manage the currencyrisk arising from the Group’s operation and its sources of finance. The mainrisks arising from the Group’s financial instruments are cash flow interestrate risk, foreign currency risk and credit risk. The Group uses differentmethods to measure and manage different types of risks to which it is exposed.These include monitoring levels of exposure to interest rate and foreignexchange rates and assessments of market forecasts for interest rate andforeign exchange. Ageing analyses is undertaken to manage credit risk.

 

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**19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)**

 

The Board reviews and agrees policies for managing each of these riskswhich are summarised below.

 

Details of the significant accounting policies and methods adopted,including the criteria for recognition, the basis of measurement and the basison which income and expenses are recognised, in respect of each class offinancial asset, financial liability and equity instrument are disclosed innote 2 to the financial statements.

 

**Creditrisk**

 

The Group trades only with recognised, creditworthy third parties. Allreceivables, including other receivables and except for intercompanyreceivables, are current.

 

The Group’s exposure to bad debts is not significant. All the Group’smaterial cash balances are with a large national Australian bank. Althoughthere is a significant concentration of risk with one bank this is a strongcredit rated bank that is not exposed to the US banking market risks.

 

**Liquidityrisk**

The Group’s objective is to maintain a balance between continuity ofproject research utilising an optimal combination of equity funding andavailable credit lines. Prudent liquidity risk management implies maintainingsufficient cash and marketable securities. The Group has no financialliabilities due after twelve months.

 

The table below reflects all financial liabilities as of 30 June 2009.For derivative financial instruments the market value is presented, whereas forthe other obligations the undiscounted cash flows are presented. Cash flows forfinancial assets and liabilities without fixed amount or timing are based onthe conditions existing at 30 June 2009. The Group had no derivative financial instruments at 30 June 2009.

 

The remaining contractual maturities of the Group’s and parent entity’sfinancial liabilities are:

 
| ** **        | ** ** | **2009**  | ** ** | **2008** | ** ** |
|-------------------|------------|-----------|------------|----------|------------|
| ** **        | ** ** | **$000**  | ** ** | **$000** | ** ** |
| 6 months or  less | ** ** | **3,879** |       | 12,043   |       |

 

**Foreigncurrency risk**

 

During the first half of 2009, the Group significantly reduced its USDollar holdings following the cancellation of the PATHWAY phase 3 trials.  At 30 June 2009, the group heldUS$3,900,000 in cash deposits.

 

At 30 June 2009, the Group had the following exposure to US$currency that is not designated in cash flow hedges:

 
| ** **                | ** ** | **2009**   | ** ** | **2008**   | ** ** |
|---------------------------|------------|------------|------------|------------|------------|
| ** **                | ** ** | **$000**   | ** ** | **$000**   | ** ** |
| **Financial assets**      |       |       |       |       |       |
| Cash and cash equivalents | ** ** | **4,897**  |       | 29,441     |       |
|                      | ** ** | **4,897**  |       | 29,441     |       |
| **Financial liabilities** | ** ** | ** ** | ** ** | ** ** | ** ** |
| Trade and other payables  | ** ** | **504**    |       | 4,655      |       |
|                      | ** ** | **504**    |       | 4,655      |       |
| Net exposure              | ** ** | **4,393**  |       | 24,786     |       |

 

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**19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)**

 

At 30 June 2009, had the Australian Dollar moved, as illustrated inthe table below, with all other variables held constant, post tax profit andequity would have been affected as follows:

 
| ** **    | ** ** | **Post  tax loss  (Higher)/Lower** | ** ** | **Equity  Higher/(Lower)** | ** ** |
|---------------|------------|------------------------------------|------------|----------------------------|------------|
| ** **    | ** ** | **2009**                           | ** ** | **2008**                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **    | ** ** | **$000**                           | ** ** | **$000**                   | ** ** | **$000** | ** ** | **$000** | ** ** |
| AUD/USD + 20% | ** ** | **(732**                           | **)**      | (1,180                     | )          | **—** |   | (3 | ) |
| AUD/USD - 15% | ** ** | **775**                            |       | 2,754                      | ** ** | **—** |   | 6 |   |

 

The sensitivity is lower in 2009 than 2008 due to significant reductionin US Dollar cash and cash equivalents in 2009. The sensitivity analysis in theforeign currency exposure was determined based on historical movements over thepast two years.

 

**Interestrate risk**

The Group’s exposure to market interest rates relates primarily to theGroup’s cash and short-term deposits. These deposits are held to fund the Group’songoing and future drug development activities. Cash at bank of $12.5 millionearns interest at floating rates based on daily bank deposit rates. Short termdeposits of $15.5 million are made for varying periods of between one month andthree months, depending on the immediate cash requirements of the Group, andearn interest at the respective short-term deposit rates. Refer note 8 fordetails on the Group’s cash and cash equivalents at 30 June 2009.

 

The following sensitivity analysis is based on the weighted averageinterest rates applicable to the Group’s cash and short-term deposits inexistence at the balance sheet date.

 

At 30 June 2009, if interest rates had moved, as illustrated in thetable below, with all other variables held constant, post tax loss and equitywould have been affected as follows:

 
| ** **                 | ** ** | **Post  tax loss  (Higher)/Lower** | ** ** | **Equity  Higher/(Lower)** | ** ** |
|----------------------------|------------|------------------------------------|------------|----------------------------|------------|
| ** **                 | ** ** | **2009**                           | ** ** | **2008**                   | ** ** | **2009** | ** ** | **2008** | ** ** |
| ** **                 | ** ** | **$000**                           | ** ** | **$000**                   | ** ** | **$000** | ** ** | **$000** | ** ** |
| + 1.5% (150  basis points) |       | 421                                |       | 384                        |       | — |   | — |   |
| - 0.5% (50  basis points)  |       | (140                               | )          | (767                       | )          | — |   | — |   |

 

The 2009 sensitivity is based on a significantly lower cash balance dueprimarily to the $39 million off-market share buy-back executed in April 2009.  Following the significant fall in interestrates during 2009, the potential upside in interest rates has been increasedover the 2008 analysis, thereby increasing sensitivity.  The sensitivity in interest rates weredetermined based on historical movements over the past two years and managementexpectations of reasonable movements.

 

**Investments**

Investments aremade in accordance with a Board approved Investment Policy. Investments aretypically in bank bills and investment grade commercial paper.

 

Policy stipulates the type of investmentable to be made.  The objective of thepolicy is to maximise interest income within agreed upon credit worthinesscriteria.

 

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**19. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES (CONT’D)**

 

**Maturityanalysis of financial assets and liability based on management’s expectation**

Therisk implied from the values shown in the table below, reflects a balanced viewof cash inflows and outflows. Trade payables and receivables are considered inthe Group’s overall liquidity risk.

 
| **Financial instruments 2009** | ** ** | **1 year or  less** | ** ** | **Over 1 to  5 years** | ** ** | **More  than 5  years** | ** ** | **Total carrying  amount as per  the balance  sheet** | ** ** | **Weighted  average  effective  interest  rates** | ** ** |
|--------------------------------|------------|---------------------|------------|------------------------|------------|-------------------------|------------|-------------------------------------------------------|------------|---------------------------------------------------|------------|
| ** **                     | ** ** | **$000**            | ** ** | **$000**               | ** ** | **$000**                | ** ** | **$000**                                              | ** ** | **%**                                             | ** ** |
| **Financial assets**           | ** ** | ** **          | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
| Cash and cash equivalents      |       | 28,045              | ** ** | **—**             | ** ** | **—**              |       | 28,045                                                |       | 3.2                                               |       |
| Trade and other receivables    |       | 294                 | ** ** | **—**             | ** ** | **—**              |       | 294                                                   |       | —                                            |       |
| Security deposit               |       | 100                 | ** ** | **—**             | ** ** | **—**              |       | 100                                                   |       | 4.1                                               |       |
|                           |       | 28,439              | ** ** | **—**             | ** ** | **—**              |       | 28,439                                                | ** ** | ** **                                        | ** ** |
|                           | ** ** | ** **          | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
| **Financial liabilities**      | ** ** | ** **          | ** ** | ** **             | ** ** | ** **              | ** ** | ** **                                            | ** ** | ** **                                        | ** ** |
| Trade and other payables       |       | 1,433               |       | —                 | ** ** | **—**              |       | 1,433                                                 | ** ** | **—**                                        | ** ** |
|                           |       | 1,433               | ** ** | **—**             | ** ** | **—**              |       | 1,433                                                 | ** ** | ** **                                        | ** ** |
| Net maturity                   |       | 27,006              |       | —                 | ** ** | **—**              |       | 27,006                                                | ** ** | ** **                                        | ** ** |

 

**20.ASSET ACQUISITIONS**

 

**2008Acquisition of CellGate, Inc.**

On 4 February 2008,Progen executed a Definitive Agreement to acquire 100% of the voting shares ofCellGate, Inc. (“CellGate”), a privately-held biotechnology company basedin the U.S. with oncology assets based on epigenetic and polyamine inhibition.CellGate’s assets include a lead product candidate in Phase 1 and multiplepre-clinical compounds. The acquisition of this entity was not considered tomeet the definition of a business combination and accordingly was accounted foras an acquisition of net assets, without goodwill.

 

Underthe terms of the agreement, the up-front purchase price comprised the issue of756,199 Progen shares having a value of approximately US$1.5 million and theassumption by Progen of CellGate net liabilities up to US$1.0 million. Theshares were issued as follows: 604,959 Progen shares were issued on closing,75,620 Progen shares on the date 6 months after closing and 75,620 Progenshares on the date 12 months after closing. The 6 and 12 month deferred issuesof shares were issued during the 2009 financial year.

 

CellGate’snet liabilities at closing amounted to US$279,000, therefore under the terms ofthe Definitive Agreement Progen issued an additional 201,265 Progen shares andpaid US$328,000 in cash.

 

Additionalmilestone payments of up to US$19.5 million, payable to the CellGateshareholders in Progen shares (to the extent permissible without shareholderapproval) and/or cash, are to be made upon the achievement of certain clinicaland regulatory milestones in respect of the assets of CellGate. To the extentthe milestones are met and Progen shares are required to be issued, the numberof shares to be issued will be calculated by reference to a volume weightedaverage price of Progen shares for the 30 trading days immediately before thedate on which the relevant milestones are reached. No provision has beenrecognised for the US$19.5 million because the achievement of the milestonesare not currently considered probable.

 

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**20.**  ** ASSET ACQUISITIONS (cont’d)**

 

The fair value of the identifiable assets andliabilities of CellGate, Inc. as at the date of acquisition were:

 
| ** **                                     | ** ** | **Fair  value  on  acquisition** | ** ** | **Carrying  value** | ** ** |
|------------------------------------------------|------------|----------------------------------|------------|---------------------|------------|
| ** **                                     | ** ** | **$000**                         | ** ** | **$000**            | ** ** |
| Cash and cash  equivalents                     |       | 930                              |       | 930                 |       |
| Trade and  other receivables                   |       | 45                               |       | 45                  |       |
| Property,  plant and equipment                 |       | 27                               |       | 27                  |       |
| Intellectual  property rights                  |       | 3,515                            |       | —              |       |
|                                           |       | 4,517                            |       | 1,002               |       |
|                                           |       |                             |       |                |       |
| Trade and  other payables                      |       | 436                              |       | 436                 |       |
| Interest  bearing loans                        |       | 803                              |       | 803                 |       |
|                                           |       | 1,239                            |       | 1,239               |       |
|                                           |       |                             |       |                |       |
| Net assets  acquired                           |       | 3,278                            |       | (237                | )          |
|                                           |       |                             |       |                |       |
| Cost of the  acquisition:                      |       |                             |       |                |       |
| Shares issued,  at fair value                  |       | 1,491                            |       |                |       |
| Shares to be  issued, at fair value            |       | 279                              |       |                |       |
| Cash paid                                      |       | 360                              |       |                |       |
| Direct costs  relating to the acquisition      |       | 1,148                            |       |                |       |
| Total costs of  the acquisition                |       | 3,278                            |       |                |       |
|                                           |       |                             |       |                |       |
| The cash  inflow on acquisition is as follows: |       |                             |       |                |       |
| Cash acquired  with the net assets             |       | 930                              |       |                |       |
| Cash paid                                      |       | (360                             | )          |                |       |
| Net cash  inflow                               |       | 570                              |       |                |       |

 

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**21.EXPENDITURE COMMITMENTS**

 

**(a) Expenditurecommitments**

Thefollowing expenditure commitments had been contracted but not provided:

 

*Preclinical research study agreements*

During the financial year 2009, the Groupentered into various preclinical research study agreements. The committed valueof these agreements for the next financial year is $38,000 (2008:$771,000 2007:$50,000).

 

*Insurance premium*

In August 2009 the Group committedto paying the Group’s comprehensive insurance premium for the year ended 30 June 2010.The total value of these premiums is $432,000 (2008: $510,000, 2007: $517,000).

 

*Consultant agreements*

During the financial year 2009 Progenentered into various consultant agreements with a committed value of $48,000for the next financial year (2008: $104,000, 2007: $381,200).

 

*Purchases*

At the end of the financial year 2009 Progen ordered goodsand services with a total value of $256,000 which had not been delivered by 30 June 2009(2008: $172,000, 2007: $417,000).

 
| ** **                                                                                     | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                                                                     | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
| Future  expenditure commitments not provided for in the financial statements and  payable:     |       |       |       |     |       |     |       |
| - not later  than one year:                                                                    |       |       |       |     |       |     |       |
| Research  agreements                                                                           | ** ** | **38**     |       | 771      |       | 50       |       |
| Consultant  agreements                                                                         | ** ** | **48**     |       | 104      |       | 381      |       |
| Insurance  premium                                                                             | ** ** | **432**    |       | 510      |       | 517      |       |
| Purchases                                                                                      | ** ** | **33**     |       | 172      |       | 417      |       |
| Remuneration  commitments                                                                      | ** ** | **—** |       | 213      |       | —   |       |
| Medigen  termination agreement (refer note 10)                                                 | ** ** | **—** |       | —   |       | 2,000    |       |
| Total not  later than one year                                                                 | ** ** | **551**    |       | 1,770    |       | 3,365    |       |
| - later than  one and not longer than five years:                                              | ** ** | **—** |       | —   |       | —   |       |
| Total expenditure  commitments                                                                 | ** ** | **551**    |       | 1,770    |       | 3,365    |       |
|                                                                                           |       |       |       |     |       |     |       |
| **(b) Non-cancellable operating lease commitments**                                       |       |       |       |     |       |     |       |
| Future  operating lease commitments not provided for in the financial statements and  payable: |       |       |       |     |       |     |       |
| Minimum lease  payments                                                                        |       |       |       |     |       |     |       |
| - not later  than one year                                                                     | ** ** | **223**    |       | 197      |       | 248      |       |
| - later than  one and not longer than five years                                               | ** ** | **—** |       | —   |       | 78       |       |
| - aggregate  lease expenditure contracted for at balance date                                  | ** ** | **223**    |       | 197      |       | 326      |       |

 

The operating lease commitments relate primarily to therental of the Group’s corporate office premises and manufacturing facilitywhich has an option to extend the lease term for another 2 years, at the end ofthe lease period.

 

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**21.EXPENDITURE COMMITMENTS (cont’d)**

 

**(c) Clinical trials**

 
| ** **                                         | ** ** | **2009**   | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------|------------|------------|------------|----------|------------|----------|------------|
| ** **                                         | ** ** | **$000**   | ** ** | **$000** | ** ** | **$000** | ** ** |
| Clinical  trials                                   |       |       |       |     |       |     |       |
| - not later  than one year:                        |       |       |       |     |       |     |       |
| PI-88 phase 2b  Melanoma trial                     | ** ** | **233**    |       | 248      |       | 643      |       |
| PI-88  Lung & Prostate trials             | ** ** | **—** |       | —   |       | —   |       |
| PI-88 others                                       | ** ** | **—** |       | —   |       | —   |       |
| PI-166 phase 1  trial                              | ** ** | **—** |       | 13       |       | 30       |       |
| PG11047 phase  1 trial                             | ** ** | **1,349**  |       | 358      |       | —   |       |
| PI-88 phase 3  trial (PATHWAY trial) - termination | ** ** | **—** |       | 4,000    |       | —   |       |
| ** **                                         |       | **1,582**  |       | 4,619    |       | 673      |       |
| - later than  one and not longer than five years:  |       |       |       |     |       |     |       |
| PI-88 phase 2b  Melanoma trial                     |       | —     |       | —   |       | 143      |       |
| PG11047 phase  1 trial                             | ** ** | **90**     |       | 265      |       | —   |       |
| ** **                                         |       | **90**     |       | 265      |       | 143      |       |

 

**22. EMPLOYEE BENEFITS AND SUPERANNUATION COMMITMENTS**

 
| ** **                                                     | ** ** | **2009** | ** ** | **2008** | ** ** | **2007** | ** ** |
|----------------------------------------------------------------|------------|----------|------------|----------|------------|----------|------------|
| ** **                                                     | ** ** | **$000** | ** ** | **$000** | ** ** | **$000** | ** ** |
| The aggregate  employee entitlement liability is comprised of: |       |     |       |     |       |     |       |
| Accrued wages,  salaries and on-costs                          | ** ** | **54**   |       | 292      |       | 152      |       |
| Provisions  (current)                                          | ** ** | **229**  |       | 312      |       | 266      |       |
| Provisions  (non-current)                                      | ** ** | **210**  |       | 237      |       | 100      |       |
|                                                           | ** ** | **493**  |       | 841      |       | 518      |       |

### ** **

### **Superannuation**

Theparent makes no superannuation contributions other than the statutorysuperannuation guarantee levy. The Group does not operate a defined benefitplan on behalf of its employees.

Theparent contributed $228,397 on behalf of employees to superannuation funds forthe year ended 2009. (2008:396,210, 2007: $311,449).

 

**23.CONTINGENCIES**

 

**Governmentgrants**

TheGroup has received two separate Australian Government research grants: aR&D Start Grant, which has been completed, and a R&D Commercial ReadyGrant.  The Government may require theGroup to repay all or some of the amount of a particular grant together withinterest in either of the following circumstances:

 

a)         The Group fails to use its best endeavoursto commercialise the relevant grant project within a reasonable time ofcompletion of the project;

b)        Upon termination of a grant and/or at theGovernment’s discretion;

c)         Overpayment by the government;

d)        The Group spends the fund other than inaccordance with the grant deed.

 

The Groupcontinues the development and commercialisation of projects funded by thesegrants. The total amount received under the Start Program was $3.1 million. Thetotal amount received under the Commercial Ready Program up to 30 June 2009was $2.972 million (2008: $2.596 million). Both grants are now complete

 

F - 39

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**23.CONTINGENCIES (CONT’D)**

 

**MedigenTermination Agreement**

Underclause 5.5 of the ASA Termination Agreement terminating the strategic alliancewith Medigen Biotechnology Corporation, the group is obligated to pay $2million upon a defined P1-88 commercialisation milestone, a specifiedcommercial milestone or a transaction event being achieved.  At the date of this report, no such event hasoccurred to trigger these provisions in the termination agreement.

 

**License of muparfostat (formerly PI-88) toGlobal TransBiotech Inc.**

 

On 30 June 2009, PharmaSynth Pty Ltd executed abinding agreement with Global TransBiotech Inc for the global licensing ofmuparfostat, the group’s lead anti-cancer product formerly known as PI-88.  Under the agreement, Progen will retain thedevelopment and commercialisation rights of muparfostat in Australia,PharmaSynth will provide the technical and manufacturing support to US-basedGlobal TransBiotech to develop and commercialise muparfostat elsewhere in theworld, with an initial focus on Taiwan, China, Hong Kong and Singapore.

 

The licence agreement provides for future milestonepayments to the Group of up to US$5 million, as well as royalties onmuparfostat sales.

 

**24. SUBSEQUENT EVENTS**

** **

On 18 November 2009,the company entered into three Deeds of Settlement and Release (“Settlements”)with various shareholders including Medigen (“Respondents”).  As part of the Settlement Progen has agreed topay Medigen $1.8 million and that Justus Homburg, CEO will cease employment. Inreturn the Respondents agreed to:

 

·  release Progenfrom any further payment under clause 5.5 of the ASA Termination Agreement,being $2 million payable upon a transaction event

·  not act in anymanner that contravenes section 606 of the Corporations Act (‘the Act’)

·  not to cause ageneral meeting of members of Progen to be convened under any of section 249D,249E, 249F or 249G of the Act for a period of 18 months and not to cause aresolution to be considered at a general meeting of members under sections 249Nand 249O of the Act for a period of 18 months, concerning resolutions electing,appointing or removing a director or otherwise affecting the tenure ofdirectors or the composition of the Board;

·  for a period of 18months, cause their shares to be voted on resolutions electing, appointing orremoving a director or otherwise affecting the tenure of directors or thecomposition of the Board, in accordance with the recommendations of a majorityof directors of Progen.

 

The$1.8 million was paid on 25 November 2009. There are no further obligations to Medigen under the terminationagreement.

 

**25.  AUDITORS’ REMUNERATION**

 
| ** **                                                             | ** ** | **2009**    | ** ** | **2008** | ** ** | **2007** | ** ** |
|------------------------------------------------------------------------|------------|-------------|------------|----------|------------|----------|------------|
| ** **                                                             | ** ** | **$**       | ** ** | **$**    | ** ** | **$**    | ** ** |
| Amounts received or due and receivable by  Ernst & Young for: |       |        |       |     |       |     |       |
| (a) Audit or review of the financial  reports of the entity       | ** ** | ** **  |       |     |       |     |       |
| -  The  Australian financial report of the entity                 | ** ** | **175,500** |       | 135,000  |       | 119,500  |       |
| -  The  US financial report of the entity                         | ** ** | **80,000**  |       | 60,000   |       | 60,000   |       |
| -  Grant audit                                                    | ** ** | **—**  |       | 15,500   |       | 6,000    |       |
| (b) Other audit services in relation  to the entity               | ** ** | ** **  |       |     |       |     |       |
| -  Sarbanes-Oxley  internal control audit                         | ** ** | **15,000**  |       | 105,000  |       | —   |       |
|                                                                   | ** ** | **270,500** |       | 315,500  |       | 185,500  |       |
| (c) Other non-audit services in  relation to the entity           | ** ** | ** **  |       |     |       |     |       |
| -  other  non-audit services                                      | ** ** | **—**  |       | —   |       | 146,929  |       |
| -  agreed  upon procedures related                                | ** ** | **—**  |       | 40,105   |       | —   |       |
|                                                                   | ** ** | **—**  |       | 40,105   |       | 146,929  |       |
|                                                                   | ** ** | **270,500** |       | 355,605  |       | 332,429  |       |

 

Othernon-audit services were assurance services in relation to the Group’s capitalraising efforts.

 

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Agreedupon procedures related services were provided by Ernst & Young PaloAlto, U.S.A, in relation to the Group’s acquisition of CellGate, Inc.

 

**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTYDISCLOSURES**

 

**(a) Detailsof key management personnel**

 

(i)         Directors

 
| M.  Eutick      |   | Chairman  (non-executive) — resigned as Chairman 27 March 2009                        |
|-----------------|--------|-------------------------------------------------------------------------------------------------|
| T.J.  Homburg   |   | Chief  Executive Officer; resigned as director 1 July 2009                                 |
| S.  Chang       |   | Non-executive  Director — appointed Chairman 27 March 2009; resigned 1 July 2009 |
| J.  Zalcberg    |   | Non-executive  Director — resigned 4 September 2008                                   |
| P.  Burns       |   | Non-executive  Director — resigned 27 March 2009                                      |
| J.  Lee         |   | Non-executive  Director — resigned 27 March 2009                                      |
| R.  Williamson  |   | Non-executive  Director — resigned 27 March 2009                                      |
| W.  Hanisch     |   | Non-Executive  Director — appointed 27 March 2009; resigned 1 July 2009          |
| S.  James       |   | Chairman  (non-executive) - appointed 1 July 2009                                          |
| J.  Chiplin     |   | Non-executive  Director - appointed 1 July 2009                                            |
| J.  Cherrington |   | Non-executive  Director - appointed 1 July 2009                                            |
| G.  Schooley    |   | Non-executive  Director - appointed 1 July 2009                                            |
| T.  Burt        |   | Non-executive  Director - appointed 17 July 2009                                           |
| H.H.  Tang      |   | Non-executive  Director - appointed 17 July 2009                                           |
| J.Y.C  Lin      |   | Non-executive  Director - appointed 17 July 2009                                           |

 

(ii)        Executives

 
| L.  Burns      |   | Chief  Operating Officer (resigned 9 January 2009) and Company Secretary  (resigned 10 December 2008) |
|----------------|--------|-----------------------------------------------------------------------------------------------------------------|
| S.  Meibusch   |   | Vice  President, Business Development — resigned 6 May 2009                                           |
| J.  Garner     |   | Vice  President, Medical and Clinical Affairs — resigned 8 December 2008                              |
| J.  Devlin     |   | Vice  President, Manufacturing Operations — resigned 4 September 2008                                 |
| A.  Gautam     |   | Vice  President, Research — resigned 29 May 2008                                                      |
| L.  Marton     |   | Chief  Scientific Officer                                                                                       |
| M.  Fitzgerald |   | Director  — Clinical Operations US                                                                         |
| P.  Dixon      |   | General  Manager — Finance and Company Secretary — appointed 3 April 2009                        |

 

**(b) Remuneration of directors and key management personnel**

 
| ** **                                       | ** ** | **2009**      | ** ** | **2008**  | ** ** | **2007**  | ** ** |
|--------------------------------------------------|------------|---------------|------------|-----------|------------|-----------|------------|
| ** **                                       | ** ** | ** **    | ** ** | **$**     | ** ** | **$**     | ** ** |
| Short term employee benefits                     | ** ** | **1,687,790** |       | 1,898,546 |       | 1,454,791 |       |
| Post-employment benefits                         | ** ** | **149,973**   |       | 160,077   |       | 112,479   |       |
| Share-based payments                             | ** ** | **86,890**    |       | 555,464   |       | 350,444   |       |
| Termination payment                              | ** ** | **122,019**   |       | 245,000   |       | —    |       |
| **Total key management personnel  compensation** | ** ** | **2,046,672** |       | 2,859,087 |       | 1,917,714 |       |

 

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**26. DIRECTOR AND EXECUTIVE AND RELATED PARTY DISCLOSURES (cont’d)**

 

**(b) Remuneration of directors and key management personnel (cont’d)**

 

Table 1: Non-executive directors’ remuneration for theyear ended 30 June 2009.

 
| ** **             | ** ** | ** ** | ** ** | **Short term**       | ** ** | **Post  employment** | ** ** | ** **                 | ** ** | **Share-  based  payment** | ** ** | ** **               | ** ** |
|------------------------|------------|------------|------------|----------------------|------------|----------------------|------------|----------------------------|------------|----------------------------|------------|--------------------------|------------|
| **Directors**          | ** ** | ** ** | ** ** | **Salary  and fees** | ** ** | **Cash  bonus**      | ** ** | **Non  monetary benefits** | ** ** | **Superannuation**         | ** ** | **Termination  payment** | ** ** | **Options** | ** ** | **Total** | ** ** |
| ** **             | ** ** | ** ** | ** ** | **$**                | ** ** | **$**                | ** ** | **$**                      | ** ** | **$**                      | ** ** | **$**                    | ** ** | **$** | ** ** | **$** | ** ** |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Mal  Eutick(1)         | ** ** | **2009**   | ** ** | **67,788**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **6,101**                  | ** ** | **—**               | ** ** | **—** | ** ** | **73,889** | ** ** |
|                   |       | 2008       |       | 67,043               |       | —               |       | —                     |       | 6,034                      |       | —                   |       | — |   | 73,077 |   |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Stephen Chang(2)       | ** ** | **2009**   | ** ** | **119,730**          | ** ** | **—**           | ** ** | **—**                 | ** ** | **5,826**                  | ** ** | **—**               | ** ** | **—** | ** ** | **125,556** | ** ** |
|                   |       | 2008       |       | 258,495              |       | —               |       | —                     |       | 32,167                     |       | 145,000                  |       | — |   | 435,662 |   |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| John  Zalcberg(3)      | ** ** | **2009**   | ** ** | **12,608**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **1,135**                  | ** ** | **—**               | ** ** | **—** | ** ** | **13,743** | ** ** |
|                   |       | 2008       |       | 55,046               |       | —               |       | —                     |       | 4,954                      |       | —                   |       | — |   | 60,000 |   |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Patrick Burns(1)       | ** ** | **2009**   | ** ** | **44,333**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**               | ** ** | **—** | ** ** | **44,333** | ** ** |
|                   |       | 2008       |       | 60,000               |       | —               |       | —                     |       | —                     |       | —                   |       | — |   | 60,000 |   |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| John Lee(1)            | ** ** | **2009**   | ** ** | **45,000**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**               | ** ** | **—** | ** ** | **45,000** | ** ** |
|                   |       | 2008       |       | 19,450               | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**               | ** ** | **—** |   | 19,450 |   |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Rob  Williamson(1)     | ** ** | **2009**   | ** ** | **44,333**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**               | ** ** | **—** | ** ** | **44,333** | ** ** |
|                   |       | 2008       |       | 19,450               | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**               | ** ** | **—** |   | 19,450 |   |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Wolfgang  Hanisch(4)   | ** ** | **2009**   | ** ** | **11,526**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **4,307**                  | ** ** | **—**               | ** ** | **—** | ** ** | **15,833** | ** ** |
|                   |       | 2008       | ** ** | **—**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**               | ** ** | **—** | ** ** | **—** | ** ** |
|                   | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **               | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total  - Non-executive | ** ** | **2009**   | ** ** | **345,318**          | ** ** | **—**           | ** ** | **—**                 | ** ** | **17,369**                 | ** ** | **—**               | ** ** | **—** | ** ** | **362,687** | ** ** |
| Directors              |       | 2008       |       | 479,484              |       | —               |       | —                     |       | 43,155                     |       | 145,000                  |       | — |   | 667,639 |   |

 

----

(1) Resigned 27 March 2009

(2) Resigned as Executive Chairman on 3 March 2008and continued as Non-Executive Director until 27 March 2009 when he wasappointed as Non-Executive Chairman until 1 July 2009

(3) Resigned 4 September 2008

(4) Appointed 27 March 2009

 

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**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTYDISCLOSURES (cont’d)**

 

**(b) Remuneration of directors and key management personnel (cont’d)**

 

Table 2: Remuneration for the other key managementpersonnel for the year ended 30 June 2009.

 
| ** **                          | ** ** | ** ** | ** ** | **Short term**       | ** ** | **Post  employment** | ** ** | ** **                 | ** ** | **Share-  based  payment** | ** ** | ** **              | ** ** |
|-------------------------------------|------------|------------|------------|----------------------|------------|----------------------|------------|----------------------------|------------|----------------------------|------------|-------------------------|------------|
| **Other key management  personnel** | ** ** | ** ** | ** ** | **Salary  and fees** | ** ** | **Cash  bonus**      | ** ** | **Non  monetary benefits** | ** ** | **Superannuation**         | ** ** | **Termination payment** | ** ** | **Options** | ** ** | **Total** | ** ** |
| ** **                          | ** ** | ** ** | ** ** | **$**                | ** ** | **$**                | ** ** | **$**                      | ** ** | **$**                      | ** ** | **$**                   | ** ** | **$** | ** ** | **$** | ** ** |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| T Justus Homburg                    | ** ** | **2009**   | ** ** | **295,083**          | ** ** | **—**           | ** ** | **18,959**                 | **(1)**    | **25,377**                 | ** ** | **—**              | ** ** | **32,099** | ** ** | **371,518** | ** ** |
|                                |       | 2008       |       | 287,703              |       | 138,608              |       | 7,386                      |       | 28,889                     |       | —                  |       | 135,259 |   | 597,845 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Linton Burns (3)                    | ** ** | **2009**   | ** ** | **93,707**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **28,151**                 | ** ** | **—**              | ** ** | **—** | ** ** | **121,858** | ** ** |
|                                |       | 2008       |       | 190,000              |       | 68,807               |       | —                     |       | 23,293                     |       | —                  |       | 109,609 |   | 391,709 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Anand Gautam (7)                    | ** ** | **2009**   | ** ** | **—**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **—**                 | ** ** | **—**              | ** ** | **—** | ** ** | **—** | ** ** |
|                                |       | 2008       |       | 150,744              |       | —               |       | —                     |       | 13,200                     |       | 100,000                 |       | 54,304 |   | 318,248 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Sarah Meibusch (4)                  | ** ** | **2009**   | ** ** | **138,680**          | ** ** | **50,000**           | ** ** | **—**                 | ** ** | **15,586**                 | ** ** | **98,942**              | ** ** | **11,061** | ** ** | **314,269** | ** ** |
|                                |       | 2008       |       | 117,546              |       | —               |       | —                     |       | 10,579                     |       | —                  |       | 109,609 |   | 237,734 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| James Garner (5)                    | ** ** | **2009**   | ** ** | **89,974**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **7,322**                  | ** ** | **—**              | ** ** | **—** | ** ** | **97,296** | ** ** |
|                                |       | 2008       |       | 175,000              |       | —               |       | —                     |       | 15,750                     |       | —                  |       | 55,305 |   | 246,055 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| John Devlin(6)                      | ** ** | **2009**   | ** ** | **17,363**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **8,022**                  | ** ** | **23,077**              | ** ** | **—** | ** ** | **48,462** | ** ** |
|                                |       | 2008       |       | 150,000              |       | —               |       | —                     |       | 13,500                     |       | —                  |       | 55,305 |   | 218,805 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Laurence Marton(9)                  | ** ** | **2009**   | ** ** | **419,004**          | ** ** | **—**           | ** ** | **—**                 | ** ** | **30,115**                 | **(2)**    | **—**              | ** ** | **30,416** | ** ** | **479,535** | ** ** |
|                                |       | 2008       |       | 133,268              |       | —               |       | —                     |       | 11,711                     | (2)        | —                  |       | 36,073 |   | 181,052 |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Michael Fitzgerald                  | ** ** | **2009**   | ** ** | **169,888**          | ** ** | **15,051**           | ** ** | ** **                 | ** ** | **14,902**                 | **(2)**    | **—**              | ** ** | **13,314** | ** ** | **213,155** | ** ** |
|                                |       | 2008       |       | —               |       | —               |       | —                     |       | —                     |       | —                  |       | — |   | — |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              |       |   | ** ** | ** ** | ** ** |
| Paul Dixon (8)                      | ** ** | **2009**   | ** ** | **34,763**           | ** ** | **—**           | ** ** | **—**                 | ** ** | **3,129**                  | ** ** | **—**              |       | — | ** ** | **37,892** | ** ** |
|                                |       | 2008       |       | —               |       | —               |       | —                     |       | —                     |       | —                  |       | — |   | — |   |
|                                | ** ** | ** ** | ** ** | ** **           | ** ** | ** **           | ** ** | ** **                 | ** ** | ** **                 | ** ** | ** **              | ** ** | ** ** | ** ** | ** ** | ** ** |
| Total - Other key                   | ** ** | **2009**   | ** ** | **1,258,462**        | ** ** | **65,051**           | ** ** | **18,959**                 | ** ** | **132,604**                | ** ** | **122,019**             | ** ** | **86,890** | ** ** | **1,683,985** | ** ** |
| management personnel                |       | 2008       |       | 1,204,261            |       | 207,415              |       | 7,386                      |       | 116,922                    |       | 100,000                 |       | 555,464 |   | 2,191,448 |   |

 

----

(1) This represents a car under a novated leasearrangement.

(2) This represents US based health plans

(3) Resigned 9 January 2009

(4) Resigned 6 May 2009

(5) Resigned 8 December 2008

(6) Resigned 4 September 2008

(7) Resigned 29 May 2008

(8) Appointed 3 April 2009

(9) Appointed 6 February 2008

 

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**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTYDISCLOSURES (cont’d)**

 

**(c)****         ****Option holdings of keymanagement personnel**

 

Duringthe course of the 2009 financial year the following options were vested to keymanagement personnel of the Company under the terms of The Progen Directors andEmployee Option Incentive Plan. No options were granted to Directors during the2009 financial year.

 

**Numberof options vested and forfeited during the year**

 
| ** **   | ** ** | **Grant date** | ** ** | **Expiry date** | ** ** | **No. of  options  granted** | ** ** | **No. of  options  vested** | ** ** | **No. of  options  forfeited /  expired** | ** ** | **Exercise  price** | ** ** | **Fair  Value  per  option at  grant  date** | ** ** | **Date  exercisable** | ** ** |
|--------------|------------|----------------|------------|-----------------|------------|-----------------------------------|------------|----------------------------------|------------|------------------------------------------------|------------|---------------------|------------|----------------------------------------------|------------|-----------------------|------------|
| T J Homburg  |       | 30-Nov-2006    |       | 1-Mar-2011      |       | —                            |       | 166,666                          |       | —                                         |       | $                   | 1.07       |                                         | $          | 0.98                  |       | 1-Mar-2009 |   |
| TJ Homburg   |       | 8-Apr-2006     |       | 8-Nov-2008      |       | —                            |       | —                           |       | 30,000                                         | (3)        | $                   | 3.09       |                                         | $          | 0.78                  |       | 8-Apr-2006 |   |
| L Burns      |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | 50,000                           |       | 50,000                                         | (2)        | $                   | 3.61       |                                         | $          | 1.33                  |       | 14-Sep-2008 |   |
| L Burns      |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | —                           |       | 50,000                                         | (2)        | $                   | 3.61       |                                         | $          | 1.09                  |       | 14-Sep-2007 |   |
| A Gautam     |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | —                           |       | 50,000                                         | (1)        | $                   | 3.61       |                                         | $          | 1.33                  |       | 14-Sep-2008 |   |
| A Gautam     |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | —                           |       | 50,000                                         | (2)        | $                   | 3.61       |                                         | $          | 1.09                  |       | 14-Sep-2007 |   |
| S Meibusch   |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | 50,000                           |       | —                                         |       | $                   | 3.61       |                                         | $          | 1.33                  |       | 14-Sep-2008 |   |
| J Garner     |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | 50,000                           |       | 50,000                                         | (2)        | $                   | 3.61       |                                         | $          | 1.33                  |       | 14-Sep-2008 |   |
| J Devlin     |       | 14-Sep-2007    |       | 13-Sep-2012     |       | —                            |       | —                           |       | 50,000                                         | (1)        | $                   | 3.61       |                                         | $          | 1.33                  |       | 14-Sep-2008 |   |
| L Marton     |       | 1-Feb-2008     |       | 1-Feb-2013      |       | —                            |       | 75,000                           |       | —                                         |       | $                   | 2.22       |                                         | $          | 0.66                  |       | 1-Feb-2009 |   |
| M Fitzgerald |       | 10-Mar-2008    |       | 10-Mar  2013    |       | —                            |       | 25,000                           |       | —                                         |       | $                   | 1.42       |                                         | $          | 0.53                  |       | 10-Mar-2009 |   |

 

----

(1) Forfeited options due to resignation

(2) Expired options due to resignation

(3) Option expiry date reached

 

Thefollowing table summarises the value of options granted, exercised or expiredduring the 2009 financial year to directors and key management personnel.

 
| ** **  | ** ** | **Value of options  granted during  the year ^** | ** ** | **Value of options  exercised during  the year** | ** ** | **Value of options  expired during  the year** | ** ** | **Value of options  forfeited during  the year** | ** ** | **Remuneration  consisting of  options for the  year** | ** ** |
|-------------|------------|--------------------------------------------------|------------|--------------------------------------------------|------------|------------------------------------------------|------------|--------------------------------------------------|------------|--------------------------------------------------------|------------|
| ** **  | ** ** | **$**                                            | ** ** | **$**                                            | ** ** | **$**                                          | ** ** | **$**                                            | ** ** | **%**                                                  | ** ** |
| T J Homburg |       | —                                           |       | —                                           |       | 23,400                                         |       | —                                           |       | 8.6                                                    |       |
| L Burns     |       | —                                           |       | —                                           |       | 120,670                                        |       | —                                           |       | —                                                 |       |
| A Gautam    |       | —                                           |       | —                                           |       | 54,304                                         |       | 66,366                                           |       | —                                                 |       |
| S Meibusch  |       | —                                           |       | —                                           |       | —                                         |       | —                                           |       | 3.5                                                    |       |
| J Garner    |       | —                                           |       | —                                           |       | 66,366                                         |       | —                                           |       | —                                                 |       |
| J Devlin    |       | —                                           |       | —                                           |       | —                                         |       | 66,366                                           |       | —                                                 |       |
| L Marton    |       | —                                           |       | —                                           |       | —                                         |       | —                                           |       | 6.3                                                    |       |
| MFitzgerald |       | —                                           |       | —                                           |       | —                                         |       | —                                           |       | 6.2                                                    |       |

 

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^ For details on thevaluation of options, including models and assumptions used, please refer tonote 13.

 

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Table ofContents

 

**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTYDISCLOSURES (cont’d)**

 

**(c)   Option holdings of key management personnel(cont’d)**

** **
| ** **           | ** ** | **Balance at  beginning  of period** | ** ** | ** **                     | ** ** | ** **             | ** ** | **Options**              | ** ** | **Balance at  end of  period** | ** ** | **At 30 June 2009** | ** ** |
|----------------------|------------|--------------------------------------|------------|--------------------------------|------------|------------------------|------------|--------------------------|------------|--------------------------------|------------|--------------------------|------------|
| ** **           | ** ** | **1 July  2008**                     | ** ** | **Granted as****remuneration** | ** ** | **Options  exercised** | ** ** | **forfeited /  expired** | ** ** | **30 June  2009**              | ** ** | **Total  Vested**        | ** ** | **Total  Exercisable** | ** ** |
| **Directors**        |       |                                 |       |                           |       |                   |       |                     |       |                           |       |                     |       |   |   |
| S. Chang(1)          |       | 41,014                               |       | —                         |       | —                 |       | —                   |       | 41,014                         |       | 41,014                   |       | 41,014 |   |
| T. J. Homburg        |       | 531,389                              |       | —                         |       | —                 |       | (30,000                  | )          | 501,389                        |       | 501,389                  |       | 501,389 |   |
| Prof. J. Zalcberg(2) |       | —                               |       | —                         |       | —                 |       | —                   |       | —                         |       | —                   |       | — |   |
| Dr M. Eutick(3)      |       | 885                                  |       | —                         |       | —                 |       | —                   |       | 885                            |       | 885                      |       | 885 |   |
| P.O. Burns(3)   |       | 28                                   |       | —                         |       | —                 |       | —                   |       | 28                             |       | 28                       |       | 28 |   |
| R. Williamson(3)     |       | —                               |       | —                         |       | —                 |       | —                   |       | —                         |       | —                   |       | — |   |
| J. Lee(3)            |       | —                               |       | —                         |       | —                 |       | —                   |       | —                         |       | —                   |       | — |   |
| W. Hanisch(4)        |       | —                               |       | —                         |       | —                 |       | —                   |       | —                         |       | —                   |       | — |   |
|                 |       |                                 |       |                           |       |                   |       |                     |       |                           |       |                     |       |   |   |
| **Executives**       |       |                                 |       |                           |       |                   |       |                     |       |                           |       |                     |       |   |   |
| L. Burns(5)          |       | 100,218                              |       | —                         |       | —                 |       | (100,000                 | )          | 218                            |       | 218                      |       | 218 |   |
| A. Gautam(6)         |       | 50,000                               |       | —                         |       | —                 |       | (50,000                  | )          | —                         |       | —                   |       | — |   |
| S. Meibusch(7)       |       | 100,000                              |       | —                         |       | —                 |       | —                   |       | 100,000                        |       | 100,000                  |       | 100,000 |   |
| J. Garner(8)         |       | 50,000                               |       | —                         |       | —                 |       | (50,000                  | )          | —                         |       | —                   |       | — |   |
| J. Devlin(2)         |       | 50,000                               |       | —                         |       | —                 |       | (50,000                  | )          | —                         |       | —                   |       | — |   |
| L. Marton            |       | 100,000                              |       | —                         |       | —                 |       | —                   |       | 100,000                        |       | 100,000                  |       | 100,000 |   |
| M. Fitzgerald        |       | 25,000                               |       | —                         |       | —                 |       | —                   |       | 25,000                         |       | 25,000                   |       | 25,000 |   |
| P. Dixon(9)          |       | —                               |       | —                         |       | —                 |       | —                   |       | —                         |       | —                   |       | — |   |
| Total                |       | 1,048,534                            |       | —                         |       | —                 |       | (280,000                 | )          | 768,534                        |       | 768,534                  |       | 768,534 |   |

 

----

(1) Resignedas executive chairman 1 July 2009

(2) Resigned4 September 2008

(3) Resigned27 March 2009

(4) Appointed27 March 2009 and resigned 1 July 2009

(5) Resigned9 January 2009

(6) Resigned29 May 2008

(7) Resigned6 May 2009

(8) Resigned8 December 2008

(9) Appointed3 April 2009

 
| ** **        | ** ** | **Balance at  beginning  of period** | ** ** | ** **                   | ** ** | ** **             | ** ** | **Net**           | ** ** | **Balance at   end of  period** | ** ** | **At 30 June 2008** | ** ** |
|-------------------|------------|--------------------------------------|------------|------------------------------|------------|------------------------|------------|-------------------|------------|---------------------------------|------------|--------------------------|------------|
| ** **        | ** ** | **1 July  2007**                     | ** ** | **Granted as  remuneration** | ** ** | **Options  exercised** | ** ** | **change  other** | ** ** | **30 June  2008**               | ** ** | **Total  Vested**        | ** ** | **Total  Exercisable** | ** ** |
| **Directors**     |       |                                 |       |                         |       |                   |       |              |       |                            |       |                     |       |   |   |
| S. Chang(1)       |       | 41,014                               |       | —                       |       | —                 |       | —            |       | 41,014                          |       | 41,014                   |       | 41,014 |   |
| T. J. Homburg     |       | 531,389                              |       | —                       |       | —                 |       | —            |       | 531,389                         |       | 364,723                  |       | 364,723 |   |
| Prof. J. Zalcberg |       | —                               |       | —                       |       | —                 |       | —            |       | —                          |       | —                   |       | — |   |
| Dr M. Eutick(2)   |       | 885                                  |       | —                       |       | —                 |       | —            |       | 885                             |       | 885                      |       | 885 |   |
| P.O. Burns   |       | 28                                   |       | —                       |       | —                 |       | —            |       | 28                              |       | 28                       |       | 28 |   |
| R. Williamson(3)  |       | —                               |       | —                       |       | —                 |       | —            |       | —                          |       | —                   |       | — |   |
| J. Lee(3)         |       | —                               |       | —                       |       | —                 |       | —            |       | —                          |       | —                   |       | — |   |
| ** **        |       |                                 |       |                         |       |                   |       |              |       |                            |       |                     |       |   |   |
| **Executives**    |       |                                 |       |                         |       |                   |       |              |       |                            |       |                     |       |   |   |
| L. Burns          |       | 33,218                               |       | 100,000                      |       | —                 |       | (33,000           | )          | 100,218                         |       | 50,218                   |       | 50,218 |   |
| A. Gautam(4)      |       | —                               |       | 100,000                      |       | —                 |       | (50,000           | )          | 50,000                          |       | 50,000                   |       | 50,000 |   |
| S. Meibusch       |       | —                               |       | 100,000                      |       | —                 |       | —            |       | 100,000                         |       | 50,000                   |       | 50,000 |   |
| J. Garner         |       | —                               |       | 50,000                       |       | —                 |       | —            |       | 50,000                          |       | —                   |       | — |   |
| J. Devlin         |       | —                               |       | 50,000                       |       | —                 |       | —            |       | 50,000                          |       | —                   |       | — |   |
| L. Marton(5)      |       | —                               |       | 100,000                      |       | —                 |       | —            |       | 100,000                         |       | 25,000                   |       | 25,000 |   |
| M. Fitzgerald     |       | —                               |       | 25,000                       |       | —                 |       | —            |       | 25,000                          |       | —                   |       | — |   |
| Total             |       | 606,534                              |       | 525,000                      |       | —                 |       | (83,000           | )          | 1,048,534                       |       | 581,868                  |       | 581,868 |   |

 

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**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTYDISCLOSURES (cont’d)**

** **

**(c)   Option holdings of key management personnel(cont’d)**

 

----

(1) Resigned as executive chairman 3 March 2008

(2) Appointed as executive chairman 4 March 2008

(3) Appointed4 March 2008

(4) Resigned 2 June 2008

(5) Appointed 1 February 2008

 

**(d)****         ****Shareholdings of keymanagement personnel**

 
| **Ordinary shares held in  Progen Pharmaceuticals  Limited** | ** ** | **Balance  1 July 08** | ** ** | **On exercise of  options** | ** ** | **Net change  other(10)** | ** ** | **Balance  30 June 09** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|---------------------------|------------|------------------------------|------------|
| ** **                                                   |       |                             |       |                        |       |                      |       |                         |       |
| **Directors**                                                |       |                             |       |                        |       |                      |       |                         |       |
| S. Chang(1)                                                  |       | 820,300                          |       | —                      |       | (600,000                  | )          | 220,300                      |       |
| T.J. Homburg                                                 |       | 52,778                           |       | —                      |       | —                    |       | 52,778                       |       |
| Prof. J. Zalcberg(2)                                         |       | 16,772                           |       | —                      |       | —                    |       | 16,772                       |       |
| Dr M. Eutick(3)                                              |       | 17,693                           |       | —                      |       | —                    |       | 17,693                       |       |
| P.O. Burns(3)                                           |       | 556                              |       | —                      |       | —                    |       | 556                          |       |
| R. Williamson(3)                                             |       | 25,000                           |       | —                      |       | —                    |       | 25,000                       |       |
| J. Lee(3)                                                    |       | —                           |       | —                      |       | —                    |       | —                       |       |
| W. Hanisch(4)                                                |       | —                           |       | —                      |       | —                    |       | —                       |       |
|                                                         |       |                             |       |                        |       |                      |       |                         |       |
| **Executives**                                               |       |                             |       |                        |       |                      |       |                         |       |
| L. Burns(5)                                                  |       | 14,359                           |       | —                      |       | —                    |       | 14,359                       |       |
| A. Gautam(6)                                                 |       | —                           |       | —                      |       | —                    |       | —                       |       |
| S. Meibusch(7)                                               |       | —                           |       | —                      |       | —                    |       | —                       |       |
| J. Garner(8)                                                 |       | —                           |       | —                      |       | —                    |       | —                       |       |
| J. Devlin(2)                                                 |       | —                           |       | —                      |       | —                    |       | —                       |       |
| L. Marton                                                    |       | —                           |       | —                      |       | —                    |       | —                       |       |
| P. Dixon(9)                                                  |       | —                           |       | —                      |       | —                    |       | —                       |       |
| Total                                                        |       | 947,458                          |       | —                      |       | (600,000                  | )          | 347,458                      |       |

 

----

(1) Resignedas executive chairman 1 July 2009

(2) Resigned4 September 2008

(3) Resigned27 March 2009

(4) Appointed27 March 2009 and resigned 1 July 2009

(5) Resigned9 January 2009

(6) Resigned29 May 2008

(7) Resigned6 May 2009

(8) Resigned8 December 2008

(9) Appointed3 April 2009

(10) Off-markettransactions

 

F - 46

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**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTYDISCLOSURES (cont’d)**

 

**(d)****         ****Shareholdings of keymanagement personnel (cont’d)**

 
| **Ordinary shares held in  Progen Pharmaceuticals  Limited** | ** ** | **Balance  1 July 07** | ** ** | **On exercise of  options** | ** ** | **Net change  other(****6)** | ** ** | **Balance  30 June 08** | ** ** |
|--------------------------------------------------------------|------------|----------------------------------|------------|-----------------------------|------------|------------------------------|------------|------------------------------|------------|
| ** **                                                   |       |                             |       |                        |       |                         |       |                         |       |
| **Directors**                                                |       |                             |       |                        |       |                         |       |                         |       |
| S. Chang(1)                                                  |       | 820,300                          |       | —                      |       | —                       |       | 820,300                      |       |
| T.J. Homburg                                                 |       | 27,778                           |       | —                      |       | 25,000                       |       | 52,778                       |       |
| Prof. J. Zalcberg                                            |       | 16,772                           |       | —                      |       | —                       |       | 16,772                       |       |
| Dr M. Eutick(2)                                              |       | 17,693                           |       | —                      |       | —                       |       | 17,693                       |       |
| P.O. Burns                                              |       | 556                              |       | —                      |       | —                       |       | 556                          |       |
| R. Williamson(3)                                             |       | —                           |       | —                      |       | 25,000                       |       | 25,000                       |       |
| J. Lee(3)                                                    |       | —                           |       | —                      |       | —                       |       | —                       |       |
|                                                         |       |                             |       |                        |       |                         |       |                         |       |
| **Executives**                                               |       |                             |       |                        |       |                         |       |                         |       |
| L. Burns                                                     |       | 4,359                            |       | —                      |       | 10,000                       |       | 14,359                       |       |
| A. Gautam(4)                                                 |       | —                           |       | —                      |       | —                       |       | —                       |       |
| S. Meibusch                                                  |       | —                           |       | —                      |       | —                       |       | —                       |       |
| J. Garner                                                    |       | —                           |       | —                      |       | —                       |       | —                       |       |
| J. Devlin                                                    |       | —                           |       | —                      |       | —                       |       | —                       |       |
| L. Marton(5)                                                 |       | —                           |       | —                      |       | —                       |       | —                       |       |
| Total                                                        |       | 887,458                          |       | —                      |       | 60,000                       |       | 947,458                      |       |

 

----

(1) Resigned as executive chairman 3 March 2008

(2) Appointed as executive chairman 4 March 2008

(3) Appointed4 March 2008

(4) Resigned 2 June 2008

(5) Appointed 1 February 2008

(6) On-markettransactions

 

F - 47

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**26.  DIRECTOR AND EXECUTIVE AND RELATED PARTY DISCLOSURES(cont’d)**

 

**(e)****         ****Subsidiaries**

 

Thefinancial statements include the financial statements of Progen PharmaceuticalsLimited and the subsidiary listed in the following table:

 
| ** **                   | ** ** | **Country  of**   | ** ** | **%  Equity Interest** | ** ** | **Investment  ($000)** | ** ** |
|------------------------------|------------|-------------------|------------|------------------------|------------|------------------------|------------|
| **Name**                     | ** ** | **Incorporation** | ** ** | **2009**               | ** ** | **2008**               | ** ** | **2009** | ** ** | **2008** | ** ** |
|                         |       |              |       |                   |       |                   |       |   |   |   |   |
| Progen  Pharmaceuticals Inc. |       | United States     | ** ** | **100**                |       | 100                    | ** ** | **3,278** |   | 3,278 |   |
|                         |       |              | ** ** | ** **             |       |                   | ** ** | ** ** |   |   |   |
| Pharmasynth Pty Ltd          |       | Australia         | ** ** | **100**                |       | —                 | ** ** | **536** |   | — |   |

 

On 2 July 2008 the Company spun-out itsmanufacturing business as a wholly owned subsidiary company, PharmaSynth PtyLtd.  Progen transferred $628,000 netbook value worth of plant and equipment into Pharmasynth Pty Ltd on this date(see note 11). During the year there was a management fee of $10,000 andoperating lease rental for the Darra facility of $79,000 paid from PharmaSynthto the parent entity.

 

**Termand conditions of transactions with subsidiary**

The company has intercompany receivables relating to thesubsidiaries.  Intercompany receivablesare loans funding intercompany operations with no specific repayment terms andare therefore unlikely to be repaid in 12 months. The loan is an interestbearing loan with 9.45% p.a. interest. Intercompany balances with Progen Pharmaceuticals Inc. have been fullyprovided for.

 

F - 48

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