UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 20-F

(Mark One)
[ ]  REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
     EXCHANGE ACT OF 1934
                                       OR

[X]  ANNUAL  REPORT  PURSUANT  TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
     ACT OF 1934
     For the fiscal year ended June 30, 2004
                               -------------
                                       OR

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

For the transition period from __________ to __________
Commission file number 000-29228
                       ---------

                            PROGEN INDUSTRIES LIMITED
             (Exact name of Registrant as specified in its charter)
                         ------------------------------
                 (Translation of Registrant's Name into English)
                                    Australia
                                    ---------
                 (Jurisdiction of incorporation or organization)

              2806 Ipswich Road, Darra, Queensland 4076, Australia
              ----------------------------------------------------
                    (Address of Principal Executive Offices)

 Securities registered or to be registered pursuant to Section 12(b) of the Act.
        Title of each Class            Name of each Exchange on which Registered
        -------------------            -----------------------------------------
              None                                       None

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

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

Indicate  the  number  of  outstanding shares of each of the issuer's classes of
capital  or  common  stock  as  of the close of the period covered by the annual
report: 34,521,065 (35,510,121 as of December 2, 2004)

Indicate  by checkmark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12  months  (or  for such shorter period that the registrant was
required  to  file  such  reports),  and  (2)  has  been  subject to such filing
requirements for the past 90 days.
Yes  X   No
    ---     ---

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

(APPLICABLE  ONLY  TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST
FIVE  YEARS)
Indicate  by  check  mark  whether  the  registrant  has filed all documents and
reports  required  to  be  filed  by  Sections 12, 13 or 15(d) of the Securities
Exchange  Act  of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes     No
    ---    ---


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

                                                                            Page
                                                                            ----

ITEM 1.     IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS. . . . . .   4

ITEM 2.     OFFER STATISTICS AND EXPECTED TIMETABLE. . . . . . . . . . . . .   4

ITEM 3.     KEY INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . .   5

     ITEM 3.A    SELECTED  FINANCIAL  DATA . . . . . . . . . . . . . . . . .   5
     ITEM 3.D.   RISK FACTORS. . . . . . . . . . . . . . . . . . . . . . . .   6

ITEM 4.     INFORMATION ON THE COMPANY . . . . . . . . . . . . . . . . . . .  19

     ITEM 4.A.   HISTORY AND DEVELOPMENT OF THE COMPANY. . . . . . . . . . .  19
     ITEM 4.B.   BUSINESS OVERVIEW . . . . . . . . . . . . . . . . . . . . .  20
     ITEM 4.D.   PROPERTY, PLANTS AND EQUIPMENT. . . . . . . . . . . . . . .  42

ITEM 5.     OPERATING AND FINANCIAL REVIEW AND PROSPECTS . . . . . . . . . .  44

     ITEM 5.A.   OPERATING RESULTS . . . . . . . . . . . . . . . . . . . . .  46
     ITEM 5.B.   LIQUIDITY AND CAPITAL RESOURCES . . . . . . . . . . . . . .  49
     ITEM 5.E.   OFF-BALANCE SHEET ARRANGEMENTS. . . . . . . . . . . . . . .  50
     ITEM 5.F.   TABULAR DISCLOSURE OF AGGREGATE CONTRACTUAL OBLIGATIONS . .  51

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

     ITEM 6.A.   DIRECTORS AND SENIOR MANAGEMENT . . . . . . . . . . . . . .  52
     ITEM 6.B.   COMPENSATION. . . . . . . . . . . . . . . . . . . . . . . .  55
     ITEM 6.C.   BOARD PRACTICES . . . . . . . . . . . . . . . . . . . . . .  56
     ITEM 6.D.   EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . .  57
     ITEM 6.E.   SHARE OWNERSHIP . . . . . . . . . . . . . . . . . . . . . .  57

ITEM 7.     MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS. . . . . . . .  60

     ITEMS 7.A.  MAJOR SHAREHOLDERS. . . . . . . . . . . . . . . . . . . . .  60
     ITEM 7.B.   RELATED PARTY TRANSACTIONS. . . . . . . . . . . . . . . . .  62

ITEM 8.     FINANCIAL INFORMATION. . . . . . . . . . . . . . . . . . . . . .  62

     ITEM 8.A.   CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION . .  62
     ITEM 8.B.   SIGNIFICANT CHANGES . . . . . . . . . . . . . . . . . . . .  63

ITEM 9.     THE OFFER AND LISTING. . . . . . . . . . . . . . . . . . . . . .  64

     ITEM 9.C.   MARKETS . . . . . . . . . . . . . . . . . . . . . . . . . .  64

ITEM 10.    ADDITIONAL INFORMATION . . . . . . . . . . . . . . . . . . . . .  66

     ITEM 10.B.  MEMORANDUM AND ARTICLES OF ASSOCIATION. . . . . . . . . . .  66
     ITEM 10.C.  MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . .  68
     ITEMS 10.D. EXCHANGE CONTROLS . . . . . . . . . . . . . . . . . . . . .  68
     ITEM 10.E.  TAXATION. . . . . . . . . . . . . . . . . . . . . . . . . .  69

ITEM 11.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK . . .  71

ITEM 12.    DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES . . . . .  72

ITEM 13.    DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES . . . . . . . . .  73

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

PROCEEDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  73


                                        2
<PAGE>
ITEM 15.    CONTROLS AND PROCEDURES. . . . . . . . . . . . . . . . . . . . .  73

ITEM 16.    [RESERVED] . . . . . . . . . . . . . . . . . . . . . . . . . . .  74

ITEM 16A.   AUDIT COMMITTEE FINANCIAL EXPERT . . . . . . . . . . . . . . . .  74

ITEM 16B.   CODE OF ETHICS . . . . . . . . . . . . . . . . . . . . . . . . .  74

ITEM 16C.   PRINCIPAL ACCOUNTANT FEES AND SERVICES . . . . . . . . . . . . .  75

ITEM 16D.   EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES . . .  75

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

PURCHASERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  76

ITEM 17.    FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . .  77

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

ITEM 19.    EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . . . . .  77


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

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


                                        3
<PAGE>
              CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

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

     We caution you not to place undue reliance on these forward-looking
statements, which reflect our management's view only as of the date of this
annual report. We will not update any forward-looking statement to reflect
events or circumstances after the date hereof or to reflect the occurrence of
unanticipated events.

                                     PART I

ITEM 1.  IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

     Not applicable.

ITEM 2.  OFFER STATISTICS AND EXPECTED TIMETABLE

     Not applicable.


                                        4
<PAGE>
ITEM 3.  KEY INFORMATION

ITEM 3.A  SELECTED FINANCIAL DATA

     The following selected financial data for the five years ended June 30,
2004 should be read in conjunction with "Item 5. Operating and Financial Review
and Prospects" below and our financial statements and related notes contained
elsewhere in this annual report. The balance sheet information as at June 30,
2003 and 2004 and the statement of operations data for fiscal 2002, 2003 and
2004 are derived from our audited financial statements included in this annual
report. Balance sheet information as of June 30, 2000, 2001 and 2002 and
statement of operations information for fiscal 2000 and 2001 are derived from
our audited financial statements which are not included in this annual report.

<TABLE>
<CAPTION>
                                                             For the Years Ended June 30,
                                      ------------------------------------------------------------------------
                                          2000           2001           2002           2003           2004
--------------------------------------------------------------------------------------------------------------
<S>                                   <C>            <C>            <C>            <C>            <C>
STATEMENT OF OPERATIONS DATA:
Revenue From Operations               $    173,661   $    198,331   $    704,044   $  1,051,695   $ 1,394,589

Cost of Operations:

   Research and development              2,757,628      2,374,319      2,185,066      2,435,896     3,183,278
   Selling, general and
     administrative costs                  869,266        862,031      1,214,771      1,958,355     2,494,570

Total Cost of Operations                 4,241,123      3,757,915      4,104,544      5,018,983     6,299,231
                                      -------------  -------------  -------------  -------------  ------------


Gross Loss                              (4,067,462)    (3,716,051)    (3,601,294)    (4,391,353)   (5,277,908)

Total Other Income (Expenses)             (206,050)       402,528        417,658        537,991     1,078,787
                                      -------------  -------------  -------------  -------------  ------------

Net Loss from continuing              $ (4,273,512)  $ (3,313,523)  $ (3,183,636)  $ (3,853,362)  $(4,199,121)
operations

Discontinued operations                   (206,621)        41,341        104,421        288,213       654,666
                                      -------------  -------------  -------------  -------------  ------------

Net Loss                               ($4,480,133)   ($3,272,182)   ($3,079,215)   ($3,565,149)  $(3,544,455)
                                      =============  =============  =============  =============  ============

 Profit/(Loss) Per Ordinary
Share
                                      =============  =============  =============  =============  ============

     Continuing operations            $      (0.22)  $      (0.14)  $      (0.13)  $      (0.16)  $     (0.13)
                                      =============  =============  =============  =============  ============

     Discontinued operations          $      (0.01)             -              -   $       0.01   $      0.02
                                      =============  =============  =============  =============  ============

     Net loss per ordinary share      $      (0.23)  $      (0.14)  $      (0.13)  $      (0.15)  $     (0.11)
                                      =============  =============  =============  =============  ============
Weighted Average Number of
   Ordinary Shares Outstanding          19,729,300     23,404,883     24,391,869     24,391,869    32,675,867
</TABLE>


                                        5
<PAGE>
<TABLE>
<CAPTION>
                                                      For the Years Ended June 30,
                            -------------------------------------------------------------------------
                                2000           2001           2002           2003           2004
-----------------------------------------------------------------------------------------------------
<S>                         <C>            <C>            <C>            <C>            <C>
BALANCE SHEET DATA:

Cash and Cash Equivalents   $  6,529,982   $  8,391,775   $  6,430,377   $  8,001,842   $  9,885,656

Working Capital                6,277,381      9,517,072      7,174,683      7,332,942      9,039,396

Total Assets                  10,440,838     11,649,736      9,865,368     10,230,017     11,208,140

Long-Term Debt                       -0-            -0-            -0-            -0-            -0-

Capital Stock                 35,737,563     41,800,156     41,800,156     44,153,011     48,869,981

Accumulated Deficit          (25,499,114)   (28,771,296)   (31,850,511)   (35,415,660)   (38,960,115)

Total Stockholders' Equity  $  9,468,280   $ 10,823,825   $  8,523,149   $  8,504,942   $  9,934,555
</TABLE>


ITEM 3.D.  RISK FACTORS

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

     WE ARE AT AN EARLY STAGE IN THE DEVELOPMENT OF PHARMACEUTICAL PRODUCTS AND
     OUR SUCCESS IS UNCERTAIN

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

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

     We cannot make any assurances that we will be able to develop PI-88, PI-166
or any future pharmaceutical product candidates adequately to attract a suitable
collaborative partner, or that our research will lead to the discovery of
additional product candidates, or that any of our current and future product
candidates will be successfully developed, prove to be safe and efficacious in
clinical


                                        6
<PAGE>
trials, meet applicable regulatory standards and receive regulatory approval, be
capable of being produced in commercial quantities at reasonable costs, or be
successfully or profitably marketed, either by us or a collaborative partner. We
also cannot make any assurances that the products we develop will be able to
penetrate the potential market for a particular therapy or indication or gain
market acceptance among health care providers, patients and third-party payors.
We cannot predict if or when PI-88, PI-166, or any of our other pharmaceutical
products under development will be commercialized.

     THE RESULTS OF CLINICAL TRIALS OF PI-88 AND PI-166 ARE UNCERTAIN AND WE
     WILL NOT BE ABLE TO COMMERCIALIZE PI-88, PI-166 OR ANY OF OUR OTHER PRODUCT
     CANDIDATES IF WE FAIL TO ADEQUATELY DEMONSTRATE THEIR SAFETY, EFFICACY AND
     SUPERIORITY OVER EXISTING THERAPIES

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

     We are currently conducting three Phase II clinical trials of PI-88 in
cancer patients in the United States, Taiwan and Australia and have planned
further trials. We also are conducting a Phase I clinical trial of PI-166 in
Australia and, depending on the results of this trial, may conduct additional
clinical trials. We plan to enter into collaborative arrangements with a
suitable pharmaceutical or biotechnology company to commercialize PI-88 and
PI-166. We cannot make any assurances that we will be able either to complete
the current clinical trials of PI-88 and PI-166 successfully, commence
additional clinical trials of PI-88 or PI-166 as anticipated, or at all, or to
demonstrate the safety and efficacy or superiority of PI-88 or PI-166 over
existing therapies or enter into any collaborative arrangement to commercialize
PI-88 and PI-166 on terms acceptable to us, or at all. Clinical trial results
that show insufficient safety and efficacy could have a material adverse effect
on our business, financial condition and results of operations.

     Clinical trials may take up to several years to complete. The length of
time varies substantially according to the type, complexity, novelty, patient
recruitment into and intended use of the product candidate. We cannot make any
assurances that, when Phase II clinical trials are completed, we will be able to
enter into a collaborative arrangement with a suitable pharmaceutical or
biotechnology company to complete the development of, or commercialize PI-88 or
PI-166. Nor can we make any assurances that once clinical trials are completed
by us or a collaborative partner, we will be able to submit as scheduled a
marketing approval request to the Australian Therapeutic Good Administration's
(TGA) Drug Safety and Evaluation Branch, the U.S. Food and Drug Administration
(FDA) or any other authority, or, that such request and application will be
reviewed and cleared by any of these authorities, as applicable, in a timely
manner, or at all.

     During  the course of clinical trials and toxicology studies, PI-88, PI-166
and  our  other  product  candidates  may  exhibit  unforeseen  and unacceptable
drug-related  toxicities  or  side  effects.  If


                                        7
<PAGE>
any unacceptable toxicities or side effects were to occur, we may, or regulatory
authorities may require us to, interrupt, limit, delay or abort the development
of our potential products. In addition, unacceptable toxicities could ultimately
prevent the clearance of our product candidates by the TGA or the FDA for any or
all targeted indications. Even after being cleared by the TGA or the FDA, any of
our products may later be shown to be unsafe or not to have its purported
effect, thereby preventing widespread use or requiring withdrawal from the
market. We cannot make any assurances that PI-88, PI-166 or any of our other
product candidates will be safe or effective when administered to patients.

     WE MAY EXPERIENCE DELAYS IN OUR CLINICAL TRIALS THAT COULD ADVERSELY AFFECT
     OUR BUSINESS AND OPERATIONS

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

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

     -    Slower than expected patient recruitment;

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

     -    Unforeseen safety issues; and

     -    Lack of efficacy during the clinical trials.

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

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


                                        8
<PAGE>
     WE HAVE LIMITED MANUFACTURING EXPERIENCE, AND DELAYS IN MANUFACTURING
     SUFFICIENT QUANTITIES OF PI-88 AND PI-166 FOR PRECLINICAL AND CLINICAL
     TRIALS MAY NEGATIVELY IMPACT OUR BUSINESS AND OPERATIONS

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

     We may be required to enter into contracting arrangements with third
parties to manufacture or prepare, as applicable, PI-88, PI-166 and our other
product candidates for large-scale, later-stage clinical trials. We cannot make
any assurances that we will be able to make the transition to commercial
production. We may need to develop additional manufacturing resources, enter
into collaborative arrangements with other parties who have established
manufacturing capabilities, or have third parties manufacture or prepare our
products on a contract basis. We cannot make any assurances that we will have
access on acceptable terms to the necessary and substantial financing that would
be required to scale-up production and develop effective commercial
manufacturing processes and technologies. We also cannot make any assurances
that we will be able to enter into collaborative or contracting arrangements on
acceptable terms with parties that will meet our requirements for quality,
quantity and timeliness.

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

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

     If we successfully establish strategic collaborations, the management of
our relationship with collaborators will require significant time and effort
from our management team, coordination of our research and development programs
with the research and development priorities of our collaborators, and effective
allocation of our resources to multiple projects. We cannot be certain that
these relationships will result in the successful development or
commercialization of our product candidates or the generation of sales revenue.
If we enter into strategic collaborations at an early


                                        9
<PAGE>
phase of product development, our success will in part depend on the performance
of our corporate collaborators. Factors that could harm a successful
collaboration include:

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

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

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

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

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

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

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

     OUR EFFORTS TO DISCOVER, DEVELOP AND COMMERCIALIZE NEW PRODUCT CANDIDATES
     FROM OUR PROPRIETARY GLYCOBIOLOGY TECHNOLOGY PLATFORM BEYOND PI-88 ARE IN A
     VERY EARLY STAGE AND, THEREFORE, THESE EFFORTS ARE SUBJECT TO A HIGH RISK
     OF FAILURE

     The process of successfully developing product candidates is very time
consuming, expensive and unpredictable. Although we have recently begun to
direct significant effort toward the expansion of our scientific staff and
research capabilities to identify and develop product candidates in addition to
PI-88, we may not identify, develop or commercialize any additional new product
candidates from our proprietary glycobiology technology platform or other
technologies.

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

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


                                       10
<PAGE>
     WE REQUIRE SUBSTANTIAL ADDITIONAL FINANCING IN THE FUTURE TO SUFFICIENTLY
     FUND OUR OPERATIONS AND RESEARCH

     We have been unprofitable to date and expect to incur losses over the next
several years as we expand our drug discovery and development programs and
preclinical testing and as we conduct clinical trials of PI-88, PI-166 and our
other product candidates. Although our future capital requirements will depend
on many factors, we believe that our existing cash and investments resources
will be adequate to satisfy the requirements of our current and planned
operations through to March 2006. We cannot, however, make any assurances that
such funds will be sufficient to meet our actual operating expenses and capital
requirements during such period. Our actual cash requirements may vary
materially from those now planned and will depend upon numerous factors,
including:

     -    The continued progress of our research and development programs;

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

     -    The progress of licensing efforts

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

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

     -    Our ability to successfully expand our contract manufacturing
          services;

     -    Our ability to establish and maintain collaborative arrangements;

     -    The status and timing of competitive developments; and

     -    Other factors.

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


                                       11
<PAGE>
     WE HAVE A HISTORY OF OPERATING LOSSES AND MAY NOT ACHIEVE PROFITABILITY IN
     THE NEAR FUTURE

     We have incurred net operating losses in each year since we began
operations in 1989. As of June 30, 2004, we had an accumulated deficit of
approximately $39.0 million, primarily attributable to our research and
development activities. We expect to incur additional operating losses over at
least the next several years and to increase our cumulative losses substantially
as we expand our research and development and preclinical activities and
commence additional clinical trials of PI-88 and PI-166.

     OUR SUCCESS DEPENDS UPON OUR ABILITY TO PROTECT OUR INTELLECTUAL PROPERTY
     AND OUR PROPRIETARY TECHNOLOGY

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

     -    Obtain and maintain patents to protect our own products;

     -    Obtain licenses to the patented technologies of third parties;

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

     -    Protect our trade secrets and know-how.

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

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


                                       12
<PAGE>
will not prevent the commercialization of products incorporating the technology
developed by us or licensed to us, or that third parties will not challenge or
seek to narrow, invalidate or circumvent any of the issued, pending or future
patents owned or licensed by us.

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

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

     In addition to patent protection, we rely on unpatented trade secrets and
know-how and proprietary technological innovation and expertise that are
protected in part by confidentiality and invention assignment agreements with
our employees, advisors and consultants. We cannot make any assurances that we
will have adequate remedies for any breach. In addition, third parties could
independently develop the same or similar technologies.

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

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


                                       13
<PAGE>
process mandated by the TGA and, to the extent that any of our pharmaceutical
products under development are marketed abroad, by foreign regulatory agencies
including the FDA in the United States and the Medicines Control Agency in the
United Kingdom. These processes can take many years and require the expenditure
of substantial resources. Delays in obtaining regulatory approvals could
adversely affect the development and commercialization of our pharmaceutical
product candidates and could have a material adverse impact on our business,
financial condition and results of operations. Although we intend to make use of
fast-track and abbreviated regulatory approval programs when possible, we cannot
be certain that we will be able to obtain the clearances and approvals necessary
for clinical testing or for manufacturing and marketing our pharmaceutical
products candidates.

     OUR RESEARCH AND DEVELOPMENT EFFORTS WILL BE SERIOUSLY JEOPARDIZED IF WE
     ARE UNABLE TO ATTRACT AND RETAIN KEY PERSONNEL AND CULTIVATE KEY ACADEMIC
     AND SCIENTIFIC COLLABORATIONS

     We are a small company with only 40 full-time employees. Our success is
highly dependent on the continued contributions of our principal management and
scientific personnel and on our ability to develop and maintain important
relationships with leading academic institutions and scientists. Competition
among biotechnology and pharmaceutical companies for qualified employees is
intense, and we cannot be certain that we will be able to continue to attract
and retain qualified scientific and management personnel critical to our
success. We also have relationships with leading academic and scientific
collaborators who conduct research at our request or assist us in formulating
our research and development strategies. These academic and scientific
collaborators are not our employees and may have commitments to, or consulting
or advisory contracts with, other entities that may limit their availability to
us. In addition, these collaborators may have arrangements with other companies
to assist such companies in developing technologies that may prove competitive
to ours.

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

     The biotechnology and pharmaceutical industries are subject to rapid and
significant technological change. Our competitors in Australia and elsewhere are
numerous and include, among others, major pharmaceutical companies,
biotechnology firms, universities and other research institutions. These
competitors may develop technologies and products that are more effective than
any that we are developing, or which would render our technology and products
obsolete or non-competitive. Many of these competitors have greater financial
and technical resources and manufacturing and marketing capabilities than we do.
In addition, many of our competitors have much more experience than we do in
preclinical testing and human clinical trials of new or improved drugs, as well
as in obtaining FDA, TGA and other regulatory approvals.

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

     ACCEPTANCE OF OUR PRODUCTS IN THE MARKETPLACE IS UNCERTAIN, AND FAILURE TO
     ACHIEVE MARKET ACCEPTANCE WILL NEGATIVELY IMPACT OUR BUSINESS AND
     OPERATIONS

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


                                       14
<PAGE>
     -    The receipt and timing of regulatory approvals for the uses that we
          are studying;

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

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

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

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

     We currently have no experience in marketing, sales or distribution of
pharmaceutical products. If we develop any commercially marketable
pharmaceutical products and decide to perform our own sales and marketing
activities, we will require additional management, will need to hire sales and
marketing personnel, and will require additional capital. We cannot make any
assurances that qualified personnel will be available in adequate numbers or at
a reasonable cost, that additional financing will be available on acceptable
terms, or at all, or that our sales staff will achieve success in their
marketing efforts. Alternatively, we may be required to enter into marketing
arrangements with other parties who have established appropriate marketing,
sales and distribution capabilities. We cannot make any assurances that we will
be able to enter into marketing arrangements with any marketing partner or that
if such arrangements are established, our marketing partners will be able to
commercialize our products successfully. Other companies offering similar or
substitute products may have well-established and well-funded marketing and
sales operation in place that will allow them to market their products more
successfully. Failure to establish sufficient marketing capabilities may have a
material adverse impact on our business, financial condition and results of
operations.

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

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

     Our ability to commercially exploit our products successfully will depend
in part on the extent to which reimbursement for the cost of our products and
related treatment will be available from government health administration
authorities, private health coverage insurers and other organizations.
Third-party payors, such as government and private health insurers, are
increasingly challenging the price of medical products and services. Although
the Australian government


                                       15
<PAGE>
continues to provide a subsidy to certain prescribed prescription pharmaceutical
products through the Pharmaceutical Benefits Scheme, which, pending development,
could include PI-88 and PI-166, uncertainty exists as to the reimbursement
status of newly approved health care products and in foreign markets, including
the United States. If third-party coverage is not available to patients for any
of the products we develop, alone or with collaborators, the market acceptance
of these products may be reduced which may adversely affect our future revenues
and profitability. In addition, cost containment legislation and reductions in
government insurance programs may result in lower prices for our products and
could materially adversely affect our ability to operate profitably.

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

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

     WE MAY HAVE PRODUCT LIABILITY EXPOSURE

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

     The testing, marketing and sale of human health care products also entails
an inherent risk of product liability. We may incur substantial liabilities or
be required to limit development or commercialization of our products if we
cannot successfully defend ourselves against product liability claims. In
addition, product liability claims or product recalls, regardless of the
ultimate outcome, could require us to spend significant time and money in
litigation and to pay significant damages. We cannot be certain that our current
limited product liability coverage will adequately protect us in the event of a
successful product liability claim or that such insurance will continue to be
available on commercially reasonable terms.


                                       16
<PAGE>
     WE MAY BE LIABLE FOR DAMAGES FOR ANY ACCIDENTAL CONTAMINATION OR INJURY
     FROM OUR USE OF BIOLOGICAL AND HAZARDOUS MATERIALS OR OUR FAILURE TO COMPLY
     WITH APPLICABLE LAWS AND REGULATIONS

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

     CHANGES IN GOVERNMENT LEGISLATION AND POLICY MAY ADVERSELY AFFECT US

     While we do not anticipate in the near future any specific material changes
in government legislation that may adversely affect us, any material changes in
interest rate, exchange rate, relevant taxation and other legal regimes and
government policies may adversely affect us and the market price of our ordinary
shares.

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

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

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

     The market price for our ordinary shares, like that of the securities of
other pharmaceutical and biotechnology companies, has fluctuated substantially
and may continue to be highly volatile in the future. We believe that the
following factors, in addition to other risk factors described above and
elsewhere in this annual report, will continue to significantly affect the
market price of our ordinary shares:

     -    The results of preclinical testing and clinical trials by us and our
          competitors;

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


                                       17
<PAGE>
     -    Announcements of technological innovations or new commercial products
          by us and our competitors;

     -    Determinations regarding our patent applications and those of others;

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

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

     -    Litigation;

     -    Economic and other external factors; and

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

     In addition, stock markets have experienced extreme price and volume
fluctuations. These fluctuations have especially affected the stock market price
of many high technology and healthcare-related companies, including
pharmaceutical and biotechnology companies, and, in many cases, are unrelated to
the operating performance of the particular companies. We believe that these
broad market fluctuations may continue to negatively affect the market price of
our ordinary shares.

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


                                       18
<PAGE>
ITEM 4.  INFORMATION ON THE COMPANY

ITEM 4.A.  HISTORY AND DEVELOPMENT OF THE COMPANY

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

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

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

     We have incurred significant losses since our inception and as of June 30,
2004, our accumulated deficit was approximately $39.0 million. We expect to
incur additional operating losses for at least the next several years as we
accelerate our drug discovery research, expand our development and preclinical
activities, conduct additional clinical trials with PI-88 and PI-166, and
advance into later stages of development. We may need to raise additional funds
in the future to continue our operations.

     To date, we have funded our operations primarily through sales of equity
and debt securities, including an Australian initial public offering in 1995 for
approximately A$7.7 million ($5.7 million) in net proceeds, and an Australian
and overseas institutional placement underwritten by UBS Warburg in March 2000
for approximately A$10.6 million ($6.7 million) in net proceeds. In November
2000, we raised A$10.5 million ($5.5 million) by the issue of 2.75 million
ordinary shares to Medigen Biotechnology Corporation, our collaborative partner
for PI-88 clinical trials. In June 2003, we raised approximately A$3.5 million
($2.35 million) in net proceeds under an Australian and New Zealand share
purchase plan and Australian placement, and in November 2003, we raised
approximately A$5.3 million ($3.8 million) in net proceeds under an Australian
placement to institutional and sophisticated investors. As of December 2, 2004,
we have raised approximately A$1.29 million ($0.92 million) in net proceeds
through the exercise of bonus options granted to our shareholders on a one for
eight pro rata basis in November 2003.

CORPORATE INFORMATION

     Our principal executive offices are located at 2806 Ipswich Road, Darra,
Queensland 4076, Australia. Our web site is located at www.progen.com.au.
                                                       -----------------
Information contained on our web site is not incorporated by reference into and
does not form a part of this annual report.

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


                                       19
<PAGE>
ITEM 4.B. BUSINESS OVERVIEW

     Progen Industries Limited is an Australian-based, globally-focused
biotechnology company committed to the discovery, development and
commercialization of small molecule therapeutics for the treatment of cancer and
other serious diseases. Our lead product candidate, PI-88, is one of a new class
of multi-functional, multi-targeted cancer therapeutics inhibiting both
angiogenesis, or tumor promoting factors such as Vascular Endothelial Growth
Factor, Fibroblast Growth Factor 1, Fibroblast Growth Factor 2, and also
heparanase, an enzyme implicated in metastasis (tumor spread). PI-88 completed
two Phase I trials in January and February 2004 and is currently being studied
in three Phase II clinical trials in the U.S., Australia and Taiwan under an
active Investigational New Drug application, or IND, with the United States Food
and Drug Administration, or FDA. In May 2004, PI-88 was designated an orphan
drug by the FDA for the treatment of high risk Stage II, Stage III and Stage IV
melanoma.

     Preliminary results of the Phase I solid tumor trial, as well as results of
the completed multi-center Australian Phase II clinical trial of PI-88 in
patients with multiple myeloma (bone marrow cancer) have shown:

     -    Disease control in 15 out of 38 (39%) evaluable patients in the Phase
          I advanced solid tumor monotherapy study (includes one partial
          response and 14 disease stabilizations for periods greater than three
          months up to 38 months);

     -    42% of melanoma patients in the Phase I advanced solid tumor
          monotherapy study showed disease control (includes one partial
          response and seven disease stabilizations for periods greater than
          three months);

     -    Disease stabilization in seven out of 18 patients (39%) with
          refractory or relapsed multiple myeloma treated with PI-88, in a Phase
          II study, with one patient still receiving PI-88 after 32 months; and

     -    PI-88 has an acceptable safety and tolerability profile in clinical
          trials to date.

     Our second oncology product candidate, PI-166, is undergoing a Phase I
clinical trial in patients with inoperable primary liver cancer (hepatocellular
carcinoma or HCC). PI-166 is a potential novel treatment modality that serves a
patient population, which is particularly difficult to treat and whom are
suffering from a disease that is resistant to current therapies.

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


                                       20
<PAGE>
     We also provide contract manufacturing and bioprocess technology
development services to the Australian Code of Good Manufacturing Practice, or
cGMP, standards through our Commercial Services division. This division serves
Australian and U.S.-based clients and has shown revenue growth over each of the
past four years.

OUR BUSINESS STRATEGY

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

     -    Leveraging in-house expertise and capabilities in Product Development.
          We believe that our core scientific and management team has
          significant and demonstrated expertise in drug discovery and in
          selecting and advancing promising product candidates into early stage
          human clinical trials to demonstrate proof of efficacy. We intend, as
          necessitated by our existing and in-licensed programs, to expand our
          in-house capabilities in molecular modeling, biochemistry, cell
          biology, crystallography, medicinal and synthetic chemistry,
          pharmacology and clinical trial management.

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

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

     -    Establishing strategic collaborations for the development and
          commercialization of our product candidates. We intend to complement
          our internal capabilities by selectively entering into collaborations
          with pharmaceutical and biotechnology companies to complete product
          development and move our product candidates into the marketplace as
          well as to improve our ability to move new compounds into the clinic.

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

     -    Establishing and maintaining a strong intellectual property portfolio.
          We plan to continue to aggressively pursue patent protection in
          Australia, the United States and other significant markets, as well as
          protect trade secrets and know-how, as our drug


                                       21
<PAGE>
          discovery technologies uncover additional small molecule product
          candidates or as necessitated by our in-licensed development programs.

DEVELOPMENT PROGRAMS

     CANCER THERAPEUTICS

     PI-88 - NOVEL ANGIOGENESIS AND HEPARANASE INHIBITOR

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


     -    Evaluate the efficacy and safety of PI-88 as a single agent therapy in
          patients with advanced melanoma
     -    Evaluate the efficacy and safety of PI-88 combination with a standard
          chemotherapy, docetaxel (taxotere), in non-small cell lung cancer.
     -    Evaluate the potential of PI-88 to reduce recurrence and increase
          survival in post-operative liver cancer patients as an adjuvant to
          surgery.
     -    Evaluate the efficacy and safety of PI-88 as a single agent in
          hematological (blood) malignancies, notably multiple myeloma.

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

          -    Inhibition of new blood vessel growth (angiogenesis) which is
               essential to promote tumor growth; and

          -    Reduction in the spread of secondary tumors (metastasis).

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


                                       22
<PAGE>
     Angiogenesis Background

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

     Tumor angiogenesis involves the following key steps:

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

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

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

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

     Metastasis Background

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

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

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


                                       23
<PAGE>
     -    At the distant site the tumor cells divide and form a secondary tumor.

     PI-88 - A Multi-Functional Therapeutic Solution

     Our lead cancer product candidate, PI-88, is being developed as a small
molecule inhibitor of both angiogenesis and metastasis. In preclinical studies,
PI-88 shows applicability to both a range of solid tumors and hematological
tumors (blood-related malignancies) and has been shown to retard the growth of
primary tumors by inhibiting new blood vessel growth (angiogenesis) and the
spread of secondary tumors (metastasis). The anti-angiogenic activity is
manifest in three distinct ways:

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

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

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

     PI-88's anti-metastatic activity is attributable to the inhibition of
heparanase, as heparanase is required to break down vasculature to allow tumor
cells to spread.

     PI-88 Clinical Development Program

     All clinical trials of PI-88 are being conducted under an active IND with
the FDA. In preclinical and clinical studies, PI-88 has shown an acceptable
safety and tolerability profile in clinical trials to date. PI-88 is also
showing early signs of clinical efficacy in the multinational clinical
development program. 195 patients with various cancers have been treated and
continuing treatment for some patients range from 3 months to beyond three
years. Since PI-88 is an anti-angiogenic agent, the primary and relevant
efficacy endpoint for these early stage clinical trials is stabilization of
disease. This is an important difference from traditional cytotoxic anti-cancer
therapies, where more toxic agents (cytotoxics) maybe used to eradicate cancer
cells, often with adverse consequences to normal cells and to the patient.

     The following chart summarizes the results of our ongoing, recently
completed and currently planned clinical trials for PI-88.


                                       24
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
                                           PHASE II TRIALS
--------------------------------------------------------------------------------------------------------------------
<S>              <C>                            <C>
--------------------------------------------------------------------------------------------------------------------
  Indication          Treatment                               Status & Key Points
--------------------------------------------------------------------------------------------------------------------
Advanced         PI-88 monotherapy              Phase II component of this Phase I/II trial commenced January 2004.
Melanoma         (subcutaneous self             Completed the recruitment of 46 patients
                 administration)
--------------------------------------------------------------------------------------------------------------------
Advanced Lung    PI-88 + taxotere (docetaxel)   Trial commenced February 2004.
Cancer (NSCLC)   combination therapy.           90 patients to be recruited.
                 (subcutaneous self
                 administration)
--------------------------------------------------------------------------------------------------------------------
Multiple         PI-88 monotherapy              Completed.
Myeloma          (subcutaneous self-            Disease marker study - 19 patients.
                 administration)                Disease Stabilisation (SD) 39% of evaluable patients.
--------------------------------------------------------------------------------------------------------------------
Liver Cancer     PI-88 as adjuvant treatment    Trial commenced July 2004.
(primary)        post surgery (subcutaneous     340 patients to be recruited. Trial conducted and funded by Medigen
                 self administration)           Biotechnology Corporation.
--------------------------------------------------------------------------------------------------------------------
                                           PHASE I TRIALS
--------------------------------------------------------------------------------------------------------------------
  Indication          Protocol                                Status & Key Points
--------------------------------------------------------------------------------------------------------------------
Melanoma  +      PI-88 dose and safety          Completed.  Thirty-eight (38) evaluable patients.
other advanced   determination study of PI-88   15/38 patients with disease control SD/PR (39% rate, SD (n=14) and
solid tumors     subcutaneous self              PR (n=1)
                 administration.                8/19 (42%) melanoma patients with SD/PR
                                                Maximum tolerated dose determined to be 250mg 4 consecutive days
                                                per week.
--------------------------------------------------------------------------------------------------------------------
Advanced         PI-88 + taxotere (docetaxel)   Completed.
Cancers          dose and safety                17 evaluable patients recruited.  Confirmed safety and tolerability
Solid tumors     determination study of         profile of PI-88 in combination with docetaxel
                 combination treatment.
--------------------------------------------------------------------------------------------------------------------
Advanced         PI-88 dose and safety          Completed.
Cancers          determination study of PI-88   14 patients recruited.  Highest dose 2.28mg/kg continuous dosing 14
                 intravenous (IV)               consecutive days.
                 administration.
--------------------------------------------------------------------------------------------------------------------
</TABLE>

     PI-88 is being investigated under an active IND with the FDA. Ongoing and
recently completed clinical trials for PI-88 are as follows:

     -    In August 2003, we completed an Australian multi-center Phase II trial
          in Multiple Myeloma. 19 patients with refractory or relapsed multiple
          myeloma, a bone marrow cancer, were enrolled at three Australian
          hospitals, The Alfred Hospital in Melbourne under Dr. Andrew Spencer,
          The Mater Misericordiae in Newcastle under Dr. Arno Enno, and The
          Wesley Clinical Research Centre in Brisbane under Dr. John Bashford.
          The endpoint of the study, stabilization of serum disease markers, was
          achieved in seven, of the 18 evaluable patients (39%) in the study.
          One patient continues to receive PI-88 post-study under a special
          access scheme after 32 months.


                                       25
<PAGE>
     -    In January 2004 we concluded the Phase I component of a Phase I/II
          clinical trial at the University of Colorado Health Sciences Center in
          Denver, Colorado, in which PI-88 was self-administered subcutaneously
          (injected under the skin) to patients with advanced malignancies
          (including melanoma and renal-cell carcinoma) in order to determine
          the appropriate safe dose of PI-88 for the Phase II component of this
          study. 15 out of 38 evaluable patients with advanced tumors (39%) have
          had disease stabilization ranging from three to 38 months, including
          one partial response. This trial examined the dosing and investigated
          the safety and tolerability of PI-88 as a single-agent therapy.
          Following completion of the Phase I component of this study, the Phase
          II component, investigating advanced melanoma specifically, was
          launched in four sites across Australia with advanced melanoma
          patients and at the University of Colorado Health Sciences Center in
          Denver, Colorado. Recruitment into this Phase II component of this
          study has concluded with 46 patients enrolled on the study.

     -    In February 2004 we concluded a Phase I trial at the University of
          Colorado Cancer Center in Denver, Colorado, of PI-88 in combination
          with taxotere, a frequently used chemotherapy treatment, in patients
          with advanced solid tumors. This trial was designed to determine the
          appropriate safe dose of PI-88 when combined with weekly doses of
          taxotere, and was conducted as a precursor to a planned multi-center
          Australian Phase II trial of the combination in patients with advanced
          non-small cell lung cancer. 16 patients were recruited into this Phase
          I study and the trial met its objectives of determining the safety and
          tolerability of PI-88 in combination with taxotere. Following the
          completion of the Phase I component a multi-center Australian Phase II
          trial of PI-88 in combination with taxotere in patients with advanced
          non-small-cell lung cancer was launched utilizing the dose established
          from the Phase I combination study.

     -    In July 2004 a Phase II trial of PI-88 as post-operative (following
          surgery) adjuvant treatment in patients with primary liver cancer
          (hepatocellular carcinoma or hepatoma) was launched in 4 Taiwan
          clinical centers by our alliance partner and clinical collaborator,
          Medigen Biotechnology Corporation (MBC) an emerging Taiwanese
          biotechnology company.

     Other earlier PI-88 clinical trials include:

     -    Completion of a Taiwanese Phase Ib clinical trial in advanced cancer
          patients to assess the safety and tolerability of PI-88 given
          intravenously in Asian patients suffering from advanced forms of
          cancer, by our alliance partner and clinical collaborator, Medigen
          Biotechnology Corporation.

     -    Completion of a Phase I clinical trial in healthy volunteers in
          Manchester, the United Kingdom in March 1999. This first-time-in-man
          clinical trial was designed to evaluate the safety, tolerability and
          pharmacokinetic profile (concentration in the blood over time) of
          PI-88 when administered intravenously.


                                       26
<PAGE>
     -    Completion of a multi-center Phase Ib clinical trial in patients with
          advanced solid tumors at the Royal Melbourne Hospital and the Peter
          MacCallum Cancer Institute in Melbourne, Australia in November 2000.
          The clinical trial was designed to assess the safety and tolerability
          of PI-88 when administered intravenously.

     -    Completion of a Phase I clinical trial in healthy volunteers in
          Manchester, the United Kingdom in October 2000. The clinical trial was
          designed to evaluate the safety, tolerability and pharmacokinetic
          profile of PI-88 when administered subcutaneously.

     Preclinical Studies of PI-88

     Preclinical studies confirm that PI-88 significantly reduces the growth of
primary human tumors and inhibits metastasis in animal models. We have conducted
extensive preclinical pharmacology in animal models that approximate the human
clinical condition. In one such experiment, mammary tumor cells were injected
into a foot pad of mice and allowed to grow for seven days until a palpable
tumor could be detected. The mice were then treated with PI-88 by continuous
subcutaneous infusion over a 24-day period. At the conclusion of the treatment
period, mice that had received PI-88 had a reduction in lung metastases of up to
75%. In another experiment, PI-88 reduced the growth of pancreatic tumors in
transgenic mice by 80% of the size of tumors in control animals. Moreover, PI-88
was shown to be most effective at preventing small but highly vascularized
tumors from developing into large tumors. This is consistent with PI-88's action
as an angiogenesis inhibitor. In additional experiments, the growth of human
colon carcinoma xenografts in nude (athymic) mice was reduced by up to 28% in
animals treated with PI-88 twice daily by injection for 22 to 26 days.

     Microscopic examination of primary tumors in animals treated with PI-88 has
shown a significant reduction in vascularization both within and surrounding the
tumor. This has been confirmed by measurement of hemoglobin content in tumors
removed from animals treated with PI-88 and untreated animals.

     Additional preclinical studies have shown that PI-88 in combination with
chemotherapeutic agents, such as 5-fluorouracil, is significantly more effective
than either compound alone in reducing tumor growth in mice.

     Several independent assessments of PI-88 have been completed, including
single dose, two-week dose ranging, four-week and 13-week toxicology studies in
rats; a single dose, two-week, four-week and 13-week dosing studies in primates;
and a safety pharmacology study for cardiovascular and respiratory functions
with dogs. Results of these studies have been comparable between species. In rat
toxicology studies, minimal effects were observed at low dosages with toxicities
observed only at high dosages. In monkey toxicology studies, a no-effect level
was achieved at low dosage.  In the dog safety pharmacological study, a
no-effect level was observed at low dosage.

     Results of our 1999 United Kingdom Phase I trials of PI-88 in healthy
volunteers indicate that at escalating dosages administered as single two-hour
intravenous infusions, PI-88 does not cause any immediate adverse reactions
within the human body except for transient elevations of


                                       27
<PAGE>
activated partial thromboplastin time (the time for blood to clot under defined
in vitro conditions). In addition, results of our 2000 United Kingdom Phase I
trial of PI-88 in healthy volunteers indicate that, at escalating dosages
administered subcutaneously (injected under the skin), PI-88 was well tolerated
with minimal local effects and 98% bioavailability.

     Development Strategy

     We have retained worldwide commercial rights to PI-88. At the appropriate
time, we will select collaborators for later-stage clinical development and
commercialization of PI-88 as a cancer therapeutic.

     PI-166 - NOVEL ANTI-CANCER AGENT

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

     Preclinical Studies of PI-166

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

     Development Strategy for PI-166

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

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


                                       28
<PAGE>
     CARDIOVASCULAR THERAPEUTICS

     PI-88 has been shown in preclinical models to have potential as an
anti-thrombotic and inhibitor of restenosis. In light of our focus on developing
novel cancer therapeutics, recent competitive developments and the high cost of
development in the cardiovascular disease area, we do not presently plan to
initiate a PI-88 cardiovascular clinical trial program.

     DRUG DISCOVERY RESEARCH

     The  goal  of  our drug discovery research is to discover and develop small
molecule  drug  candidates  that  modulate the interaction between carbohydrates
(sugars)  and  disease  related  protein  targets  as potential therapeutics for
cancer.  Our current drug discovery research involves the on-going collaboration
with  the academic laboratory of Professor Martin Banwell of the Research School
of  Chemistry  at the Australian National University in Canberra, Australia. The
company  funded  three-year collaborative heparanase program with Prof. Mark von
Itzstein  at  the  Griffith  University's  Institute  of  Glycomics  came  to  a
conclusion in March 2004. The proprietary core technology for our drug discovery
research,  out  of  which  PI-88  was  developed,  emanates  from  our  previous
collaborative  research  on  heparan  sulfate mimics and related polysaccharides
with  Professor Christopher Parish of The John Curtin School of Medical Research
at  the  Australian National University, Canberra, Australia. Our drug discovery
research  program  is  partially  funded  by  a A$3.1 million Australian federal
government  AUSIndustry  START  grant  awarded  in  August  2001.

      Our internal research program, augmented by the work of our academic
collaborators, has led to the identification of a portfolio of heparan sulfate
binding proteins that are involved in different diseases, and we are designing,
synthesizing and screening small molecule compounds that disrupt heparan sulfate
binding.

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

     BACKGROUND

     Carbohydrate-Protein Interactions and Disease. Most diseases involve
     ---------------------------------------------
complex interaction between proteins and many of these interactions also involve
carbohydrates. Different classes of proteins in which many members are known to
be dependent on a carbohydrate sequence for function are cytokines, chemokines,
infectious agents such as viruses, selectins, and proteases. Incorrect
functioning of any of these processes can lead to disease states including
cancer, inflammation, cardiovascular disease and infection.

     Carbohydrates. Carbohydrates constitute a third class of bioinformatic
     -------------
molecules after DNA and proteins. While the nutritional and structural roles of
carbohydrates have long been understood, an appreciation of their function as
information carriers and recognition molecules has occurred only


                                       29
<PAGE>
recently. Carbohydrates play an important role in a wide range of biological
processes as diverse as cellular differentiation, hormone-cell regulation, and
cell-to-cell interaction, especially viral-host cell and bacteria-host cell
recognition. Historically, the potential for carbohydrates as targets for
therapeutics and therapeutic agents was limited, one limiting factor being the
lack of cost effective and scaleable synthetic processes. While synthesis is
feasible on a small scale, large-scale manufacture is prohibitively expensive
with current technology.

     Small Molecule Drugs. The advantage of small molecule drugs over
     --------------------
therapeutic proteins includes their potential for oral administration,
applicability to a wider range of disease targets, including those inside the
cell, improved effectiveness, reduced side effects and greater ease of
manufacture compared to carbohydrates. Small molecule drugs are particularly
appropriate for the treatment of chronic diseases that require daily
administration over many years. Historically, the opportunity to commercialize
small molecule drugs has been limited by the difficulty of discovering safe and
effective small molecules.

     OUR SOLUTION

     We are initially focusing on the role of heparan sulfate, a complex sugar
that belongs to a class of carbohydrates called glycosaminoglycans, or GAGs.
GAGs are sulfated polysaccharides (long sugar chains) that are generally found
linked to core proteins in a complex known as a proteoglycan.  Proteoglycans are
found on the surface of all cells where they act as receptors, participate in
cell-to-cell interactions, and promote or inhibit cell growth. In addition, GAGs
play a structural role by forming a major component of the extracellular matrix
surrounding endothelial cells as well as the basement membrane of blood vessels.
GAG-binding proteins have been implicated in a range of different diseases
including cancer, cardiovascular diseases, inflammation, infectious diseases,
amyloidal diseases, diabetic retinopathy, macular degeneration and
xenotransplantation.

      Our goal is to produce lead molecules that inhibit the binding of heparan
sulfate to different proteins. Our rational drug design approach analyzes the
binding of specific regions of heparan sulfate to target proteins by computer
modeling to aid the design of very selective drugs that bind to the same protein
and block heparan sulfate. We have been able to identify a significant number of
heparan sulfate binding proteins and many are shown to be involved in different
diseases including cancer, infectious disease, cardiovascular disease and
inflammatory disease such as multiple sclerosis.  Previous work done by our
research collaborators and others has demonstrated that if these targets are
blocked, disease can be halted.

     Using a comparative database of the three dimensional structures of a
number of heparan sulfate-binding proteins, we have been able to design,
synthesize and screen several first generation classes of molecules (scaffolds)
that bind to the protein targets and inhibit their heparan sulfate-binding
ability. We have also been able to chemically modify these scaffolds to
dramatically increase their specificity for specific protein targets. We believe
that these new small molecule compounds produced by our proprietary synthetic
procedures can also potentially incorporate chemical groupings to aid detection
and oral delivery. Our initial primary targets include Vascular Endothelial
Growth Factor, or VEG-F, and a family of cell signaling molecules called
Fibroblast Growth Factors, or FGFs, and include FGF-1 and FGF-2.


                                       30
<PAGE>
     We have exclusive proprietary rights to a class of small molecules. These
small molecules are semi-synthetic oligosaccharides (short sugar chains) that we
have screened as inhibitors of specific functions of heparan sulfate-binding
proteins targets such as heparanase, growth factors that stimulate angiogenesis
and proteins involved in the coagulation pathway. PI-88, our lead product
candidate is a heparan sulfate mimetic that has been shown at the cellular level
to prevent the binding of growth factors to target receptors and to inhibit
heparanase. We are also developing novel manufacturing techniques to synthesize
low molecular weight glycomimetics to increase the variety of carbohydrate and
carbohydrate-like molecules for screening as potential therapeutics.

ADDITIONAL RESEARCH PROGRAMS

     Additional research programs supported through collaborations with academic
institutions and industry include:

     Heparanase Technologies. Technologies are being developed for the
     -----------------------
heparanase enzyme as a diagnostic and therapeutic target, including a more
sensitive assay to distinguish heparanase levels in various disease states, such
as malignant versus benign tumors, metastatic versus non-metastatic cancers and
various cardiovascular diseases.

     Inflammation Disease Therapeutics. Based on research results on agents that
     ---------------------------------
target and restrict the activity of heparanase, the same small molecule sulfated
oligosaccharides that inhibit cancer spread (including PI-88) are also
potentially effective prophylactic anti-inflammatory agents.  Furthermore,
heparanase inhibitors constitute a prospective new class of drugs for use in the
treatment of inflammatory disease (such as inflammatory bowel disease and
multiple sclerosis).

     Carbohydrate-Based Anti-Viral Technologies. An important function of
     ------------------------------------------
polysaccharides in the human body is the facilitation of cell-to-cell
interactions and cell adhesion. These molecules act as specific identifiers at
the surface of different cells and play a role in the physical adhesion between
two cells. Carbohydrates have also been associated with the attachment of many
parasites, as well as a number of viruses. Screening of small molecule sulfated
oligosaccharides as inhibitors of viral infection is continuing.

RESEARCH AND CLINICAL COLLABORATIONS

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


                                       31
<PAGE>
     We support, or have supported, pivotal research at the following
institutions:

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

     -    Griffith University's Institute of Glycomics in Brisbane, Australia
          through a three-year collaborative heparanase program funded by us.
          This collaboration came to a conclusion in March 2004. This program
          sought to design an inhibitor to the enzyme heparanase that is
          implicated in inflammatory diseases such as multiple sclerosis and
          inflammatory bowel disease. We may extend the program depending on the
          availability of alternative external funding. Our investment in the
          program is protected by the application of two patents.

     At various times, we have also conducted collaborative research with The
John Curtin School of Medical Research at the Australian National University in
Canberra, Australia, the Institute of Medical and Veterinary Sciences, Adelaide,
Australia, the University of Otago in Otago, New Zealand, the Gothenburg
University in Gothenburg, Sweden, the University of California in Davis,
California, the University of California in San Francisco, California, the
University of Nebraska in Lincoln, Nebraska, the University of L'Aquila in
L'Aquila, Italy, and The Royal North Shore Hospital, Sydney, Australia.

     Our clinical collaborators include:


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

Phase II Non-Small Cell Lung (NSCL) cancer studying PI-88 in combination with
taxotere:
     -    Royal Prince Alfred Hospital (Sydney, Australia);
     -    Sir Charles Gairdner Hospital (Perth, Australia);
     -    Border Medical Oncology (Wodonga, Australia);
     -    Mater Adult Hospital (Brisbane, Australia);
     -    Prince Charles Hospital (Brisbane, Australia);
     -    The Alfred Hospital (Melbourne, Australia);
     -    Royal North Shore Hospital (Sydney, Australia);
     -    The Queen Elizabeth Hospital (Adelaide, Australia);
     -    Prince of Wales Hospital (Sydney, Australia);
     -    Newcastle Mater Hospital (Newcastle, Australia); and


                                       32
<PAGE>
     -    Sydney Haematology and Oncology Clinic (Sydney, Australia).

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

Medigen Biotechnology Corporation in Taipei, Taiwan, is conducting a Phase II
clinical trial with PI-88 in patients with post-resection hepatoma at:
     -    The National Taiwan University Hospital (Taipei, Taiwan);
     -    Chang Gung Memorial Hospital (Linkou, Taiwan);
     -    Veterans General Hospital (Taichung, Taiwan); and
     -    China Medical University Hospital. (Taipei, Taiwan).

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

     In August 2003, we completed an Australian multi-center Phase II study of
PI-88 in multiple myeloma patients at The Alfred Hospital in Melbourne, The
Mater Misericordiae Hospital in Newcastle and the Wesley Clinic Research Centre
in Brisbane. In 2001, clinical testing of intravenous PI-88 in Phase Ib clinical
trials in advanced stage cancer patients at the Peter MacCallum Cancer Institute
and at the Royal Melbourne Hospital was concluded under the auspices of the
Center for Developmental Cancer Therapeutics.

     COLLABORATION WITH MEDIGEN BIOTECHNOLOGY CORPORATION

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

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

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

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

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

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


                                       33
<PAGE>
     -    We have agreed to assist MBC, at MBC's cost, to establish a
          manufacturing plant that can produce potential human therapeutics in
          accordance with cGMP and FDA requirements if so requested; and

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

     In return, MBC:

     -    Will fund and conduct one Phase II cancer trial with PI-88 and one
          Phase II cardiovascular trial with PI-88;

     -    Will fund and conduct two Phase II proof of principle cancer trials
          with PI-88;

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

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

COMMERCIAL SERVICES BUSINESSES

     LIFE SCIENCES

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

     CONTRACT MANUFACTURING

     We provide contract manufacturing services to cGMP standards for various
human clinical trial and therapeutic products and veterinary pharmaceuticals, as
well as non-cGMP bioproducts contract manufacturing services. We also provide
bioprocess technology development services and consulting services in quality
and regulatory management systems. Contract and consulting services revenues
constituted approximately 34.9%, 37.6% and 56.0% of our sales revenue for the
fiscal years ended June 30, 2002, 2003 and 2004, respectively.

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


                                       34
<PAGE>
GOVERNMENT REGULATION

     CONTRACT MANUFACTURING

     Our contract manufacturing operations include some manufacturing processes
that are required to comply with the applicable cGMP requirements of the TGA and
the National Registration Authority, which govern the methods, controls,
facilities and quality assurance procedures used in manufacturing, packing and
storing biological and pharmaceutical products. In addition, certain
international markets have quality assurance and manufacturing requirements that
may be more or less rigorous than those in Australia. Our manufacturing
facilities are also subject to biennial inspections by the TGA. We cannot make
any assurances that we will continue to be in compliance with cGMP requirements.
Failure to comply with cGMP requirements or with any other international
requirements could have a material adverse effect on our business, financial
condition and results of operations.

     RESEARCH AND DEVELOPMENT

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

     Australian Government Regulation

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

     -    Preclinical laboratory and animal testing;

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

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

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

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


                                       35
<PAGE>
     -    Submission of the manufacturing, preclinical and clinical data to the
          TGA; and

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

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

     Preclinical studies include laboratory evaluation of the product as well as
animal studies to assess the potential safety and efficacy of the product. The
results of the preclinical studies are submitted to each investigator's IEC and,
in some instances, to the TGA. Approval by each IEC and by the TGA is necessary
before clinical trials can commence. An IEC is a review committee at each
institution at which a study is conducted and is set up under guidelines of the
Australian National Health and Medical Research Council. The role of an IEC is
to review proposals for clinical trials, and approve and subsequently monitor
the clinical trials.  The IEC will consider, among other things, ethical factors
and the safety of human subjects. We cannot make any assurances that submission
to the applicable IECs and the TGA will result in authorization to commence
clinical trials.

     Clinical trials involve administering the investigational product to
healthy volunteers or patients under the supervision of a qualified principal
investigator. The TGA has developed guidelines for a CTN and a CTX, the two
classes of clinical trials in Australia. Under the CTN scheme, under which most
clinical trials in Australia are conducted, the TGA is formally notified by
submission of a CTN application but is not obliged to review the safety of the
drug or any aspect of the proposed trial. However, the TGA can request safety
information or halt a trial on the basis of safety issues.  Primary
responsibility for all aspects of the trial conducted under a CTN application
remains with the IEC of each investigator's institution and with us. A CTX
application requires submission of a summary of preclinical and manufacturing
data to the TGA, in addition to submission of an investigators brochure and
protocol to the applicable IEC. In cases where an IEC is unsure of the safety or
efficacy of a product, a CTX application is submitted. Approval by both bodies
is necessary before the trials can commence. The role of the TGA is primarily to
assess safety issues.

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

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

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

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


                                       36
<PAGE>
     In the case of products with a high risk of toxicity, the initial clinical
trials are sometimes conducted in patients rather than in healthy volunteers.
Since these patients are already afflicted with the target disease, it is
possible that such clinical trials may provide evidence of efficacy
traditionally obtained in Phase II clinical trials. We cannot make any
assurances that Phase I, Phase II or Phase III testing will be completed
successfully within any specific time period, if at all, with respect to any of
our product candidates. Furthermore, the TGA and/or the applicable IEC may
suspend clinical trials at any time on various grounds, including a finding that
the subjects or patients are being exposed to an unacceptable health risk.

     We successfully completed our first Phase I clinical trial with PI-88 given
as an intravenous infusion in healthy volunteers in Manchester, the United
Kingdom, in March 1999, and our first Phase Ib clinical trial with PI-88 given
intravenously in cancer patients in November 2000. The multi-center oncology
Phase Ib clinical trial was conducted at the Royal Melbourne Hospital and the
Peter MacCallum Cancer Institute, Melbourne, Australia, under the auspices of
the Centre for Developmental Cancer Therapeutics pursuant to an IND application
with the FDA, a CTN application with the TGA and IEC approvals.

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

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

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

     U.S. Government Regulation

     FDA approval to market our drug products in the U.S. is expected to be
undertaken by us or in conjunction with a commercial partner. The approval
process of the FDA and TGA are similar, with substantial requirements for
preclinical research, conduct of clinical trials, and manufacture of the
product. Human clinical testing of a new drug requires the submission of an IND
that must include the results of preclinical studies, together with
manufacturing information and analytical data. We cannot make any assurances,
however, that submission of an IND will allow us to commence clinical trials.
Furthermore, once trials have commenced, the FDA may stop the trials, or
particular types of trials, by placing a "clinical hold" on such trials because
of, for example, concerns regarding the safety of the product being tested. Such
holds can cause substantial delay and, in some cases, may require abandonment of
a product. In addition, in the U.S., Phase IV clinical trials are


                                       37
<PAGE>
conducted after approval by the FDA to gain additional experience from the
treatment of patients in the intended therapeutic indication and to document a
clinical benefit in the case of drugs approved under accelerated approval
regulations. If the FDA approves a product while a company has ongoing clinical
trials that were not necessary for approval, a company may be able to use the
data from these clinical trials to meet all or part of any Phase IV clinical
trial requirement. These clinical trials are often referred to as "Phase III/IV
post-approval clinical trials." Failure to promptly conduct Phase IV clinical
trials could result in withdrawal of product approval under accelerated approval
regulations.

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

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

     We are currently conducting the Phase II component of a Phase I/II clinical
trial of PI-88 as a single agent therapy in patients with melanoma in a
multi-center study in Australia and the U.S. in addition a Phase II multi-center
combination study of PI-88 and taxotere in Australia in NSCL cancer patients
under our IND with the FDA and separate CTN applications with the TGA. We may
seek FDA and TGA approval for independent Phase II trials of PI-166 in the U.S.
and Australia upon successful completion of the Phase I trial in Australia. We
cannot make any assurances that our


                                       38
<PAGE>
submissions to the FDA or the TGA will be successfully reviewed, that the
requisite approvals will be granted, that accelerated approvals will apply, or
that clinical trials will commence.

     Orphan Drug Status

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

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

PATENT RIGHTS; LICENSES AND PROPRIETARY TECHNOLOGY

     GENERALLY

     Our success will depend in large part on whether we can:
     -    Obtain patents to protect our own products;

     -    Obtain licenses to the patented technologies of third parties;

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

     -    Protect our trade secrets and know-how.

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

     PATENTS

     We own or have exclusive rights to 26 granted patents (including those
accepted for grant) and a further 28 patent applications worldwide that relate
to our proprietary technology in Australia, the United States and other foreign
countries, of which three are issued Australian patents and nine are
corresponding issued United States patents with expiration dates between 2013
and 2018. We also have exclusive licenses to approximately 11 families of patent
applications and have been assigned a further 2 families of patent applications.


                                       39
<PAGE>
     The availability and breadth of claims allowed in biotechnology and
pharmaceutical patents is highly uncertain and generally involves complex legal
and factual questions. We cannot make any assurances that any of our pending or
future patent applications will be approved, or that we will develop additional
proprietary products or processes, or be able to license any other patentable
products or processes. We also cannot make any assurances that others will not
independently develop similar products or processes, duplicate any of the
products or processes developed or being developed by or licensed to us, or
design around the patents owned or licensed by us, or that any patents owned or
licensed by us will provide us with competitive advantages. Furthermore, patents
held by third parties may prevent the commercialization of products
incorporating the technology developed by or licensed to us, and third parties
may challenge or seek to narrow, invalidate or circumvent any or all of the
issued, pending or future patents owned or licensed by us.

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

     We also believe that because of the differences in patent laws, foreign
patents, if obtained, and the protection afforded by such foreign patents and
foreign intellectual property laws may be more limited than that provided under
Australian or United States patents and intellectual property laws.  Litigation,
which could result in substantial costs and diversion of effort on our part, may
also be necessary to enforce any patents issued or licensed to us or to
determine the scope and validity of third party proprietary rights. We may have
to participate in opposition proceedings before the Australian Patent and
Trademark Office or another foreign patent office, or in interference
proceedings declared by the United States Patent and Trademark Office, to
determine the priority of the invention for patent applications filed by
competitors. Any such litigation, interference or opposition proceeding,
regardless of outcome, could be expensive and time consuming, and adverse
determinations in any such proceedings could have a material adverse effect on
our business, financial condition and results of operations.

     LICENSES

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

     PI-166. We also have an exclusive worldwide license from the University of
     ------
New South Wales in Sydney, Australia, to PI-166, a novel drug and delivery
technology that is a potential new therapy for the treatment of hepatocellular
carcinoma (primary liver cancer). Our license rights


                                       40
<PAGE>
terminate on expiration of the last patent forming part of the technology or, if
no patent issues, in 2012 with an option to extend until 2022. Our license with
the University of New South Wales requires us pay the University a portion of
PI-166 related payments that we receive including royalties on sales of PI-88 as
well as on any fees we receive from sublicensing this technology.

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

     PROPRIETARY TECHNOLOGY

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

COMPETITION

     Drug Development

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

     We are aware of certain products that are being developed by competitors
that modulate tumor-related angiogenesis, including heparanase inhibitors,
FGF-2, VEG-F and other signal protein inhibitors, and inhibitors of certain
matrix metalloproteases, a family of enzymes known to be involved in processes
through which tumors invade tissues, metastasize and grow. Other competitors are
developing technologies that interfere with endothelial cells directly. Several
of these product candidates are in advanced stages of clinical trials and being
marketed. Competitors that are marketing products or developing technologies
that compete with PI-88, our lead oncology product candidate, include Genentech,
Inc., EntreMed, Inc., Imclone Systems, Onyx Pharmaceuticals, Genaera
Corporation, Genzyme Corporation, Aeterna Zentaris, MedImmune Inc. and Celgene


                                       41
<PAGE>
Corporation. We are also aware of several agents that are being developed by
competitors that are intended for the treatment of hepatocellular carcinoma.
These agents are in various stages of clinical development and comprise small
synthetic organic molecules and biologicals, as well as targeted radiotherapy
and hyperthermia treatments. These competitors include Maxim Pharmaceuticals,
Onyx Pharmaceuticals and SIRTeX Medical.

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

     Contract Manufacturing

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


ITEM 4.D. PROPERTY, PLANTS AND EQUIPMENT

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

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

     Our manufacturing facility is licensed by the Australian Therapeutic Goods
Administration, or TGA, for the manufacture of biological-based starting
materials for human therapeutics to cGMP


                                       42
<PAGE>
standards and by the Australian Office of Gene Technology Regulator for the
manufacture of large scale genetically modified organisms. The TGA is a division
of the Australian Department of Health and Aged Care in Canberra and a member of
the International Pharmaceutical Inspection Convention. The TGA regulates the
manufacture of compounds intended as starting materials for human therapeutics.
In addition, the facility is licensed by the Australian National Registration
Authority for manufacture of sterile and immunobiological veterinary products to
cGMP standards and by the Australian Quarantine and Inspection Service as a
quarantine facility.

     The building in which our principal offices and manufacturing facilities
are located is leased.  Under a lease agreement expiring in March 2007, we pay a
current rental of approximately $68,800 per annum, subject to annual review,
based on the movement in the consumer price index.


                                       43
<PAGE>
ITEM 5.  OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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


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

OVERVIEW

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

     Our two cancer product candidates are PI-88 and PI-166. PI-88, our lead
candidate, has completed two Phase I clinical trials in the U.S. as a single
agent therapy for solid tumor cancers and as a combination therapy with the
chemotherapy drug docetaxel, or taxotere. In August 2003, we completed an
Australian multi-center Phase II clinical trial of PI-88 as a single agent
therapy for multiple myeloma (bone marrow cancer). PI-166, our second oncology
product candidate, is in a Phase I clinical trial for unresectable primary liver
cancer.

     Our drug discovery research program has identified a portfolio of
therapeutic targets that play key roles in cancer and other serious diseases,
and we are designing, synthesizing and screening small molecule compounds
directed at these targets. This research program is partially funded by an
AusIndustry START grant.

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

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

     We have incurred significant losses since our inception and as of June 30,
2004, our accumulated deficit was approximately $39.0 million. We devote a
substantial portion of our financial resources to fund the development our two
cancer product candidates and our drug discovery research efforts. We expect to
incur additional operating losses for at least the next several years as we
accelerate our drug discovery research and conduct additional clinical trials
with PI-88 and PI-166, and advance into later stages of development. We may need
to raise additional funds in the future to continue our operations.


                                       44
<PAGE>
     Our operations have historically been financed by the issuance of capital
stock because it is generally difficult to fund pharmaceutical research via
borrowings due to the lack of revenues to service debt and the significant
inherent uncertainty as to results of this research and the timing of those
results.

CRITICAL ACCOUNTING POLICIES

     The following discussion and analysis of our operating and financial review
and prospects are based upon our financial statements, which have been prepared
in accordance U.S. generally accepted accounting principles. The preparation of
these financial statements requires us to make estimates and judgments that
affect the reported amounts of revenue, assets, liabilities and expenses. We
re-evaluate our estimates on an on-going basis. Our estimates are based on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances. Actual results may differ from these
estimates under different assumptions or conditions.

     We believe the following are our critical accounting policies that affect
our more significant judgments and estimates used in the preparation of our
financial statements.

     REVENUE RECOGNITION

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

     Revenue from the sale of services is recognized as the service is
performed, and no additional services or products are required to be provided.
Such revenue is predominantly derived from supplying Contract Manufacturing
services and formal contracts. It is typical for us to receive upfront payments
under the terms of these contracts, before performance of the contract is
commenced. In these cases we defer revenue and recognize it over the periods
that the contracted services are delivered.

     We recognize Australian federal government grant income when research and
development expenditure to which the particular grant relates has been incurred.
Under the conditions of these grants the Australian government contributes 50%
of eligible project expenditure up to predetermined maximums.

     We recognize interest income as it is earned and when collectibility is
reasonably assured.

     RESEARCH AND DEVELOPMENT EXPENSE

     Research and development expense, which includes personnel costs,
manufacturing and administration expenses consists of expenditures for research
we conduct. We expense research and development costs as they are incurred.


                                       45
<PAGE>
     In addition, although we believe that our patents and underlying technology
have continuing value, the future benefits to be derived therefrom are
uncertain. We, therefore, include patent costs under research and development
expenses rather than capitalizing them.

     DISCONTINUED OPERATIONS

     On November 11, 2003, we entered into an agreement to sell our Life
Sciences business. This sale was consummated on November 28, 2003. The assets
and liabilities sold have been classified in the June 30, 2003 balance sheet as
held for sale, as an active plan to sell the business had been initiated prior
to June 30, 2003 and we were engaged in marketing the business to potential
buyers. The assets and liabilities of this business have been measured at their
carrying values, which are considered to be less than their fair values. Fair
value has been determined based on the proceeds from the sale of the business.
In addition, the results of operations for the 2002, 2003 and 2004 fiscal years
from our Life Sciences business are presented in the statement of operations as
discontinued operations.

ITEM 5.A.  OPERATING RESULTS

     YEARS ENDED JUNE 30, 2004, 2003 AND 2002

     Revenue from Operations

     Until the sale of our Life Sciences business in November 2003 we derived
revenue from the following two sources:

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

     Our revenue from sales and provision of services for fiscal 2002, 2003 and
2004 is as follows (in thousands):

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------
                                                            YEARS ENDED JUNE 30,
---------------------------------------------------------------------------------
                                                            2002    2003    2004
---------------------------------------------------------------------------------
<S>                                                        <C>     <C>     <C>
Sale of life science research products                     $1,314  $1,742  $1,097
---------------------------------------------------------------------------------
Revenue from provision of contract manufacturing services     704   1,052   1,394
---------------------------------------------------------------------------------
TOTAL REVENUE FROM SALES AND PROVISION OF SERVICES         $2,018  $2,794  $2,491
---------------------------------------------------------------------------------
</TABLE>

     Despite the sale of the Life Science business in November 2003 total sales
only decreased 10.8% to $2,491,486 in fiscal 2004 from $2,793,901 in fiscal 2003
due to continued strong growth in revenue from the contract manufacturing
sector.

     Revenues from the provision of contract manufacturing services grew 32.5%
to $1,394,589 in fiscal 2004 from $1,051,695 in fiscal 2003. Further, fiscal
2003 contract manufacturing revenues grew 49.4% over fiscal 2002 revenues. In
Australian dollars (the Company's functional currency) revenues only grew by
8.6% in fiscal 2004 over fiscal 2003 and by 33.9% in fiscal 2003 over fiscal
2002. The increase over the past three fiscal years is due to a focused effort
in gaining contract


                                       46
<PAGE>
manufacturing work to utilize idle manufacturing capacity. We cannot be certain
that we will be able to continue to secure new manufacturing contracts.
Additionally, growth in contract manufacturing revenue will be limited by
current capacity constraints at our manufacturing facility since production of
PI-88 is expected to increase as both we and Medigen Biotechnology Corporation,
our clinical collaborator, expand recruitment into our respective PI-88 clinical
trials.

     As a result of the sale of our Life Sciences business, our revenue is
presently wholly-derived from the provision of contract manufacturing services.
We ultimately expect to derive additional revenue from the out-licencing of our
product candidates currently under development in return for milestone payments
and royalties on commercial sales.

     Research and Development Expenses

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

<TABLE>
<CAPTION>
-----------------------------------------------------------------
                                            YEARS ENDED JUNE 30,
-----------------------------------------------------------------
                                            2002    2003    2004
-----------------------------------------------------------------
<S>                                        <C>     <C>     <C>
PI-88                                      $  945  $  709  $1,155
-----------------------------------------------------------------
PI-166                                          -      64      46
-----------------------------------------------------------------
Drug discovery                                473   1,118   1,308
-----------------------------------------------------------------
General research and development expenses     767     544     674
-----------------------------------------------------------------
TOTAL RESEARCH AND DEVELOPMENT EXPENSES    $2,185  $2,435  $3,183
-----------------------------------------------------------------
</TABLE>


     Costs for PI-88 and PI-166, our two oncology compounds under development,
include external direct costs such as principal investigators fees, patient
recruitment fees, data monitoring charges as well as our personnel costs for
preclinical, clinical and regulatory activities associated with preparing
compounds for submission of new drug applications to the FDA and TGA or similar
agencies. General research and development expenses include research and
development management personnel costs and general laboratory costs that cannot
be allocated to a specific compound or our drug discovery effort. Drug discovery
costs include our personnel and associated costs incurred in relation to this
effort as well as external sponsored research costs

     Total research and development expenditures were $3,183,278 for fiscal 2004
compared to $2,435,896 for fiscal 2003 and $2,185,066 for fiscal 2002. Research
and development expenses for fiscal 2004 increased 34.4% in US dollars, however
in Australian dollars the increase was only 7.1%. This increase was primarily
due to PI-88 with the increased costs associated with conducting phase II human
clinical trials. Investment in our drug discovery efforts has increased over the
past three fiscal years with the Company being awarded an AusIndustry Start
Grant which partially funds this activity. The increase of 136.4% in drug
discovery costs from 2002 to 2003 coincided with the award of the AusIndustry
START Grant and this increase explains the overall increase in research and
development expenses between these two years.

     We expect our research and development expenses to decrease in fiscal 2005
as the collaboration agreement with the Griffith University has concluded,
preclinical studies of PI-166 have been completed and our PI-88 Phase I human
clinical trials have finished recruiting patients.


                                       47
<PAGE>
Off-setting this somewhat is the expected increase in recruitment into our PI-88
Phase II human clinical trials.

     Selling, General and Administrative Costs

     Selling, general and administrative costs were $2,494,570 for fiscal 2004
compared with $1,958,355 for fiscal 2003 and $1,214,771 for fiscal 2002. The
27.4% increase in selling, general and administrative costs in fiscal 2004 was
primarily due to movements in the exchange rate between the US dollar and the
Australian dollar which is the Company's functional currency. In Australian
dollars selling, general and administrative costs increased 4.3% due to a
further strengthening of our business development department with an additional
headcount. The increase of $743,584 from fiscal year 2002 to fiscal year 2003
was primarily due to $229,767 of funding for the scientific development
division, responsible for the licensing of PI-166 and associated in-licensing
fees, insurance costs increased by $54,957, foreign exchange loss of $75,420,
increase in salaries $90,400 and consulting fees of $63,142 paid for corporate
initiatives.

     Other Costs of Operations

     Other costs of operations fell 33.3% in fiscal 2004 over 2003 following a
66.8% fall in 2003 over 2002. These costs are the overheads of our Contract
Manufacturing division that are not recovered against cost of sales and have
been decreasing over the past three fiscal years as the revenue derived by this
division increased. A majority of these costs are fixed and therefore as the
manufacturing facility is utilized more frequently a greater portion of these
costs are recovered against revenue and are shown as cost of sales.

     The costs are primarily salaries and wages and repairs and maintenance.

     Depreciation expense

     Depreciation expense increased by $6,673 in fiscal 2004, however in
Australian dollars (our functional currency) depreciation actually reduced by
A$132,140. The decrease in depreciation (in Australian dollars) was due
primarily to assets being fully depreciated. In fiscal 2003 depreciation expense
increased $151,695 due to depreciation on equipment purchases made at the end of
fiscal 2002. Depreciation expense is expected to decline further in fiscal 2005
as assets continue to be fully depreciated and depreciation on our estimated
capital expenditure requirements will not be sufficient to off-set that decline.

     Other Income (Expenses)

     We realized total net other income of $1,078,787 in fiscal 2004 compared
with $537,991 in fiscal 2003 and $417,658 in fiscal 2002. The components of
Other Income (Expenses) as shown in our statements of operations included
elsewhere in this annual report are (in thousands):


                                       48
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------
                                                               YEARS ENDED JUNE 30,
-------------------------------------------------------------------------------------
                                                               2002    2003    2004
-------------------------------------------------------------------------------------
<S>                                                           <C>     <C>     <C>
Share of net (losses) gains of associate accounted for using  $(510)  $   -   $    -
the equity method
-------------------------------------------------------------------------------------
Interest income                                                 380     288      475
-------------------------------------------------------------------------------------
Interest expense                                                 (3)     (7)     (12)
-------------------------------------------------------------------------------------
Grant income                                                    124     435      596
-------------------------------------------------------------------------------------
Other income                                                     74      28       20
-------------------------------------------------------------------------------------
Unrealised (loss) gain on investments                           102       -        -
-------------------------------------------------------------------------------------
Realised (loss) gain on investments                             251    (206)       -
-------------------------------------------------------------------------------------
TOTAL OTHER INCOME                                            $ 418   $ 538   $1,079
-------------------------------------------------------------------------------------
</TABLE>

     Interest income received varies from year to year depending on the amount
of cash we have available to invest and the interest rate prevailing at that
time.

     Grant income relates to the funding we receive for our drug discovery
program under the AusIndustry START grant. The grant is based on a 50%
re-imbursement of eligible expenditure, and therefore is directly related to
level of expenditure incurred on this program. The amount of the grant is capped
at A$3.1 million. The term of the grant has been extended to now expire in June
2005 when previously it was due to expire in December 2004. It is therefore
anticipated that grant income will remain at similar levels in fiscal 2005.

     Income Taxes

     As at June 30, 2004, we had net operating loss carry forwards of
approximately $44.5 million, resulting in a deferred tax asset of approximately
$13.4 million. We had net operating loss carry forwards of $39.7 million as at
June 30, 2003. Since re-coupment of the carried loss forward is not reasonably
assured, a valuation allowance has been established to offset in full the
deferred tax asset resulting in a net deferred asset of $nil.

ITEM 5.B.  LIQUIDITY AND CAPITAL RESOURCES

     Sources of Liquidity

     Since inception, we have financed our operations primarily through public
and private sales of equity and debt securities totaling approximately $49.0
million in net proceeds. As at June 30, 2004, cash and cash equivalents totaled
approximately $9.9 million and consisted primarily of highly liquid interest
bearing investments with maturities of one month or less. We believe that these
investments do not constitute any material market risk exposure.

     Cash Flows

     We expended approximately $3.8 million in cash and cash equivalents during
the twelve months ended June 30, 2004 to finance our net operating activities.
This compares to $1.6 million and $2.1 million for fiscal 2003 and 2002,
respectively. The increase in net cash expended in fiscal


                                       49
<PAGE>
2004 over fiscal 2003 was primarily due to the $1.2 million received from the
proceeds of an investment in fiscal 2003. Payments to suppliers and employees
increased in each of the last three fiscal years to June 30, 2004 as the
Company's investment into its various clinical trials increased.

     Cash and cash equivalents held as at June 30, 2002, 2003 and 2004 was $6.4
million, $8.0 million and $9.9 respectively. The balance of cash and cash
equivalents increased each fiscal year due to investments maturing and/or the
raising of cash through the sale of our equity securities.

     Funding Requirements

     We  currently  have  no  material  commitments  for  capital  expenditures.
However,  we  expect  to  incur  substantial  future commitments in light of our
oncology  clinical  program  and  our  drug discovery program.  We are presently
funding  two  Phase  II  multi-center  clinical trials of PI-88 and one Phase Ib
clinical  trial  of  PI-166.  These three ongoing trials of PI-88 and PI-166 are
expected  to  cost  approximately  $1.46  million  over  the  next two years. In
addition  in  September  2002,  we extended our agreement with ANUTECH Pty. Ltd.
agreeing  to  fund  further  research  projects  relating  to  the  synthesis of
heparinoid mimetics and development of the heparanase enzyme as a diagnostic and
therapeutic  target  over  a  further  three-year  period.  Our  total estimated
commitment  under  this  agreement  is  $159,690.

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

     Based upon current and expected levels of cash expenditures, we believe
that our existing cash and investments resources, approximately $11.0 million at
November 30, 2004, will be adequate to satisfy the requirements of our current
and planned operations through March 2006. Thereafter, to the extent that we are
unable to generate cash from our operating or commercialization activities, we
will be required to seek additional funding through the public or private sale
of debt or equity securities. We may require additional financing before such
time and we cannot be certain that we will have access to the capital markets
for the sale of our securities on acceptable terms, or at all.  Any shortfall in
funding could result in our having to curtail our operations, including our
research and development activities which could have a material adverse effect
on our business, financial condition and results of operations.

ITEM 5.E.  OFF-BALANCE SHEET ARRANGEMENTS

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


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

     The following table sets forth our aggregate contractual obligations for
the three years following June 30, 2004 (in thousands):

<TABLE>
<CAPTION>
          --------------------------------------------------------------
                                             PAYMENTS DUE BY PERIOD
          --------------------------------------------------------------
<S>                                     <C>        <C>        <C>
          CONTRACTUAL OBLIGATIONS       TOTAL       < 1 YEAR   1-3 YEARS
          --------------------------------------------------------------
          Operating leases (principal   $     189  $      69  $      120
          office and manufacturing
          facility)
          --------------------------------------------------------------
          Sponsored research and            1,625      1,281         344
          clinical trial obligations
          --------------------------------------------------------------
          TOTAL                         $   1,814  $   1,350  $      464
          --------------------------------------------------------------
</TABLE>

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


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

ITEM 6.A.  DIRECTORS AND SENIOR MANAGEMENT

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

<TABLE>
<CAPTION>
     NAME                                   AGE  POSITION
     ----                                   ---  --------
<S>                                    <C>  <C>
     Stephen Chang                           55  Executive Chairman
     Lewis J. Lee                            46  Managing Director
     Prof. John R. Zalcberg                  52  Non-Executive Director
     Patrick O. Burns                        67  Non-Executive Director (1), (2)
     Dr. Malvin L. Eutick                    55  Non-Executive Director (1), (2)
     Dr. Stanley S.C. Chang                  48  Non-Executive Director
     Dr. Robert H. Don                       48  Vice President Research and Development
     Dr. Darren M. Schliebs                  36  Vice President Business Development
     Linton W. P. Burns                      39  Company Secretary and Chief Financial Officer
     Gregory M. Orders                       47  General  Manager Contract Manufacturing
_____________

(1) Member of Audit Committee
(2) Member of Remuneration Committee
_____________
</TABLE>

     STEPHEN CHANG is a founding Director and has served as Chairman from 1989
to 1994 and again since 1999. Mr. Chang is also a director of Capac
International Pty. Ltd., a private import/export firm. From 2000 to 2001, Mr.
Chang served as chairman of Medigen Biotechnology Corporation, and from 1977 to
2001, was a director of Australia Pacific Electric Cables Pty. Ltd. and
Australia Pacific Electric Cables (Holdings) Pty. Ltd. Mr. Chang holds a B.Sc.
in mechanical engineering from the National Taiwan College of Marine Science and
Technology. There is no family relationship between Mr. Chang and Dr. Stanley
Chang.

     LEWIS J. LEE has served as our Managing Director since February 2000. Prior
to joining us, Mr. Lee held a number of senior management positions with F.
Hoffmann-La Roche Limited, Switzerland, and its various international
subsidiaries, serving respectively over a ten-year period since 1989 as the
global business leader for PEGASYS(TM), a major Roche drug, global brand manager
for Roferon-A, biotechnology division head of Roche Products Ltd., Taiwan,
product manager of Roche Products Ltd. Sydney and headquarter country manager
for several emerging markets in the Middle-East and Far East. Mr. Lee is also a
director of Xenome Ltd., a public, non-listed Australian biotechnology company.
Mr. Lee holds a B.Sc. in engineering and an M.B.A. from the University of
Queensland, Australia.

     PROFESSOR JOHN R. ZALCBERG, M.D., PH.D. joined as a Non-Executive Director
in May 1995. He is Professor/Director of the Division of Haematology and Medical
Oncology at the Peter MacCallum Cancer Institute in Melbourne, Australia. Among
his numerous professional positions, Prof. Zalcberg is the chairman of the
Australasian Gastrointestinal Trials Group and a board member of the New South
Wales Cancer Institute and Cancer Trials Australia. Prof. Zalcberg was the past
president of the Clinical Oncology Society of Australia from 2000 to 2001, a
member of the


                                       52
<PAGE>
Committee of Management of the University of Sydney Cancer Research Fund from
1997 to 1999, and a past member of the Global Oncology Advisory Board of
Pharmacia & Upjohn. Prof. Zalcberg is a member of the editorial boards of
Investigational New Drugs, Annals of Oncology, European Journal of Cancer,
Journal of Clinical Oncology, and American Journal of Drugs. He has been the
recipient of numerous research grants and has published extensively in
scientific journals. Prof. Zalcberg holds a Ph.D. from the University of
Melbourne and is a fellow of the Royal Australian College of Physicians (Medical
Oncology).

     PATRICK O. BURNS was appointed a Non-Executive Director in March 1999. Mr.
Burns is vice chairman of Euclid Systems Corporation, a private eye care
company, and the chairman of its 66% subsidiary Stable Eyes Inc. He is also a
director of and  senior advisor to Firm View Inc a company providing computer
programming to brokerage business's. He is also a senior consultant to Airline
Capital Associates, Inc., a private aviation consulting company and of
Ophthalmic Laboratories Pty. Limited a private Australian pharmaceutical
company.  Previously, Mr. Burns served as a director of Synbiotics Corp., a
public company specializing in animal health care, from 1997 to 2002, a senior
consultant to Early Stage Enterprises, a New Jersey venture capital fund
investing primarily in developing technology growth companies, from 1997 to
2003, vice president/principal of R&D Funding Corp., the general partner of four
research and development funds and an affiliate of Prudential Securities
Incorporated, from 1986 to 1997, and Senior Vice President of Prudential
Securities from 1991 until 1997. Mr. Burns holds an B.A. in Government from
Dartmouth College and an L.L.B. from Harvard Law School. There is no family
relationship between Mr. Burns and Mr. Linton W. P. Burns our Company Secretary
and Chief Financial Officer.

     DR. MALVIN L. EUTICK, PH.D. was appointed a Non-Executive Director in March
1999. He is a director of TUTA Healthcare Pty. Ltd. and TUTA Pharmaceuticals
Pty. Ltd., which are private Australian suppliers of plastic medical devices and
pre-filled pharmaceutical systems for home care, and director and chief
executive officer of Ophthalmic Laboratories Pty. Limited a private Australian
pharmaceutical company. Previously, Dr. Eutick served as the Chairman of
Bioquest Limited, a non-listed public Australian biotechnology company
specializing in the supply of molecular biology products, equipment and
training, and a director of Starrate Australia Pty. Ltd., a private Australian
biotechnology company. Dr. Eutick holds a B.Sc. and a Ph.D. in biochemistry from
the University of Sydney, Australia and was awarded the Medal of the Order of
Australia for services to biotechnology.

     DR. STANLEY CHANG, M.D., PH.D. was appointed a Non-Executive Director in
February 2001, and is the chief executive officer and managing director of
Medigen Biotechnology Corporation, a Taiwan-based biotechnology company. Dr.
Chang also serves as a director of MediGreen Biotechnology Corp., a 40%
Taiwanese subsidiary of Medigen Biotechnology Corporation, and GeneTrol
Biotherapeutics, Inc., a private U.S. biotechnology company. Dr. Chang is also
the president and executive director of ACM Medical Technologies LLC and a
director of The New Century Health Care Promotion Foundation. Previously, Dr.
Chang was chairman of the Faculty of Medicine of Tzu Chi College of Medicine and
Humanities, Taiwan, from 1996 to 2000, and a consultant urologist at the
Department of Urology of Tzu Chi General Hospital from 1988 to 2000. Dr. Chang
served on the editorial board of The Journal of Ultrasound in Medicine from 1996
to 1998 and from 1998 to 2000, and is a fellow of the Association of Urology,
Taiwan and the Society of Ultrasound in Medicine, Taiwan. Dr. Chang is the
recipient of numerous research grants and has


                                       53
<PAGE>
published many scientific articles. He holds an M.D. from the College of
Medicine at the National Taiwan University and a Ph.D. from the Department of
Surgery, University College London Medical School at the University of London,
United Kingdom. There is no family relationship between Dr. Chang and Mr.
Stephen Chang, our Chairman.

     DR. ROBERT H. DON, PH.D. joined us in 1994 as Vice President of Research
and Development. Prior to joining us, Dr. Don was a program leader at the Center
for Molecular Biology and Biotechnology at the University of Queensland,
Australia, from 1989 to 1994, leading a research group in the study of molecular
genetics of embryonal development. Previously, Dr. Don was a research scientist
at the Commonwealth Scientific and Industrial Research Organization, or CSIRO,
in Brisbane where he worked on development of animal vaccines as part of a
collaborative research program with CSL Ltd., a senior scientific officer at the
Oncology Research Center, Prince of Wales Hospital in Sydney, and a research
fellow of the Department of Medical Biochemistry at the University of Geneva,
Switzerland, in collaborative research with the Bayer AG. Dr. Don has published
numerous articles on molecular genetics. He holds a B.Sc. and a Ph.D. in
microbiology from the University of Queensland, Australia.

     DR. DARREN M. SCHLIEBS, PH.D. joined us in May 2003 as Vice President of
Business Development.  Prior to joining us, Dr. Schliebs served from 1998 to
2003 in various business development and scientific positions for Alchemia
Limited, an Australian public biotechnology company, and its U.S. business
development subsidiary, where he was most recently based in the San Francisco
Bay Area as business development manager. Dr. Schliebs is an inventor of a
patent relating to carbohydrate-based drug discovery, and has published several
articles on carbohydrate and natural product chemistry in scientific journals
and magazines. Dr. Schliebs holds a B.Sc. in organic chemistry from the
University of Adelaide, Australia, and a Ph.D. in organic chemistry from The
Australian National University, Canberra, Australia.

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

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


                                       54
<PAGE>
     ALTERNATE DIRECTOR

     EUGENE CHENG was appointed the alternate director for Dr. Stanley Chang on
March 24, 2003 and is the chief operating officer of Medigen Biotechnology
Corporation.  From 2000 to 2003 Mr. Cheng was a partner of E-telint Capital
Partners, a Silicon Valley based venture capital firm. From 2000 to 2001, Mr.
Cheng was the president of Advanced Semiconductor Engineering, Inc., a publicly
held Taiwanese corporation and one of the largest global providers of
semiconductor manufacturing services. From 1987 to 1999, Mr. Cheng occupied
various management positions with Acer Inc., a publicly held Taiwanese
corporation and one of the world's top branded PC vendors, serving from 1995 to
2000 as chief of staff of Acer Information Products Group. Mr. Cheng holds a
B.E. in chemical engineering from the Chung Yuan College of Science and
Engineering, Chung Li, Taiwan, and an M.B.A. from the Management School of the
National Sun Yat-sen University, Kaohsiung, Taiwan.

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

ITEM 6.B.  COMPENSATION

     The following table sets forth certain information concerning the
compensation that we paid to our directors and our five most highly compensated
executive officers, both individually and as a group, during the fiscal year
ended June 30, 2004:

<TABLE>
<CAPTION>
                                                                          Annual Compensation
                                                                   -------------------------------
                                                     Directors'     Superannuation    Automobile        Stock
Name and Principal Position             Salary          Fees        Contributions      Allowance       Options          TOTAL
---------------------------             ------          ----        --------------    ----------       -------
                                         (1)                             (2)                             (3)
                                         ---
<S>                                 <C>             <C>            <C>               <C>            <C>             <C>
Stephen Chang                       $     134,786               -  $        12,131               -  $      58,892   $     205,809
  Chairman and Executive Director
Lewis J. Lee                              179,470               -           16,152          12,122         58,893         266,637
  Executive Director
  and Managing Director
Prof. John R. Zalcberg                          -          28,154            2,534               -         23,557          54,245
  Non-Executive Director
Patrick O. Burns                                -          30,688                -               -         23,557          54,245
  Non-Executive Director
Dr. Malvin L. Eutick                            -          28,154            2,534               -         23,557          54,245
  Non-Executive Director
Dr. Stanley S.C. Chang                          -          30,688                -               -         23,557          54,245
  Non-Executive Director
Dr. Robert. H. Don                         84,607               -            7,615               -         18,846         111,068
  Vice President Research
  andDevelopment
Dr. Darren M. Schliebs                     78,523               -            7,067               -         14,134          99,724
  Vice President Business
  Development
Milton S. McColl                           71,715               -            6,454           7,627         23,557         109,353
  Company Secretary and
  Chief Financial Officer (4)


                                       55
<PAGE>
Gregory M. Orders                          69,590               -            6,263               -         18,846          94,699
  General Manager
  Contract Manufacturing
Rodney A. Stewart                          36,079               -            2,313               -              -          38,392
  Sales and Marketing
  Manager (Life Sciences)
  until November 28, 2003
All directors and
  executive officers                $     654,770   $     117,684  $        63,063   $      19,749  $     287,396   $   1,142,662
  as a group (11 persons)
_______________
<FN>

(1)  No part of the compensation shown was paid pursuant to a material bonus or profit-sharing plan.
(2)  We are obligated to contribute to various superannuation plans to provide pension, retirement or similar benefits under
     the Australian Superannuation Guarantee Legislation. Contributions are at set percentages of salaries and wages. We have no
     responsibility for the administration or performance of the superannuation plans.  We have not established any superannuation
     plans.
(3)  During the 2004 fiscal year stock options were granted to all directors and executive officers under our 2003 directors
     and employee incentive plan. The grant of options to all directors and executive officers followed shareholder approval of the
     issue of stock options under this plan at the 2003 annual general meeting of shareholders. The options were issued free of
     charge. Each option entitles the holder to subscribe for one fully paid ordinary share in the Company at an exercise of
     A$2.50. The options expire on May 31, 2005. The estimated value of these options is calculated at the date of grant using the
     Black-Scholes option pricing model.
(4)  Mr. McColl resigned in August 2004.
</TABLE>


ITEM 6.C.  BOARD PRACTICES

     We currently have six directors. Our constitution provides that at least
one-third of our directors (except our managing director) must retire at each
annual general meeting of shareholders.  As a result, only a portion of our
board of directors will be elected each year. Prof. Zalcberg was re-elected at
the 2002 annual general meeting of shareholders and Dr. Eutick was re-elected at
the 2003 annual general meeting of shareholders. Mr. Stephen Chang, Dr. Stanley
Chang and Mr. P Burns were re-elected at our 2004 annual general meeting of
shareholders. The terms of Prof. Zalcberg and Dr. Eutick will expire at our 2005
annual general meeting of shareholders.

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

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

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

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

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

     -    Reviewing and monitoring the framework of our internal controls and
          the objectivity of our financial reporting;


                                       56
<PAGE>
     -    Oversight of the internal audit function including the adequacy and
          effectiveness of the Company's internal controls over financial
          reporting and disclosure controls and procedures;

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

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

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

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

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

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

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

ITEM 6.D.  EMPLOYEES

     As of June 30, 2004, we had a workforce of 40 full-time employees, of whom
13 hold Ph.D. degrees, and 9 hold other advanced degrees. Of our total
workforce, 17 are engaged in research and development, 9 in manufacturing
operations, 4 in quality assurance, seven in sales and marketing, and 10 in
business development, finance and administration. None of our employees are
represented by a labor union, nor have we experienced work stoppages. We believe
that our relations with our employees are good. We also maintain consulting
agreements with a number of scientists at various universities and other
research institutions.

ITEM 6.E. SHARE OWNERSHIP

     Information about the share ownership and option holdings of our directors
and executive officers is disclosed below in "Item 7.A. Major Shareholders."


                                       57
<PAGE>
OPTION PLANS

     In September 1995, our shareholders approved an employee option plan. All
our employees (including directors) who are at least 18 years of age are
eligible to participate in the plan. Pursuant to the plan, we will not grant any
option if, after such issuance, the number of options issued to non-executive
directors and non-executive employees during the previous five years whether or
not exercised and which have not yet terminated or expired would exceed 5% of
the then total number of outstanding ordinary shares. All grants of options to
directors pursuant to the plan require the prior approval from our shareholders.
As of December 2, 2004, there were no outstanding options to purchase ordinary
shares under the 1995 employee option plan.

     In November 1999, our shareholders approved the executive directors' option
plan. Only our directors who hold salaried employment are eligible to
participate in the plan. Our board of directors may impose any conditions upon
the vesting or exercise of any options granted under the plan. As of December 2,
2004, there were outstanding options under the executive 1999 directors' option
plan to purchase a total of 400,000 ordinary shares at a weighted average
exercise price of A$6.46 per share expiring on February 8, 2005.

     In October 2000, our board of directors approved an employee option plan.
In accordance with Australian law, we will not grant any option if, after such
issuance, the number of options issued to non-executive directors and
non-executive employees during the previous five years whether or not exercised
and which have not yet terminated or expired would exceed 5% of the then total
number of outstanding ordinary shares. All our employees and our executive and
non-executive directors are eligible to participate in the plan. As approved by
our shareholders in November 2000, all grants of options under the plan to
employees who are not directors may be made without shareholder approval.
However, in accordance with Australian Stock Exchange Listing Rules all grants
of options to directors require the prior approval from our shareholders. The
plan also provides that the minimum exercise price must be A$4.00 per share for
initial grants under the plan and, thereafter, must equal the greater of A$4.00
or 125% of the weighted average market price of our ordinary shares as quoted on
the Australian Stock Exchange for the ten business days prior to the option
grant. As of December 2, 2004, there were outstanding options under the 2000
employee option plan to purchase an aggregate of 178,820 ordinary shares at an
exercise price of A$4.00 per share of which options to purchase a total of
350,000 ordinary shares expire on December 22, 2005 and options to purchase a
total of 232,020 ordinary shares expire on February 28, 2006.

     In October 2003, our shareholders approved the directors and employee
incentive scheme and the allotment thereunder of options issuable for a total of
900,000 ordinary shares to our directors and options issuable for a total number
of 900,000 ordinary shares to our employees. All our directors and all
employees, whether full time or part time, are eligible to participate in the
scheme. Options to purchase a total of 900,000 ordinary shares were subsequently
issued to directors and options to purchase a total of 900,000 ordinary shares
were issued to our employees.  In accordance with Australian Stock Exchange
Listing Rules, all grants of options to directors under the scheme require the
prior approval from our shareholders. The scheme also provides that all options
granted under the scheme have an exercise price of A$2.50 per share and will
expire on May 31, 2005. As of December 2, 2004, there were 1,398,221 outstanding
options to purchase ordinary shares under the 2003 directors and employees
incentive scheme.


                                       58
<PAGE>
     In November 2004, our shareholders approved the directors and employee
option incentive plan. All our directors and all employees, whether full time or
part time, are eligible to participate in this plan. Pursuant to the plan, we
will not grant any options if, after issuance and subject to limited exceptions,
the number of ordinary shares issuable upon exercise of such options together
with the number of ordinary shares issuable upon exercise of options granted
under our other employee shares schemes and the number of ordinary shares issued
during the previous five years in accordance with an employee share scheme
exceeds 5% of the then total number of outstanding ordinary shares. All grants
of options to directors under the plan require the prior approval from our
shareholders. The minimum exercise price of options granted under this plan
shall not be less than the average closing share price as recorded on the
Australian Stock Exchange in the five business days preceding the grant of those
options. The expiry date of options issued under this plan can not exceed 10
years from the date of grant. As of December 2, 2004, no options have been
issued under this plan.


                                       59
<PAGE>
ITEM 7.  MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

ITEMS 7.A.  MAJOR SHAREHOLDERS

     The following table sets forth as of December 2, 2004, certain information
with respect to the ownership of our outstanding ordinary shares and options to
purchase ordinary shares by:

     -    Each person who is know to us to be the beneficial owner of 5% or more
          of our ordinary shares;

     -    Each of our directors and executive officers; and

     -    All our directors and executive officers as a group.

<TABLE>
<CAPTION>
                                                                    PERCENTAGE OF      NUMBER OF ORDINARY
                                             NUMBER OF ISSUED      ISSUED ORDINARY       SHARES ISSUABLE
     NAME                                     ORDINARY SHARES         SHARES (1)       PURSUANT TO OPTIONS
     ----                                    ----------------      ---------------     -------------------
<S>                                    <C>                  <C>                   <C>

     Medigen Biotechnology Corporation                1,961,350                  5.5%                    -
     Stephen Chang (2)                                  432,377                    *               379,047
     Lewis J. Lee (3)                                         -                    -               610,000
     Prof. John R. Zalcberg (4)                          15,849                    *               175,000
     Patrick O. Burns (5)                                   500                    *               175,062
     Dr. Malvin L. Eutick (6)                                 -                    -               175,000
     Dr. Stanley S.C. Chang (7)                               -                    -               100,000
     Dr. Robert H. Don (8)                                    -                    -               102,000
     Dr. Darren M. Schliebs (9)                           2,000                    *                62,000
     Milton S. McColl (10)                                    -                    *                     -
     Linton W. P. Burns (10)                                  -                    *                     -
     Gregory M. Orders (11)                                   -                    -                80,000
     All directors and executive officers
       As a group (10 persons) (12)                     450,726                                  1,858,109
________________
<FN>
*     Represents less than 1%.

(1)   Based on 35,510,121 issued ordinary shares as of December 2, 2004.  Excludes ordinary shares
issuable pursuant to options granted under our 1995 employee option plan, 1999 executive directors'
option plan, 2000 employee option plan and 2003 directors and employee incentive scheme, which are
more fully described above in "Item 6. Directors, Senior Management and Employees - Option Plans."

(2)   Includes (a) 432,377 ordinary shares held of record by Mr. Stephen Chang and Mrs. Lisa Chang
Super Fund, (b) 75,000 ordinary shares issuable upon exercise of an option granted under our 2000
employee option plan exercisable at any time on or before December 22, 2005 at an exercise price of
A$4.00 per share, (c) 250,000 ordinary shares issuable upon exercise of an option granted under our
2003 directors and employee incentive scheme at any time on or before May 31, 2005 at an exercise
price of A$2.50 per share, and (d) 47,077 ordinary shares issuable upon exercise of an option held of
record by Mr. Stephen Chang and Mrs. Lisa Chang Super Fund and 6,970 ordinary shares issuable upon
exercise of an option held of record by Capac International Pty. Ltd. of which Mr. Chang is a
director and majority shareholder granted under our 2003 one for eight Bonus Option issue exercisable
at any time on or before May 31, 2005 at an exercise price of A$2.50 per share.


                                       60
<PAGE>
(3)   Includes (a) 100,000 ordinary shares issuable upon the exercise of an option granted under
our 1999 executive directors' option plan exercisable at any time on or before February 8, 2005 at an
exercise price of A$4.46 per share, (b) 200,000 ordinary shares issuable upon the exercise of an
option granted under our 1999 executive directors' option plan exercisable at any time on or before
February 8, 2005 at an exercise price of A$6.24 per share, (c) 100,000 ordinary shares issuable upon
the exercise of an option granted under our 1999 executive directors' option plan exercisable at any
time on or before February 8, 2005 at an exercise price of A$8.91 per share, (d) 50,000 ordinary
shares issuable upon exercise of an option granted under our 2000 employee option plan exercisable at
any time on or before December 22, 2005 at an exercise price of A$4.00 per share, and (e) 160,000
ordinary shares issuable upon exercise of an option granted under our 2003 directors and employee
incentive scheme at any time on or before May 31, 2005 at an exercise price of A$2.50 per share

(4)   Includes (a) 75,000 ordinary shares issuable upon exercise of an option granted under our
2000 employee option plan exercisable at any time on or before December 22, 2005 at an exercise price
of A$4.00 per share, and (b) 100,000 ordinary shares issuable upon exercise of an option granted
under our 2003 directors and employee incentive scheme at any time on or before May 31, 2005 at an
exercise price of A$2.50 per share.

(5)   Includes (a) 75,000 ordinary shares issuable upon exercise of an option granted under our
2000 employee option plan exercisable at any time on or before December 22, 2005 at an exercise price
of A$4.00 per share, (b) 100,000 ordinary shares issuable upon exercise of an option granted under
our 2003 directors and employee incentive scheme at any time on or before May 31, 2005 at an exercise
price of A$2.50 per share, and (c) 62 ordinary shares issuable upon exercise of an option granted
under our 2003 one for eight Bonus Option issue exercisable at any time on or before May 31, 2005 at
an exercise price of A$2.50 per share

(6)   Includes (a) 75,000 ordinary shares issuable upon exercise of an option granted under our
2000 employee option plan exercisable at any time on or before December 22, 2005 at an exercise price
of A$4.00 per share, and (b) 100,000 ordinary shares issuable upon exercise of an option granted
under our 2003 directors and employee incentive scheme at any time on or before May 31, 2005 at an
exercise price of A$2.50 per share.

(7)   Includes 100,000 ordinary shares issuable upon exercise of an option granted under our 2003
directors and employee incentive scheme at any time on or before May 31, 2005 at an exercise price of
A$2.50 per share. Dr. Chang is the chief executive officer of Medigen Biotechnology Corporation and
disclaims beneficial ownership of the ordinary shares held by Medigen Biotechnology Corporation.

(8)   Includes (a) 22,000 ordinary shares issuable upon exercise of an option granted under our
2000 employee option plan exercisable at any time on or before February 28, 2006 at an exercise price
of A$4.00 per share, and (b) 80,000 ordinary shares issuable upon exercise of an option granted under
our 2003 directors and employee incentive scheme at any time on or before May 31, 2005 at an exercise
price of A$2.50 per share.

(9)   Includes (a) 22,000 ordinary shares issuable upon exercise of an option granted under our
2000 employee option plan exercisable at any time on or before February 28, 2006 at an exercise price
of A$4.00 per share, and (b) 40,000 ordinary shares issuable upon exercise of an option granted under
our 2003 directors and employee incentive scheme at any time on or before May 31, 2005 at an exercise
price of A$2.50 per share.

(10)   Mr. McColl resigned as Company Secretary and Chief Financial Officer in August 2004 and was
replaced by Mr. L. Burns.


                                       61
<PAGE>
(11)   Includes 80,000 ordinary shares issuable upon exercise of an option granted under our 2003
directors and employee incentive scheme at any time on or before May 31, 2005 at an exercise price of
A$2.50 per share.

(12)   On a fully-diluted basis that takes into account 1,858,109 ordinary shares issuable pursuant
to options granted under either our 1999 executive directors' option plan, 2000 employee option plan
or 2003 directors and employee incentive scheme, all directors and executive officers as a group
would have an interest in 6.2% of our issued and outstanding ordinary shares. This total excludes Mr.
M. McColl who resigned in August 2004.
</TABLE>

_____________

     As of December 2, 2004, a total of 3,485,232 ordinary shares (or 9.81% of
the total number of our ordinary shares then outstanding) were held by seven
holders with registered addresses in the United States. We believe we have
approximately 1,175 beneficial shareholders in the United States.

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

ITEM 7.B.  RELATED PARTY TRANSACTIONS

     Except as disclosed herein and elsewhere in this annual report, there were
no material transactions to which we were a party and in which any of our
directors, executive officers or major shareholders (or any of their affiliates,
associates or enterprises) were involved since July 1, 2003.

     None of our directors, executive officers or major shareholders (or any of
their affiliates, associates or enterprises) was indebted to us at any time
since July 1, 2003.


ITEM 8.  FINANCIAL INFORMATION

ITEM 8.A.  CONSOLIDATED STATEMENTS AND OTHER FINANCIAL INFORMATION

     Our audited financial statements and related notes for our fiscal years
ended June 30, 2002, 2003 and 2004 are contained on pages F-1 through F-24 of
this annual report.

EXPORT SALES

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

<TABLE>
<CAPTION>
-------------------------------------------------------
                        FOR THE YEARS ENDED JUNE 30,
-------------------------------------------------------
                        2002      2003         2004
-------------------------------------------------------
<S>                   <C>       <C>        <C>
Contract manufacture     55.5%      74.3%         18.2%
-------------------------------------------------------
</TABLE>


                                       62
<PAGE>
     The percentage of contract manufacturing revenues derived from customers
outside Australia fluctuates as these contracts are typically adhoc in nature.
We entered into a significant contract with another Australian based
biotechnology company in fiscal 2003. We earned $786,000 in revenue from this
contract in fiscal 2004, or 56.3% of total revenue. As a result, our export
revenues declined as we have limited manufacturing capacity.

LEGAL PROCEEDINGS

     There is no litigation of a material nature pending or threatened against
our property or the Company.

DIVIDEND POLICY

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

ITEM 8.B.  SIGNIFICANT CHANGES

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


                                       63
<PAGE>
ITEM 9.  THE OFFER AND LISTING

ITEM 9.C.  MARKETS

     The principal non-United States trading market for our ordinary shares is
the Australian Stock Exchange, or the ASX, on which our ordinary shares have
been trading under the code "PGL" since December 1995. Prior to that time, there
was no established public trading market for our ordinary shares. Our ordinary
shares are also quoted on the Nasdaq SmallCap Market under the symbol "PGLAF."

PRICE RANGE OF ORDINARY SHARES

     AUSTRALIAN STOCK EXCHANGE (ASX)

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

<TABLE>
<CAPTION>
                                                                                 TRADING
                                                           HIGH        LOW        VOLUME
                                                        ----------  ----------  ----------
<S>                                                     <C>         <C>         <C>
     Yearly Data:
     ------------
       Fiscal year 2000. . . . . . . . . . . . . . . . . .  A$5.55      A$1.75   6,436,562
       Fiscal year 2001. . . . . . . . . . . . . . . . . .    2.83        1.02   9,081,542
       Fiscal year 2002. . . . . . . . . . . . . . . . . .    2.02        0.75   5,385,169
       Fiscal year 2003. . . . . . . . . . . . . . . . . .    1.25        0.50   3,310,777
       Fiscal year 2004. . . . . . . . . . . . . . . . . .    3.76        0.72  25,976,500

     Quarterly Data:
     ---------------
       Third Quarter 2002. . . . . . . . . . . . . . . . .    1.25        0.96     284,203
       Fourth Quarter 2002 . . . . . . . . . . . . . . . .    1.00        0.75     359,780
       First Quarter 2003. . . . . . . . . . . . . . . . .    0.95        0.72     348,846
       Second Quarter 2003 . . . . . . . . . . . . . . . .    1.18        0.48   2,317,800
       Third Quarter 2003. . . . . . . . . . . . . . . . .    2.27        0.72   4,937,400
       Fourth Quarter 2003 . . . . . . . . . . . . . . . .    1.70        1.40   2,886,700
       First Quarter 2004. . . . . . . . . . . . . . . . .    3.45        1.49  10,320,200
       Second Quarter 2004 . . . . . . . . . . . . . . . .    3.76        2.75   7,832,200
       Third Quarter 2004. . . . . . . . . . . . . . . . .    4.75        3.25   5,403,317
       Fourth Quarter 2004 (through November 30, 2004)        6.46        4.66   5,061,054

     Monthly Data:
     -------------
       June 2004 . . . . . . . . . . . . . . . . . . . . .    3.63        3.20   1,580,300
       July 2004 . . . . . . . . . . . . . . . . . . . . .    3.90        3.25   1,766,900
       August 2004 . . . . . . . . . . . . . . . . . . . .    4.25        3.80   1,815,200
       September 2004. . . . . . . . . . . . . . . . . . .    4.75        4.09   1,821,217
       October 2004. . . . . . . . . . . . . . . . . . . .    6.46        4.66   2,494,840
       November 2004 . . . . . . . . . . . . . . . . . . .    5.90        4.90   2,566,214
</TABLE>


                                       64
<PAGE>
     NASDAQ SMALLCAP MARKET

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

<TABLE>
<CAPTION>
                                                                                   TRADING
                                                           HIGH          LOW        VOLUME
                                                        -----------  -----------  ----------
<S>                                                     <C>          <C>          <C>
     Yearly Data:
     ------------
       Fiscal year 2000. . . . . . . . . . . . . . . .  $     4.063  $     1.000   4,223,100
       Fiscal year 2001. . . . . . . . . . . . . . . .        1.688        0.563   3,112,300
       Fiscal year 2002. . . . . . . . . . . . . . . .        0.990        0.410     948,645
       Fiscal year 2003. . . . . . . . . . . . . . . .        0.880        0.300   2,478,639
       Fiscal year 2004. . . . . . . . . . . . . . . .        3.240        0.510  18,534,500

     Quarterly Data:
     ---------------
       Third Quarter 2002. . . . . . . . . . . . . . .        0.650        0.530      65,014
       Fourth Quarter 2002 . . . . . . . . . . . . . .        0.570        0.370     209,095
       First Quarter 2003. . . . . . . . . . . . . . .        0.550        0.340      27,600
       Second Quarter 2003 . . . . . . . . . . . . . .        0.880        0.300   2,176.930
       Third Quarter 2003. . . . . . . . . . . . . . .        1.250        0.510   2,887,600
       Fourth Quarter 2003 . . . . . . . . . . . . . .        1.330        0.910   3,147,700
       First Quarter 2004. . . . . . . . . . . . . . .        3.110        1.120   7,084,100
       Second Quarter 2004 . . . . . . . . . . . . . .        3.240        1.750   5,415,100
       Third Quarter 2004. . . . . . . . . . . . . . .        3.370        2.250   1,205,500
       Fourth Quarter 2004 (through November 30, 2004)        5.140        3.310   1,205,800

     Monthly Data:
     ------------
       June 2004 . . . . . . . . . . . . . . . . . . .        2.550        2.200     465,200
       July 2004 . . . . . . . . . . . . . . . . . . .        2.700        2.250     468,500
       August 2004 . . . . . . . . . . . . . . . . . .        3.030        2.570     392,300
       September 2004. . . . . . . . . . . . . . . . .        3.370        2.730     344,700
       October 2004. . . . . . . . . . . . . . . . . .        5.140        3.310     841,900
       November 2004 . . . . . . . . . . . . . . . . .        4.440        3.700     363,900
</TABLE>

     On December 2, 2004, the closing sales price in U.S. Dollars of the
ordinary shares as reported on the ASX and the Nasdaq SmallCap Market was $3.78
and $3.76, respectively.


                                       65
<PAGE>
ITEM 10.  ADDITIONAL INFORMATION

ITEM 10.B.  MEMORANDUM AND ARTICLES OF ASSOCIATION

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

     GENERAL

     Our issued capital is made up of 35,510,121 ordinary shares. All our
ordinary shares are fully paid and non-assessable. Holders of our ordinary
shares have no preemptive or conversion rights, and there are no redemption or
sinking fund provisions applicable to our ordinary shares.

     Other than the provisions contained in the Foreign Acquisitions and
Takeovers Act 1975 as briefly described below under "Exchange Controls - Foreign
Acquisitions and Takeovers Act of 1975," there are no restrictions on overseas
residents from holding our ordinary shares. In addition, there are no
restrictions either at law or in our constituent documents, which limit the
right of nonresident shareholders to vote at our general meetings.

     DIRECTORS

     One third of our directors (except the managing director) must retire at
each annual general meeting of shareholders. Retiring directors are eligible for
re-election at the annual general meeting at which the retirement occurs. Any
person under the age of 72 may be appointed or reappointed as a director, unless
otherwise permitted by a special resolution of our shareholders at a general
meeting.  There is no share qualification for directors. At any meeting of our
directors, a director who has a direct or indirect material personal interest in
a matter may not vote on or in relation to such matter, unless otherwise
permitted by ordinary resolution of our shareholders at a general meeting.
Remuneration of non-executive directors is determined by ordinary resolution at
a general meeting of shareholders. Our constitution does not limit the borrowing
powers of the company exercisable by our directors.

     GENERAL MEETINGS OF SHAREHOLDERS

     We must convene an annual general meeting of shareholders within five
months after the end of each fiscal year and may convene other general meetings
of shareholders when necessary or at the request of a shareholder holding at
least 5% of our paid up capital carrying voting rights. The annual general
meeting of our shareholders is generally convened by our company secretary
pursuant to resolution of our board of directors.

     Ordinary resolutions, such as the election of directors, may be passed by
simple majority of the votes cast. Special resolutions, such as amendments to
our constitution, a change of our corporate name, a reduction in our share
capital or the voluntary winding-up of our company, require the affirmative vote
of at least 75% of the votes cast.


                                       66
<PAGE>
     Written notice setting out the agenda of general meetings must be given to
all shareholders of record at least 28 days prior to a general meeting. A quorum
for a general meeting is the presence of at least three shareholders in person.

     VOTING RIGHTS

     Every registered holder of our ordinary shares is entitled to attend
general meetings of our shareholders in person or by proxy and has one vote on a
show of hands unless a poll is demanded. If a poll is demanded, each registered
holder present in person or by proxy is entitled to one vote for each fully paid
ordinary share held.

     DIVIDEND RIGHTS

     Our board of directors may declare final dividends and interim dividends.
No dividend may be paid except out of our profits.

     Under Queensland law, dividends that are not claimed by the person entitled
cannot be forfeited.  After six years, we must enter the amount in a register
that we will maintain. If the monies are not claimed after one year of entry on
the register, we much pay such amounts to the Queensland Public Trustee from
whom the person entitled may claim the monies. Both we and the Queensland Public
Trustee are obligated to advertise the existence of unclaimed monies in the
Queensland Government Gazette.

     LIQUIDATION RIGHTS

     On a winding-up or other return of capital, holders of our ordinary shares
have the right to the payment of any capital paid up on the ordinary shares and
are entitled to participate in any surplus assets, if any, in proportion to
their shareholdings.

     VARIATION OF RIGHTS

     The rights attaching to our ordinary shares can be varied only by a special
resolution of our shareholders and, if a distinct class of shares with different
rights is established, by both a special resolution of shareholders of the class
and our shareholders generally.

     CHANGE IN CONTROL

     Our constitution does not contain any specific provisions that would have
an effect of delaying, deferring or preventing a change in control in our
company or that would operate only with respect to a merger, acquisition or
corporate restructuring involving our company.

     DISCLOSURE OF SHAREHOLDER OWNERSHIP THRESHOLDS

     Our constitution does not contain any provision relating to the disclosure
of shareholder ownership thresholds. However, under the Australian Corporations
Act, a person who holds at least 5% of the shares of an Australian company
listed on the Australian Stock Exchange is required to give us certain
information relating to such ownership.


                                       67
<PAGE>
UNITED STATES TRANSFER AGENT AND REGISTRAR

     The United States transfer agent and registrar for our ordinary shares is
Computershare Investor Services US.

ITEM 10.C.  MATERIAL CONTRACTS

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

ITEMS 10.D.  EXCHANGE CONTROLS

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

     THE FOREIGN ACQUISITIONS AND TAKEOVERS ACT 1975

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

     THE FINANCIAL TRANSACTIONS REPORTS ACT 1988

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

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

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


                                       68
<PAGE>
ITEM 10.E.  TAXATION

     The following is a summary of the current tax laws of Australia as they
relate to us and our shareholders, including United States and other
non-Australian shareholders. The summary is based upon laws and relevant
interpretations thereof in effect as of the date of this annual report, all of
which are subject to change, possibly on a retroactive basis. The discussion
does not deal with all possible tax consequences relating to an investment in
the ordinary shares. In particular, the discussion does not address estate and
gift tax issues or the tax consequences under state, local and other non-federal
systems of tax.

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

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

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

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

     Capital gains tax in Australia is payable on real gains over the period in
which the shares have been held, that is, the difference between the selling
price and the original cost price. The cost


                                       69
<PAGE>
price is indexed for inflation if the shares have been held for more than one
year, and individual taxpayers can, with respect to shares held for more than
one year, elect to forego indexation of the cost base in exchange for being
taxed on 50% of the realized gain. Capital losses are available as deductions
but only against other capital gains.

QUEENSLAND STAMP DUTY

     Effective July 1, 2001, ordinary shares traded on the Australian Stock
Exchange and Nasdaq will not be subject to stamp duty.


                                       70
<PAGE>
ITEM 11.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

     The primary objective of our investment activities is to preserve principal
and, at the same time, maximize income without significantly increasing risk. At
June 30, 2004, our cash and cash equivalents consisted primarily of highly
liquid investments with maturities of one month or less. We believe that these
investments do not constitute any material market risk exposure.

     In fiscal 2004 the majority of our operating expenses were denominated in
Australian dollars. With the sale of our Life Sciences division operating
expenditure is now predominantly in Australian dollars. From time to time, in
order to reduce our exposure to foreign currency exchange rate risks, we buy and
hold foreign currencies to cover our operating expenses denominated in those
currencies. We also, from time to time, attempt to hedge our currency exchange
risk. At June 30, 2004, we were not a party to any foreign currency hedging or
other derivative financial instruments.

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


                                       71
<PAGE>
ITEM 12.  DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

     Not applicable.


                                       72
<PAGE>
                                     PART II

ITEM 13.  DEFAULTS, DIVIDEND ARREARAGES AND DELIQUENCIES

     None.


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

     None.


ITEM 15.  CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

     We maintain disclosure controls and procedures that are designed to ensure
that information required to be disclosed in the reports that we file or submit
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the time periods specified in the rules and forms of the
Securities and Exchange Commission. Disclosure controls and procedures include,
without limitation, controls and procedures designed to ensure that information
required to be disclosed in our reports filed or submitted under the Securities
Exchange Act of 1934 is accumulated and communicated to management, including
our managing director and chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure.

     Our management, under the supervision and with the participation of our
managing director and chief financial officer, have evaluated the effectiveness
of our disclosure controls and procedures as of June 30, 2004 and, based on that
evaluation, our managing director and chief financial officer have concluded
that such disclosure controls and procedures were effective as of such date.

MANAGEMENT'S ANNUAL REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     Not applicable.

ATTESTATION REPORT OF THE REGISTERED PUBLIC ACCOUNTING FIRM

     Not applicable.

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

     In connection with the audit of our fiscal year ended June 30, 2004, Ernst
& Young, the Company's independent auditors, informed our audit committee that
they consider the following matters represent material weaknesses in the
operation of our internal control over financial reporting:


                                       73
<PAGE>
     -    The financial statement close process and knowledge of US GAAP; and

     -    Adequate segregation of duties

     In order to address the weakness in our knowledge of US GAAP, our senior
finance staff are committed to attending targeted US GAAP and SEC reporting
courses and subscribing to additional information publications and updates of
SEC and US GAAP releases and rule changes and of information about the
requirements of the Public Company Accounting Oversight Board. We will also
consider mitigating this weakness by conferring and/or hiring outside accounting
advisers with respect to the technical requirements applicable to our financial
statements.

     Our management and audit committee continually assess the level of
segregation of duties existing within the financial reporting function and are
committed to segregating duties where practically possible. Given the number of
staff employed in our finance department it is sometimes not practicable to
segregate all duties.

LIMITATIONS ON THE EFFECTIVENESS OF CONTROLS

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


ITEM 16.  [RESERVED]


ITEM 16A.  AUDIT COMMITTEE FINANCIAL EXPERT

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


ITEM 16B.  CODE OF ETHICS

     We have adopted a code of ethics that applies to our executive directors
and chief financial


                                       74
<PAGE>
officer. The code is filed as Exhibit 11 to this annual report. The code is
posted under the Investors section of our website at www.progen.com.au.
                                                     ------------------


ITEM 16C.  PRINCIPAL ACCOUNTANT FEES AND SERVICES

     The aggregate fees and expenses billed for professional services rendered
by our principal accountant, Ernst & Young, for the audit of our annual
financial statements for the years ended June 30, 2003 and 2004 and for other
listed services rendered in those years are set forth in the following table:

<TABLE>
<CAPTION>
          ----------------------------------------
                                   2003     2004
          ----------------------------------------
<S>                               <C>      <C>
          Audit Fees              $55,249  $83,520
          ----------------------------------------
          Audit-Related Fees (1)        -        -
          ----------------------------------------
          Tax Fees (2)                  -        -
          ----------------------------------------
          All Other Fees (3)        8,595   12,314

          TOTAL FEES              $63,844  $95,834
          ----------------------------------------
<FN>

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

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

(3)  This category comprises services provided by our principal accountant
     other than audit fees, audit-related fees and tax fees set forth above. The
     services consist of the audit of our AUSIndustry START grant as required under
     the funding agreement and training in relation to new accounting standards and
     pronouncements.
</TABLE>


AUDIT COMMITTEE PRE-APPROVAL POLICIES AND PROCEDURES

     All audit and non-audit services performed by our independent auditors must
be specifically pre-approved by our audit committee. Consistent with this
policy, for the year ended June 30, 2004, all audit and non-audit services
initiated by Ernst & Young were pre-approved by our audit committee.


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

Not applicable.


                                       75
<PAGE>
ITEM 16E.  PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED
           PURCHASERS

     Not applicable.


                                       76
<PAGE>
                                    PART III

ITEM 17.  FINANCIAL STATEMENTS

     Not Applicable.


<TABLE>
<CAPTION>
ITEM 18.  FINANCIAL STATEMENTS

     FINANCIAL STATEMENTS - INDEX TO FINANCIAL STATEMENTS
<S>                                                                        <C>
     Report of Independent Auditors. . . . . . .  . . . . . . . . . . . . . . . . . F-1
     Balance Sheets as of June 30, 2003 and 2004. . . . . . . . . . . . . . . . . . F-2
     Statements of Operations for the years ended June 30, 2002, 2002 and 2004. . . F-3
     Statements of Changes in Stockholders' Equity for the years
       ended June 30, 2002, 2003 and 2004 . . . . . . . . . . . . . . . . . . . . . F-4
     Statements of Cash Flow for the years ended June 30, 2002, 2003 and 2004 . . . F-6
     Notes to Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . F-8 through
                                                                                    F- 24
</TABLE>

<TABLE>
<CAPTION>
ITEM 19.  EXHIBITS

Exhibit Number   Description
---------------  -----------------------------------------------------------------
<S>              <C>
4(b)(iv)         2004 addendum to Lease 2806 Ipswich Road Darra
4(c)(1)          Employment agreement dated May 21, 2003 between Progen Industries
                 Limited and Darren Schliebs
4(c)(2)          Employment agreement dated August 5, 2004 between Progen
                 Industries Limited and Linton Burns
4(c)(3)          Progen Industries Limited Directors and Employee Option
                 Incentive Plan Rules for the directors and employees incentive
                 scheme approved by a resolution of shareholders at the annual
                 general meeting of the Company held on November 30, 2004
11               Code of Ethics for Executive Directors and Chief Financial
                 Officer
12.1             Certification of Lewis J. Lee under Rule 13a-14(a)
12.2             Certification of Linton W. P. Burns under Rule 13a-14(a)
13               Certification of Lewis J. Lee and Linton W. P. Burns under
                 Section 1350 of Chapter 63 of Title 18 of the United States Code
</TABLE>


                                       77
<PAGE>
                                   SIGNATURES

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

                                         PROGEN INDUSTRIES LIMITED

                                         By: /s/ Lewis J. Lee
                                             ---------------------
                                             Lewis J. Lee
                                             Managing Director
Dated: December, 16 2004
       -----------------


                                       78
<PAGE>
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM


TO THE BOARD OF DIRECTORS OF PROGEN INDUSTRIES LIMITED


We  have audited the accompanying balance sheets of Progen Industries Limited as
of  June 30, 2004 and 2003, and the related statements of operations, changes in
stockholders'  equity,  and cash flows for each of the three years in the period
ended  June  30, 2004.  These financial statements are the responsibility of the
Company's  management.  Our  responsibility  is  to  express an opinion on these
financial  statements  based  on  our  audits.

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

In  our  opinion,  the financial statements referred to above present fairly, in
all  material  respects,  the financial position of Progen Industries Limited at
June 30, 2004 and 2003, and the results of its operations and its cash flows for
each  of  the  three years in the period ended June 30, 2004, in conformity with
U.S.  generally  accepted  accounting  principles.



                                                               /s/ ERNST & YOUNG
                                                                   ERNST & YOUNG




Brisbane, Queensland, Australia
November 24, 2004


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


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

                                                             JUNE 30

                                                        2003           2004
                                                         $              $
<S>                                               <C>            <C>
ASSETS:
CURRENT ASSETS:
    Cash and cash equivalents                     $  8,001,842   $  9,885,656
    Accounts receivable                                444,618        315,922
    Inventory                                           13,568              -
    Prepaid expenses                                    62,607        111,442
    Assets held for sale                               535,382              -
                                                  -------------  -------------

TOTAL CURRENT ASSETS                                 9,058,017     10,313,020
                                                  -------------  -------------

NON-CURRENT RECEIVABLES                                 10,007         10,355

PROPERTY AND EQUIPMENT - NET                         1,161,993        884,765
                                                  -------------  -------------

TOTAL ASSETS                                      $ 10,230,017   $ 11,208,140
                                                  =============  =============

LIABILITIES AND STOCKHOLDERS' EQUITY:
CURRENT LIABILITIES:
    Accounts payable                              $  1,138,528   $    896,953
    Accrued employee benefits                          128,783        164,046
    Deferred revenue                                   395,663        144,334
    Liabilities held for sale                           16,010              -
                                                  -------------  -------------

TOTAL CURRENT LIABILITIES                            1,678,984      1,205,333
                                                  -------------  -------------

NON-CURRENT ACCRUED EMPLOYEE BENEFITS                   46,091         68,252
                                                  -------------  -------------

TOTAL LIABILITIES                                    1,725,075      1,273,585
                                                  -------------  -------------

COMMITMENTS AND CONTINGENCIES                                -              -

STOCKHOLDERS' EQUITY:
Capital stock, ordinary shares, no par value;
30,099,223 and 34,521,065 issued and outstanding
in 2003 and 2004 respectively                       44,153,011     48,869,981

Accumulated deficit                                (35,415,660)   (38,960,115)

Accumulated other comprehensive loss                  (232,409)        24,689
                                                  -------------  -------------

TOTAL STOCKHOLDERS' EQUITY                           8,504,942      9,934,555
                                                  -------------  -------------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $ 10,230,017   $ 11,208,140
                                                  =============  =============
</TABLE>

See accompanying notes to financial statements.


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


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

                                                                       YEARS ENDED
                                                                         JUNE 30
                                                             2002          2003          2004
                                                              $             $             $
<S>                                                      <C>           <C>           <C>

REVENUE FROM SALE OF SERVICES                            $    704,044  $  1,051,695  $ 1,394,589

COST OF SERVICES                                              200,794       424,065      373,266

COST OF OPERATIONS:

    Research and development                               2,185,066     2,435,896     3,183,278
    Depreciation                                             297,901       449,596       463,456
    Rentals on operating leases                               48,217        56,126        78,583
    Selling, general and administrative costs              1,214,771     1,958,355     2,494,570
    Other costs of operations                                358,589       119,010        79,344
                                                         ------------  ------------  ------------

    TOTAL COST OF OPERATIONS                               4,104,544     5,018,983     6,299,231
                                                         ------------  ------------  ------------

LOSS FROM OPERATIONS                                      (3,601,294)   (4,391,353)   (5,277,908)
                                                         ------------  ------------  ------------

OTHER INCOME (EXPENSES):

    Share of net losses of associate
      accounted for using the equity method                 (509,606)            -             -
    Interest income                                          380,088       288,289       474,589
    Interest expense                                          (3,051)       (7,377)      (12,437)
    Grant income                                             123,781       434,829       596,522
    Other income                                              73,493        28,143        20,113
    Unrealised gain on investments                           101,899             -             -
    Realised (loss) gain on investments                      251,054      (205,893)            -
                                                         ------------  ------------  ------------

TOTAL OTHER INCOME                                           417,658       537,991     1,078,787
                                                         ------------  ------------  ------------

NET LOSS FROM CONTINUING OPERATIONS                       (3,183,636)   (3,853,362)   (4,199,121)

DISCONTINUED OPERATIONS

    Income from operations of Life Sciences segment
    (including profit on disposal of $486,402)               104,421       288,213       654,666
                                                         ------------  ------------  ------------

NET LOSS                                                 $(3,079,215)  $(3,565,149)  $(3,544,455)
                                                         ============  ============  ============

NET LOSS PER ORDINARY SHARE (BASIC AND DILUTED)

    Continuing operations                                $     (0.13)  $     (0.16)  $     (0.13)
    Discontinued operations                                        -   $      0.01   $      0.02
                                                         ------------  ------------  ------------

NET LOSS PER ORDINARY SHARE (BASIC AND DILUTED)          $     (0.13)  $     (0.15)  $     (0.11)
                                                         ============  ============  ============

WEIGHTED AVERAGE ORDINARY SHARES OUTSTANDING USED IN
THE CALCULATION OF NET LOSS PER SHARE                     24,391,869    24,391,869    32,675,867
                                                         ============  ============  ============
</TABLE>

See accompanying notes to financial statements.


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


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

                                    NUMBER OF        AMOUNT         ACCUMULATED         ACCUMULATED
                                    ORDINARY         ------           DEFICIT       OTHER COMPREHENSIVE        TOTAL
                                     SHARES                           -------             INCOME               -----
                                     ------                                               (LOSS)
                                                                                          ------
<S>                               <C>            <C>              <C>              <C>                    <C>

BALANCE - JULY 1, 2001               24,391,869  $   41,800,156   $  (28,771,296)  $         (2,195,035)  $   10,833,825

Other comprehensive income:
Translation adjustment                        -               -                -                885,498          885,498
Less: unrealised investment loss              -               -                -               (116,959)        (116,959)
Net loss                                      -               -       (3,079,215)                     -       (3,079,215)
                                                                                                          ---------------
Comprehensive loss                            -               -                -                      -       (2,310,676)
                                                                                                          ---------------
Receipt of shares from associate              -               -                -                      -                -
Issuance of ordinary shares                   -               -                -                      -                -
Share issue costs                             -               -                -                      -                -
                                  -------------  ---------------  ---------------  ---------------------  ---------------

BALANCE - JUNE 30, 2002              24,391,869  $   41,800,156   $  (31,850,511)  $         (1,426,496)  $    8,523,149

Other comprehensive income:
Translation adjustment                        -               -                -              1,077,128        1,077,128
Reclassification of investment
losses included in net income                 -               -                -                116,959          116,959
Net loss                                      -               -       (3,565,149)                     -       (3,565,149)
                                                                                                          ---------------
Comprehensive loss                            -               -                -                      -       (2,371,062)
                                                                                                          ---------------
Issuance of ordinary shares           5,707,354       2,436,663                -                      -        2,436,663
Share issue costs                             -         (83,808)               -                      -          (83,808)
                                  -------------  ---------------  ---------------  ---------------------  ---------------
</TABLE>

See accompanying notes to financial statements.


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


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

                                      NUMBER OF        AMOUNT         ACCUMULATED      ACCUMULATED         TOTAL
                                      ORDINARY         ------           DEFICIT           OTHER            -----
                                       SHARES                           -------       COMPREHENSIVE
                                       ------                                            INCOME
                                                                                         (LOSS)
                                                                                         ------
<S>                                 <C>            <C>              <C>              <C>              <C>

BALANCE - JUNE 30, 2003                30,099,223  $   44,153,011   $  (35,415,660)  $     (232,409)  $    8,504,942

Other comprehensive income:
Translation adjustment                          -               -                -          257,098          257,098
Net loss                                        -               -       (3,544,455)               -       (3,544,455)
                                                                                                      ---------------
Comprehensive loss                              -               -                -                -       (3,287,357)
                                                                                                      ---------------
Issuance of ordinary shares             3,800,000       3,797,682                -                -        3,797,682
Share issue costs                               -        (190,467)               -                -         (190,467)
Options issued under the Directors        199,756         356,489                -                -          356,489
and Employees Incentive Scheme
(2003) and exercised by directors
and employees
Options issued under the 2003             422,086         753,266                -                -          753,266
Prospectus and exercised by
shareholders
                                    -------------  ---------------  ---------------  ---------------  ---------------

BALANCE - JUNE 30, 2004                34,521,065  $   48,869,981   $  (38,960,115)  $       24,689   $    9,934,555
                                    =============  ===============  ===============  ===============  ===============
</TABLE>

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

See accompanying notes to financial statements.


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


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

                                                                    YEARS ENDED
                                                                      JUNE 30
                                                          2002          2003          2004
                                                           $             $             $
<S>                                                   <C>           <C>           <C>
OPERATING ACTIVITIES:

Receipts from customers                               $ 2,543,590   $ 3,520,272   $ 3,369,628
Payments to suppliers and employees                    (5,407,231)   (6,658,976)   (7,611,601)
Proceeds from trading investments                         125,260     1,222,363             -
Interest received                                         380,218       288,289       474,589
Interest paid                                              (3,051)       (7,377)      (12,437)
Other operating cash receipts                             276,175         8,047         2,115
                                                      ------------  ------------  ------------

NET CASH - OPERATING ACTIVITIES                        (2,085,039)   (1,627,382)   (3,777,706)
                                                      ------------  ------------  ------------

INVESTING ACTIVITIES:
Proceeds from sale of property, plant and equipment        14,151        15,724        17,998
Proceeds from sale of available for sale investments      215,965             -             -
Proceeds from sale of discontinued operation                    -             -       838,622
Purchase of property, plant and equipment                (759,435)      (98,552)     (135,577)
                                                      ------------  ------------  ------------

NET CASH - INVESTING ACTIVITIES                          (529,319)      (82,828)      721,043
                                                      ------------  ------------  ------------

FINANCING ACTIVITIES:
Proceeds from share issues                                      -     2,436,663     3,797,682
Share issue costs                                               -       (83,808)     (190,467)
Proceeds from exercise of options                               -             -     1,109,755
Repayment of capital lease liabilities                    (20,478)       (8,431)            -
                                                      ------------  ------------  ------------

NET CASH - FINANCING ACTIVITIES                           (20,478)    2,344,424     4,716,970
                                                      ------------  ------------  ------------

EFFECT OF EXCHANGE RATE ON CASH                           673,438       937,251       223,507
                                                      ------------  ------------  ------------

NET INCREASE IN CASH AND CASH
EQUIVALENTS                                            (1,961,398)    1,571,465     1,883,814

CASH AND CASH EQUIVALENTS BEGINNING OF
YEAR                                                    8,391,775     6,430,377     8,001,842
                                                      ------------  ------------  ------------

CASH AND CASH EQUIVALENTS END OF YEAR                 $ 6,430,377   $ 8,001,842   $ 9,885,656
                                                      ============  ============  ============
</TABLE>

See accompanying notes to financial statements.


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


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

                                                                             YEARS ENDED
                                                                               JUNE 30
                                                                   2002          2003          2004
                                                                    $             $             $
<S>                                                            <C>           <C>           <C>

RECONCILIATION OF OPERATING LOSS AFTER INCOME TAX TO NET CASH
USED IN OPERATING ACTIVITIES:

    Operating loss after income tax                             (3,079,215)   (3,565,149)   (3,544,455)
    Proceeds from sale of discontinued operation                         -             -      (838,622)

    Non-cash items:
    Depreciation                                                   309,455       457,047       463,720
    Diminution in investments                                       15,061             -             -
    (Gain) / loss on sale of investments                          (251,054)      205,893             -
    Share of associate's net losses                                509,606             -             -
    (Gain) / loss on sale of property, plant and equipment          10,888        (7,372)       (2,115)
    Other non cash items                                           153,359             -             -

    Net change in operating assets and liabilities:

    (Increase)/decrease in assets:
      Accounts receivable                                          113,149       (96,048)      149,077
      Investments                                                  125,260     1,222,363             -
      Prepaid expenses                                              39,830        37,466       (50,119)
      Inventory                                                     20,083      (220,157)      568,467
      Non-current receivables                                        6,476             -             -

    Increase/(decrease) in liabilities:
      Accounts payable                                             (57,937)      299,988      (559,621)
      Accrued payroll                                                    -        38,587        35,962
                                                               ------------  ------------  ------------

    NET CASH USED IN OPERATING ACTIVITIES                      $(2,085,039)  $(1,627,382)  $(3,777,706)
                                                               ============  ============  ============
</TABLE>


See accompanying notes to financial statements.


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


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Progen is a biotechnology company committed to the discovery, development and
commercialization of small molecule therapeutics for the treatment of cancer and
other serious diseases.  The Company's lead product candidate, PI-88, is one of
a new class of multi-functional, multi-targeted cancer therapeutics inhibiting
both angiogenesis, or tumor promoting factors such as Vascular Endothelial
Growth Factor, Fibroblast Growth Factor 1, Fibroblast Growth Factor 2, and also
heparanase, an enzyme implicated in metastasis (tumor spread).  PI-88 completed
two Phase I trials in January and February 2004 and is currently being studied
in three Phase II clinical trials in the U.S., Australia and Taiwan under an
active Investigational New Drug application, or IND, with the United States Food
and Drug Administration, or FDA.

Progen's second oncology product candidate, PI-166, is undergoing a Phase I
clinical trial in patients with inoperable primary liver cancer (hepatocellular
carcinoma or HCC).  PI-166 is potentially a novel treatment modality that serves
a patient population, which is particularly difficult to treat and suffering
from a disease that is resistant to current therapies.

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

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

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

CASH AND CASH EQUIVALENTS
Cash  equivalents  are  comprised  of certain highly liquid investments that are
both:  (i)  readily  convertible  to  known  amounts  of  cash, and (ii) so near
maturity  that  they  present  insignificant risk of changes in value because of
changes  in  interest  rates.

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

INVENTORY
Inventory  is  stated  at  the  lower  of  cost or market. Costs are assigned to
individual  items  of  inventory  mainly  on  the  basis of average costs, which
approximates  the  first-in,  first-out  ("FIFO")  costing  method.


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


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

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

                                                                 ESTIMATED
     ASSET                                                     USEFUL  LIFE
                                                                   YEARS

     Machinery and equipment                                        5-10
     Furniture and fixtures                                         3-10
     Leasehold improvements                                           11
     Machinery and equipment under capital leases                   4-10

REVENUE RECOGNITION
The Company generates revenue principally from the sales of goods, the provision
of  contract  manufacturing  services  and  government  grants.

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

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

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

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

RESEARCH AND DEVELOPMENT EXPENDITURE
All research and development costs are charged as an expense when incurred.

PATENTS
Costs  incurred  in  filing,  defending  and  protecting patent applications are
expensed  as research and development as incurred. Costs to acquire patents from
third  parties  are recorded as research and development expense unless approval
has  been  obtained from the relevant governmental agency for products developed
using  the  underlying  technology  of  the  patent.

STOCK-BASED COMPENSATION
The Company has elected to account for its stock option plans in accordance with
Accounting Principles Board Opinion No. 25: Accounting for Stock Issued to
Employees and related interpretations ("APB 25") and adopt the disclosure-only
provisions of SFAS No. 123: Accounting for Stock-Based Compensation ("SFAS
123"). Under APB 25, the Company recognizes compensation expense for stock
option grants to the extent that the estimated fair value of the stock exceeds
the exercise price of the option at the measurement date. Unearned compensation
expense is charged against operations ratably over the vesting period of the
options. For disclosure purposes under SFAS 123, stock options are valued at the
measurement date using the Black-Scholes option valuation model and compensation
costs are recognized ratably over the vesting period.

The following table illustrates the effect on net loss and net loss per share if
the Company had applied the fair value recognition provisions of SFAS No. 123 to
stock based employee compensation for the years ended June 30, 2002, 2003 and
2004:


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


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

                                            2002          2003          2004
<S>                                     <C>           <C>           <C>

Net Loss, as reported                   $(3,079,215)  $(3,565,149)  $(3,544,455)

Deduct: Total stock-based employee
compensation expense determined under      (163,946)      (11,439)     (424,027)
fair value based method for all awards


Pro forma net loss                      $(3,243,161)  $(3,576,588)  $(3,968,482)
                                        ============  ============  ============
Earnings per share
      Basic - as reported               $     (0.13)  $     (0.15)  $     (0.11)
      Basic - pro forma                 $     (0.13)  $     (0.15)  $     (0.12)

     Diluted - as reported              $     (0.13)  $     (0.15)  $     (0.11)
     Diluted - pro forma                $     (0.13)  $     (0.15)  $     (0.12)

</TABLE>

For the years ended 30 June 2002, 2003 and 2004 there was no compensation
expense recognised in the statement of operations as the estimated fair value of
the stock did not exceed the exercise price of the option at the measurement
date.

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

Stock options have not been included in the computation of net loss per share in
the  periods  presented  as  their  effect  is  antidilutive.  For  additional
disclosures  regarding  stock  options  see  Note  13.

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

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

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

INCOME TAXES
Income taxes have been provided using the liability method of accounting in
accordance with Statement of Financial Accounting Standards No 109 (SFAS 109)
"Accounting for Income Taxes".


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


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

FINANCIAL INSTRUMENTS
The  fair  values of financial instruments, including cash and cash equivalents,
accounts  receivable,  investments,  and  accounts  payable,  approximate  their
carrying  value  due  to  their  short term nature. Refer to Note 16 for further
details.

INVESTMENTS
Management  determines the appropriate classification of its investments in debt
and  equity  securities  at  the  time  of  purchase  and  re-evaluates  such
determination  at each balance sheet date. Debt securities for which the Company
does  not  have  the  intent  or  ability  to hold to maturity are classified as
available  for  sale,  along with certain of the Company's investments in equity
securities.  Securities  available  for sale are carried at fair value, with any
unrealized  holding  gains  and  losses,  net  of  tax,  reported  in a separate
component  of comprehensive income/(loss) until realized. Trading securities are
securities  bought  and  held principally for the purpose of selling them in the
near  term  and  are  reported  at  fair value, with unrealized gains and losses
included  in  operations  for  the  year.  Held-to-maturity  debt securities are
reported  at  amortized  cost.

Investments  in  which  the  Company  has  the  ability  to exercise significant
influence  are accounted for in accordance with APB No 18. "The Equity Method of
Accounting  for  Investments  in  Common  Stock".  Under  the  equity method, an
investment  in  common  stock  is  generally  shown  in  the balance sheet of an
investor as a single amount. Likewise, an investor's share of earnings or losses
from  its  investment  is  ordinarily  shown in its income statement as a single
amount.  The Company has no obligation to fund liabilities of investee companies
beyond  its  investment  and therefore its investments in associates will not be
reduced  below  zero.

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

IMPAIRMENT
Pursuant  to guidance established in Statement of Financial Accounting Standards
No.  144,  "Accounting  for the Impairment or Disposal of Long-Lived Assets" the
Company  evaluates  if  long  lived  assets  are impaired whenever indicators of
impairment are present, or a minimum, on an annual basis.   Management considers
assets  to  be  impaired if the carrying value exceeds the future projected cash
flows  from  related  operations (undiscounted and without interest charges). If
impairment  is  deemed  to exist, the assets will be written down to fair value.
Management  also  re-evaluates  the periods of amortization to determine whether
subsequent  events  and circumstances warrant revised estimates of useful lives.

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

RECENT ACCOUNTING PRONOUNCEMENTS
In  January 2003, the Financial Accounting Standards Board issued Interpretation
No. 46 (FIN46), "Consolidation of Variable Interest Entities." FIN 46 requires a
variable  interest  entity  to  be  consolidated by a company if that company is
subject  to  a  majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual returns or
both.  A  variable  interest  entity is a corporation, partnership, trust or any
other  legal structures used for business purposes that either (a) does not have
equity  investors  with  voting  rights  or (b) has equity investors that do not
provide sufficient financial resources for the entity to support its activities.
Currently,  entities  are  generally consolidated by an enterprise when it has a
controlling  financial  interest through ownership of a majority voting interest
in  the  entity.  The  consolidation requirements of FIN 46 apply immediately to
variable  interest  entities  created  after January 31, 2003. The consolidation
requirements  apply  to  older entities in the first fiscal year beginning after
June  15,  2003.  Certain  of the disclosure requirements apply to all financial
statements  issued  after  January  31,  2003,  regardless  of when the variable
interest  entity was established. The adoption of FIN 46 has not had, nor do the
directors/management  believe  it  will have, a material impact on the Company's
current  or  prospective  financial  statements.


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


1.     SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

In  December  2003,  the  Staff  of the Securities and Exchange Commission (SEC)
issued Staff Accounting Bulletin No. 104 ("SAB 104"), Revenue Recognition, which
supersedes  SAB  101,  Revenue  Recognition  in  Financial Statements. SAB 104's
primary  purpose  is to rescind accounting guidance contained in SAB 101 related
to  multiple  element  revenue  arrangements  and  to rescind the SEC's "Revenue
Recognition  in  Financial  Statements  Frequently  Asked Questions and Answers"
("FAQ") issued with SAB 101. Selected portions of the FAQ have been incorporated
into  SAB  104.  The  adoption  of  SAB  104  has  not  had,  nor  do  the
directors/management  believe  it  will have, a material impact on the Company's
current  or  prospective  financial  statements.


2.     CONCENTRATIONS OF CREDIT RISK

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


<TABLE>
<CAPTION>
3.      INVESTMENTS

                                            JUNE 30
                                   ------------------------
                                       2003         2004
<S>                                <C>          <C>

Available for sale securities:
Zaxis International Inc - at cost  $  166,879   $         -
Realised loss on investment         ( 166,879)            -
                                   -----------  -----------
                                   $        -   $         -
                                   ===========  ===========
</TABLE>

During  the  year ended June 30, 2003, Zaxis filed for Chapter 7 Liquidation. At
June 30, 2003, the directors assessed the carrying value of the common shares in
Zaxis  based on the quoted market price at year-end and wrote down the remaining
balance  to  nil.  The  write  down  in the investment was considered other than
temporary and, accordingly, is recognised as a realised loss in the statement of
operations  in  2003,  together  with $116,959 of previously recorded unrealised
losses  which  were  reclassified  out of accumulated other comprehensive income
into  earnings.  The  total  realized  loss  for  Zaxis during 2003 is $166,879.


<TABLE>
<CAPTION>
4.     ACCOUNTS AND NOTES RECEIVABLE

Accounts and notes receivable consists of the following:

                                              JUNE 30
                                         ------------------
                                           2003      2004
<S>                                      <C>       <C>

Amounts receivable from trade customers  $419,594  $237,267
Underwriters, promoters & employees             -    19,266
Interest receivable                        15,217    43,329
Other                                       9,807    16,060
                                         ------------------
                                         $444,618  $315,922
                                         ==================
</TABLE>


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


<TABLE>
<CAPTION>
5.     INVENTORY

Inventory consists of the following:

                                JUNE 30
                            --------------
                             2003    2004
<S>                         <C>      <C>

Raw materials and supplies  $13,568  $   -
Finished goods                    -      -
                            -------  -----
                            $13,568  $   -
                            =======  =====
</TABLE>


6.     INVESTMENTS ACCOUNTED FOR USING THE EQUITY METHOD

The  carrying value of investments in associates as of June 30, 2004 and 2003 is
$nil.

Effective  May  31,  2000,  Progen  entered  into  an  agreement  with  Medigen
Biotechnology Corporation ('MBC'), a company incorporated in Taiwan, in relation
to  the  co-development and commercialisation of PI-88 (an oligosaccharide based
compound which inhibits heparanase, extravasation and thrombosis) (the 'Alliance
Agreement'). Under the Alliance Agreement, MBC will fund and conduct, at no cost
to  Progen,  several  Phase II clinical trials in respect of PI-88. These trials
are  in  addition  to the trials to be undertaken by Progen and will be in areas
where MBC has significant experience and expertise. In return MBC is entitled to
receive  15%  of  Progen's  future  PI-88  revenues  generated  from  cancer and
cardiovascular diseases. In addition, MBC has the right to negotiate the funding
and  conduct  of  several  Phase  III  clinical  trials.  In accordance with the
Alliance  Agreement  Progen  is  to  supply  PI-88 to MBC free of charge for the
designated  trials and provide technical know-how to assist MBC with the conduct
of the trials and to establish a compliant pharmaceutical manufacturing facility
in  Taiwan if so requested. If provided, Progen will be paid for these services.

In  connection  with  the Alliance Agreement under a separate Share Subscription
Agreement  on  November  6,  2000,  the  Company  issued 2.75 million fully paid
ordinary  shares  to MBC at an issue price of $2.09 per share.  The Company also
issued  to  Everspring Industry Co (an associate of MBC) an option to purchase 1
million  ordinary  shares  exercisable  on  or  before December 31, 2002 with an
exercise  price  of A$8.00 per share. On December 31, 2002 the 1 million options
expired unexercised. In addition, under the Alliance Agreement Progen was issued
19.9%  of  MBC's  issued common equity at no cost and with certain anti-dilution
rights.  As  at  June  30, 2004 and June 30, 2003 Progen holds 15,176,525 common
shares  in  MBC.

Stanley  Chang,  a  director  of  Progen,  was  also  a  director  of  Medigen
Biotechnology  Company  during  the  years  ended  June 30, 2002, 2003 and 2004.

<TABLE>
<CAPTION>
                                                                               JUNE 30
                                                                             2003   2004
<S>                                                                          <C>    <C>

CARRYING AMOUNT OF INVESTMENT IN ASSOCIATE
Balance at the beginning of the financial year                               $   -  $   -
Issue of shares in associate                                                     -      -
Share of associate's net profits for the financial year                          -      -
                                                                             -----  -----
Carrying amount of investment in associate at the end of the financial year  $   -  $   -
                                                                             =====  =====
</TABLE>

Progen has a 19.9% equity interest in MBC, which it received under the Alliance
Agreement described above. Based on the lack of fair value evidence, the initial
investment was recorded at no value by Progen. This accounts for the difference
between the underlying equity in net assets and the amount at which the
investment in associate is carried.


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


<TABLE>
<CAPTION>
7.      PROPERTY AND EQUIPMENT

Property and equipment consists of the following:

                                                    JUNE 30,
                                           --------------------------
                                               2003          2004
<S>                                        <C>           <C>

Machinery and equipment                    $ 2,839,198   $ 3,084,811
Furniture and fixtures                         298,315       295,830
Leasehold improvements                         351,426       373,882
                                           ------------  ------------
                                             3,488,939     3,754,523
Accumulated depreciation and amortization   (2,326,946)   (2,869,758)
                                           ------------  ------------
PROPERTY AND EQUIPMENT, NET                $ 1,161,993   $   884,765
                                           ============  ============
</TABLE>

Depreciation  expense related to property and equipment (including machinery and
equipment  under  capital  leases  in  the year ended June 30, 2002) amounted to
$309,431,  $457,047,  and  $463,720 for the years ended June 30, 2002, 2003, and
2004  respectively.


8.      DISCONTINUED OPERATIONS

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

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

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

At  June 30, 2004 the amount owed by Progen on accounts payable was $Nil and due
to  Progen  on  accounts  receivable  was  $Nil  in relation to the Life Science
division.

The sale was completed on November 28, 2003.

FINANCIAL PERFORMANCE INFORMATION OF THE LIFE SCIENCE DIVISION FOR THE PERIODS
ENDED JUNE 30, 2004, 2003 AND 2002 IS AS FOLLOWS:

<TABLE>
<CAPTION>
                                                         JUNE 30,
                                             2002          2003         2004
<S>                                      <C>           <C>           <C>

Proceeds for sale of business            $         -   $         -   $  838,622
                                         =======================================

Revenue from ordinary activities           1,313,919     1,742,257    1,096,897
Expenses from ordinary activities         (1,209,498)   (1,454,044)    (928,636)
Profit on disposal of business activity            -             -      486,405
                                         ---------------------------------------
Profit before income tax                     104,421       288,213      654,666
Income tax                                         -             -            -
                                         ---------------------------------------
INCOME FROM DISCONTINUED OPERATIONS      $   104,421   $   288,213   $  654,666
                                         =======================================
</TABLE>

The  carrying  value of the assets and liabilities sold as reflected in the June
30, 2003 balance sheet are as follows:

          Inventory                                       $517,670
          Net  property,  plant  and  equipment            $17,712
          Employee  entitlements                           $16,010


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


9.      INCOME TAXES

At  June  30,  2004  the  Company  had  net  operating tax loss carryforwards of
approximately  $44,504,000  (2003:  $39,724,000)  which are indefinite as to use
unless it is unable to comply with the recognition criteria for carrying forward
tax  losses  under  Australian  taxation  laws.  As  a  result of these tax loss
carryforwards,  the Company has deferred tax assets of approximately $13,351,000
at June 30, 2004 (2003: $11,917,000, 2002: 8,947,000).  Because of the Company's
lack  of  earnings  history,  realization  of  these  deferred tax assets is not
reasonably  assured, therefore the deferred tax assets have been fully offset by
a  valuation  allowance  of  $13,351,000,  11,917,000 and $8,947,000 at June 30,
2004,  2003  and  2002,  respectively.

The  change  in  the  valuation  allowance  and  the corresponding change in the
deferred  tax  asset  amounted  to $1,434,000, $2,970,000 and $2,627,000 for the
years  ended  June  30,  2004,  2003  and  2002  respectively.

The tax loss carryforward can be reconciled as follows:

<TABLE>
<CAPTION>
                                           2003         2004
<S>                                     <C>          <C>
Opening tax loss carryforward           $29,822,000  $39,724,000
Current year tax loss                     4,446,000    3,331,000
Effect of foreign currency translation    5,456,000    1,449,000
                                        -----------  -----------
Gross tax loss                          $39,724,000  $44,504,000
                                        ===========  ===========
</TABLE>

Reconciliation of net loss to the tax loss

<TABLE>
<CAPTION>
                                               2002          2003          2004
<S>                                        <C>           <C>           <C>

Tax at  30% Australian tax rate            $   923,764   $ 1,069,545   $ 1,063,336
Permanent differences:
   Non deductible items                              -             -       (64,036)
   Additional deductions                       277,236       263,655             -
   Effect of foreign exchange translation    1,426,000     1,636,800       434,700
                                           ------------  ------------  ------------
Net tax loss                                 2,627,000     2,970,000     1,434,000
Change in valuation allowance               (2,627,000)   (2,970,000)   (1,434,000)
                                           ------------  ------------  ------------
Tax expense                                $         0   $         0   $         0
                                           ============  ============  ============
</TABLE>

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


<TABLE>
<CAPTION>
10.     ACCOUNTS PAYABLE

Accounts payable consists of the following:

                                            JUNE 30
                                     --------------------
                                        2003       2004
<S>                                  <C>         <C>

Trade account payable                $  959,703  $746,233
Accrued employee benefits and taxes     178,825   150,720
                                     --------------------
                                     $1,138,528  $896,953
                                     ====================
</TABLE>


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


11.      RELATED PARTY DISCLOSURES

During the 2004 financial year Progen purchased goods totalling $4,457 from
companies associated with Dr Malvin Eutick a director of Progen Industries
Limited.
During  the  2004  financial  year  Medigen  Biotechnology Corporation exercised
406,261  options  received  through  the  one for eight shareholder bonus option
issue.  Total  proceeds received from Medigen Biotechnology Corporation amounted
to  A$1,015,652.

During  the  2003  financial year Progen purchased goods totalling $4,056 from a
company  associated  with  Dr  Malvin  Eutick  a  director  of Progen Industries
Limited.

During  the 2002 financial year Progen Industries Limited sold product totalling
$20,178  to  Starrate  Holdings  Pty  Ltd.  Dr  Malvin Eutick, a director of the
Company,  is  also  a  director  of  Starrate  Holdings  Pty  Ltd.


12.      COMMITMENTS AND CONTINGENCIES

(a)  EXPENDITURE COMMITMENTS

ANUTECH Pty. Ltd.

In October 1993, the Company entered into an agreement with ANUTECH Pty. Ltd. (a
wholly owned subsidiary of the Australian National University) and other parties
to  provide  research  funding,  subject  to  certain  conditions,  for  novel
Anti-cancer  and  Anti-inflammatory  drugs.  Progen  agreed  to  provide  funds
totalling  $4.1  million  over  a  five-year  period,  for research purposes. In
exchange,  Progen  was  issued  an  exclusive  world-wide license/sub-license to
manufacture,  market  and  distribute  products  arising out of the intellectual
property  developed  from  this research. In May 1999, Progen entered into a new
agreement  with  ANUTECH Pty. Ltd. to fund further research projects relating to
the synthesis of heparinoid mimetics and development of the heparanase enzyme as
a  diagnostic  and  therapeutic target. Progen agreed to provide funds totalling
approximately  $1.3  million  over a three-year period for research purposes. In
exchange,  Progen  was  issued  an  exclusive  world-wide licence/sub-licence to
manufacture,  market  and  distribute  products  arising out of the intellectual
property  developed from this research. In September 2002, Progen entered into a
new  agreement  with  ANUTECH  Pty Ltd agreeing to extend funding over a further
three-year  period.

Clinical Trials

The PI-88 human clinical trial program is currently investigating PI-88 in three
Phase  II  clinical  trials respectively in malignant melanoma as a single agent
therapy,  Lung Cancer (NSCLC) in combination with chemotherapy (Taxotere(R)) and
as  an  adjuvant  treatment in post-surgical primary liver cancer. The first two
clinical  trials  are  being  funded by Progen, whilst the liver cancer study is
fully  funded  by Medigen Biotechnology Corporation. The current PI-166 Phase Ib
clinical  trial  in  unresectable  liver  cancer is also being funded by Progen.

The  total  remaining  commitment  payable in respect of the above agreements at
June  30,  2004  are  as  follows:

          YEAR ENDING
            JUNE 30

             2005                                            $1,280,536
             2006                                              $344,580
                                                             ----------
                                                             $1,625,116
                                                             ==========


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

Insurance Premium

In  July  2004  the  Company signed an agreement to fund the Company's insurance
premium for the year ended June 30, 2005. The terms of this agreement state that
the amount funded is to be repaid in nine equal instalments of $39,445 including
finance  charges.


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


12.      COMMITMENTS AND CONTINGENCIES (CONTINUED)

Other

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


(b)  LEASE EXPENDITURE COMMITMENTS

OPERATING LEASES

The operating lease commitments include the rental of office premises. The lease
agreement  expired  in  March  2004 at which time the Company signed a new lease
agreement extending the current lease to March 2007.

During  the  fiscal  years  ended June 30, 2004, 2003 and 2002, rent expense was
$78,583, $56,126 and $48,138 respectively.

Under  the  terms  of  this  lease  agreement the rental payments are subject to
annual  review  based  on  the  movement  in the consumer price index. The total
minimum annual rentals under non-cancellable operating leases subsequent to June
30, 2004 are as follows:

          YEAR ENDING
          JUNE 30,

           2005                                             $68,782

           2006                                             $68,782

           2007                                             $51,586
                                                           --------

           Total                                           $189,150
                                                           ========


13.     STOCK OPTION PLANS

All  options  are  granted  in  stock  trading  on the Australian Stock Exchange
('ASX')  and  are  exercisable  only in Australian dollars, therefore amounts in
this  note  are  expressed  in  Australian  dollars  not  U.S.  dollars.

EMPLOYEE COMPENSATION PLANS

EMPLOYEE OPTION PLAN PRE OCTOBER 2003

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

There were no options granted under this plan during the year ended June 30,
2004.

During  2002,  22,000  options were granted to employees under this plan with an
exercise  price  of A$4.00, the options vest on the first anniversary of date of
grant  and  expire  on  the  fifth  anniversary  of  the  date  of  grant.

As  at  June  30,  2004  there were 528,820 options outstanding that were issued
under this plan.


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


13.     STOCK OPTION PLANS (CONTINUED)

EXECUTIVE DIRECTORS' OPTION PLAN

In  November  1999, the Company's shareholders approved the executive directors'
option  plan.  Only  directors  who  hold  salaried  employment  are eligible to
participate  in the plan.  The board of directors may impose any conditions upon
the vesting or exercise of any options granted under the plan.  This option plan
has  similar  terms  and  conditions  as  the  2000  Plan.

The  exercise price of the options is equal to the weighted average price of the
Company's fully paid ordinary shares traded over the 5 business days immediately
prior  to  the time the options are granted (the Base price), unless the options
are  to  be  issued in tranches, in which case the exercise price will be either
the  Base  price  or  a higher price determined by the directors of the Company.

During  2000, 400,000 options were granted under the executive directors' option
plan.  These  options  are  exercisable  as  follows:

                                                                 Exercise  Price
100,000 options exercisable no earlier than February 8, 2001          A$4.46
200,000 options exercisable no earlier than February 8, 2002          A$6.24
100,000 options exercisable no earlier than February 8, 2003          A$8.91

The 400,000 options above expire on February 8, 2005 and remain outstanding as
at June 30, 2004.

DIRECTORS AND EMPLOYEES INCENTIVE SCHEME

In October 2003, the Company's shareholders approved the directors and employees
incentive scheme ("2003 Plan") under which a total of 1,800,000 options were
issued, having an exercise price of A$2.50.

Under the terms of this plan all options vest immediately at grant date and
expire on May 31, 2005.

As  at  June  30,  2004 there are 1,600,244 options outstanding that were issued
under the 2003 Plan.

Information  with  respect  to  the  number of options granted under the various
employee compensation plans is as follows:


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


13.     STOCK OPTION PLANS (CONTINUED)
<TABLE>
<CAPTION>
                                        NUMBER OF          WEIGHTED          NUMBER OF         WEIGHTED
                                         OPTIONS       AVERAGE EXERCISE       OPTIONS      AVERAGE EXERCISE
                                       OUTSTANDING         PRICE (i)        EXERCISABLE        PRICE (i)
<S>                                 <C>                <C>                <C>              <C>

Options outstanding, June 30, 2001         1,433,515              A$4.97          405,495            A$5.11
- granted                                     22,000              A$4.00
- forfeited                                        -                   -
- expired                                   (214,745)             A$4.66
- exercised                                        -                   -
                                    -----------------
Options outstanding, June 30, 2002         1,240,770              A$5.01        1,118,770            A$4.68
- granted                                          -                   -
- forfeited                                        -                   -
- expired                                    (72,550)             A$4.18
- exercised                                        -                   -
                                    -----------------
Options outstanding, June 30, 2003         1,168,220              A$5.06        1,168,220            A$5.06
- granted                                  1,800,000              A$2.50
- forfeited                                        -                   -
- expired                                   (239,400)             A$5.04
- exercised                                 (199,756)             A$2.50
                                    -----------------
Options outstanding, June 30, 2004         2,529,064              A$3.44        2,529,064            A$3.44
<FN>

(i) The exercise price is in Australian dollars (the functional currency for the
Company).
</TABLE>

There  were  1,800,000  options  granted  and issued during 2004. The equivalent
market  price per share at grant date for options granted during 2004 was A$1.52
(2003:  Nil,  2002:  A$1.20).

The following table summarises information about options outstanding at June 30,
2004:

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

           A$4.46           100,000         0.6 years      A$4.46             100,000               A$4.46
           A$6.24           200,000         0.6 years      A$6.24             200,000               A$6.24
           A$8.91           100,000         0.6 years      A$8.91             100,000               A$8.91
           A$4.00           350,000         1.5 years      A$4.00             350,000               A$4.00
           A$4.00           178,820         1.6 years      A$4.00             178,820               A$4.00
           A$2.50         1,600,244         0.9 years      A$2.50           1,600,244               A$2.50
                   ================                                      ============

           Total          2,529,064                                         2,529,064
                   ================                                      ============
<FN>

(i)  The  exercise  price  is  in  Australian  dollars  (the  functional  currency  for  the  Company).
</TABLE>


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


13.     STOCK OPTION PLANS (CONTINUED)

OTHER INFORMATION

The Company has adopted the disclosure only alternative of SFAS 123 for employee
options  granted  which  requires that proforma results be presented as if stock
based  compensation  were  recorded  at  the fair value of options granted. This
compensation,  determined  using  the  Black  Scholes option valuation model, is
expensed  over  the  vesting  periods  of  each  option  grant.  The  pro  forma
compensation  expense  was calculated to be $424,027 for the year ended June 30,
2004  (2003:  $11,439,  2002:  $163,946).

The  fair value of options granted in 2002 and 2004 were computed at the date of
grant  using  the Black Scholes option pricing model with the following weighted
average  assumptions  (note  there  were no options granted in 2003 therefore no
information  is  presented  for  that  year):

                                              2002                   2004
     Risk Free Interest Rate                  5.24%                  5.39%
     Expected Dividend Yield                  0.00%                  0.00%
     Expected Lives (years)                      3                    1.6
     Expected Volatility                      60.7%                  70.9%

The Black-Scholes option valuation model was developed for use in estimating the
fair  value  of traded options, which have no vesting restrictions and are fully
transferable.  In  addition, option valuation models require the input of highly
subjective  assumptions  including  the expected stock price volatility. Because
the  Company's  employee  stock  options  have  characteristics  significantly
different  from  those  of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion,  the  existing  models  may  not  necessarily provide a reliable single
measure  of  the  fair  value  of  its  employee  stock  options.

Using  the Black Scholes option valuation model, the weighted-average fair value
of  options  granted  was  A$0.33  in  2004  and  A$0.16  in  2002.

OTHER STOCK OPTION PLANS

In  November  2003 the Company's corporate advisors to the November 2003 private
placement  of  3.8  million  shares were granted stock options to purchase up to
700,000  shares  of  Progen's  common  stock  at an exercise price of A$2.50 per
option.  These  options  vested  on  grant  date  and  expire  on  May 31, 2005.

The  fair  value  of these options was estimated to be A$231,000 using the Black
Scholes  option  pricing model with the following assumptions: dividend yield of
0%;  expected  volatility  of  70.9%;  risk  free interest rate of 5.39%; and an
expected life of 1.6 years. Accordingly, a non-cash amount of A$231,000 has been
recorded  against  contributed  equity.

In  December  2003  shareholders  were  issued  one bonus option for every eight
shares  registered  on  the record date of November 28, 2003. These options were
issued  under  a  Prospectus  dated  November 19, 2003. Each bonus option has an
exercise  price of A$2.50 and entitles the holder to subscribe for one share for
each  option  until  May  31,  2005.


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


13.     STOCK OPTION PLANS (CONTINUED)

The  following  table  summarises information about the other stock option plans
outstanding  and  exercisable  at  June  30,  2004:

<TABLE>
<CAPTION>
                                  NON-EMPLOYEE OPTIONS OUTSTANDING            NON-EMPLOYEE OPTIONS
                                          AT JUNE 30, 2004                EXERCISABLE AT JUNE 30, 2004

                                                                WEIGHTED
                                                                 AVERAGE
                                               WEIGHTED        REMAINING                      WEIGHTED
RANGE OF EXERCISE PRICES                        AVERAGE      CONTRACTUAL                       AVERAGE
                               OPTIONS   EXERCISE PRICE     LIFE (YEARS)      OPTIONS   EXERCISE PRICE
<S>                       <C>           <C>              <C>              <C>          <C>

A$2.50                       4,507,517        A$2.50                0.92    4,507,517        A$2.50
</TABLE>

At  June  30,  2004,  the Company has reserved shares of common stock for future
issuance as follows:

     Employee  option  plan  pre  October  2003                    528,820
     Executive  directors'  option  plan                           400,000
     Directors  and  employees  incentive  plan                  1,600,244
     Non-employee  options                                       4,507,517

     Total                                                       7,036,581
                                                                 ---------


14.      SEGMENT DISCLOSURES

The  Company  is  organized  based  on the products and services that it offers.
Under  this  organizational  structure,  there  are two reportable segments: (i)
research  and  development  and  (ii)  contract  manufacture.  The  research and
development  segment  is focussed on the development of PI-88 and PI-166 as well
as  a drug discovery effort that is partially funded by an AusIndustry R&D Start
Grant.  The  contract  manufacture  segment  is  involved  with the provision of
contract  manufacturing  services  to cGMP standards for various human clinical,
therapeutic  product,  and veterinary pharmaceutical trials, as well as non-cGMP
bioproduct  contract  manufacturing  services.  The contract manufacture segment
also  provides  bioprocess  technology  development  services,  and  consulting
services  in  quality  and  regulatory  management  systems.

The  Company  views  certain  other revenues and expenses, particularly selling,
general  and  administration  costs,  as  not  belonging  to  any one reportable
segment.  As  a  result,  the Company has aggregated these items into an "Other"
non-segment  line,  as  permitted by Statement of Financial Accounting Standards
No.  131  "Disclosures about Segments of an Enterprise and Related Information."

The  Company  also  views  certain  other  assets,  particularly  cash  and cash
equivalents,  and investments as not belonging to any one reportable segment. As
a  result,  the  Company  has aggregated these items into an "Other" non-segment
line,  as  permitted  by  Statement  of  Financial  Accounting Standards No. 131
"Disclosures  about  Segments  of  an  Enterprise  and  Related  Information."

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


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


<TABLE>
<CAPTION>
14.      SEGMENT DISCLOSURES (CONTINUED)

YEAR ENDED JUNE 30, 2004
                                 RESEARCH &      CONTRACT       TOTAL
                                 DEVELOPMENT   MANUFACTURE
<S>                             <C>            <C>           <C>

Sales to external customers     $          -   $  1,394,589  $ 1,394,589
Grant Income                         596,522              -      596,522
Depreciation                         187,313        250,636      437,949

Net income/(loss)                 (2,968,223)       438,483   (2,529,740)
Interest income                            -              -      474,589
Interest expense                           -              -      (12,437)
Other non-segment revenues                                        20,113
Other non-segment expenses                                    (2,151,646)
                                                             ------------
Consolidated net income/
(loss) before tax from
continuing operations                                        $(4,199,121)
                                                             ============

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

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

<TABLE>
<CAPTION>
YEAR ENDED JUNE 30, 2003
                                 RESEARCH &      CONTRACT        TOTAL
                                 DEVELOPMENT    MANUFACTURE
<S>                             <C>            <C>            <C>

Sales to external customers     $          -   $  1,051,695   $ 1,051,695
Grant Income                         434,829              -       434,829
Depreciation and amortization        184,165        265,431       449,596

Net income/(loss)                 (3,226,808)      (184,532)   (3,411,340)
Interest income                            -              -       288,289
Interest expense                           -              -        (7,377)
Other non-segment revenues                                        462,972
Other non-segment expenses                                     (1,185,906)
                                                              ------------
Consolidated net income/
(loss) before tax from
continuing operations                                         $(3,853,362)
                                                             =============

Total assets for reportable
segments                             430,280        862,560     1,292,840
Other assets                                                    8,937,177
Consolidated assets                                           $10,230,017
                                                             =============

Purchase of long lived assets
for reportable segments               15,343         35,356        50,699
Other purchases                                                    47,853
Total purchases                                               $    98,552
                                ==========================================
</TABLE>


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


<TABLE>
<CAPTION>
14.      SEGMENT DISCLOSURES (CONTINUED)

YEAR ENDED JUNE 30, 2002
                                 RESEARCH &      CONTRACT       TOTAL
                                 DEVELOPMENT   MANUFACTURE
<S>                             <C>            <C>           <C>

Sales to external customers     $          -   $    704,044  $   704,044
Grant Income                         123,781              -      123,781
Depreciation and amortization         88,049        209,640      297,689

Net income/(loss)                 (2,446,829)       366,626   (2,080,203)
Interest income                            -              -      380,088
Interest expense                           -              -       (3,051)
Other non-segment revenues                                       550,227
Other non-segment expenses                                    (2,030,697)
                                                             ------------
Consolidated net income/
(loss) before tax from
continuing operations                                        $(3,183,636)
                                                             ============

Total assets for reportable
segments                             474,407        822,623    1,297,030
Other assets                                                   8,568,338
Consolidated assets                                          $ 9,865,368
                                                             ============

Purchase of long lived assets        366,346        393,075  $   759,421
                                =========================================
</TABLE>

There were no inter-segment sales.

In  2004,  $399,672  and  in  2003,  $480,666  of quality assurance and facility
maintenance  costs have been allocated to the Contract Manufacture division.  In
2002  these  costs  were  included  in  other non-segment expenses as comparable
records  were  not  maintained  by  the Company allowing consistent allocations.

In  2002,  2003  and 2004, the Company operated in one geographical segment with
all  of  its  assets  and  operations  located  in  Australia.

The  percentage  of  revenues  derived  from  customers  outside  of  Australia
represented  18.2%  in  2004,  74.3%  in  2003  and  55.5%  in  2002.

Revenues  from  one  Australian customer of the Company's Contract Manufacturing
segment  represents  approximately  $786,000  of the Company's sales to external
customers  in  2004,  $180,000  in  2003  and  $Nil  in  2002.

<TABLE>
<CAPTION>
RECONCILIATION TO REPORTED RESULTS

DEPRECIATION AND AMORTISATION         2004      2003      2002
<S>                                 <C>       <C>       <C>
Total reportable segments           $437,949  $449,596  $297,689
Unallocated corporate depreciation  $ 25,507         -         -
                                    ----------------------------
Total reported depreciation         $463,456  $449,596  $297,689
                                    ============================
</TABLE>


--------------------------------------------------------------------------------
                                      F- 23
<PAGE>
PROGEN INDUSTRIES LIMITED


<TABLE>
<CAPTION>
15.     ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

The components of other comprehensive income are as follows:

                                           CURRENCY       UNREALISED       TOTAL
                                          TRANSLATION   GAINS (LOSSES)
                                          ADJUSTMENTS    ON AVAILABLE
                                                           FOR SALE
                                                          SECURITIES
<S>                                      <C>            <C>             <C>

    Balance at June 30, 2001             $ (2,195,035)              -   $(2,195,035)

    Unrealised investment loss                      -        (116,959)     (116,959)
    Currency translation adjustment           885,498               -       885,498
                                         -------------  --------------  ------------

    Balance at June 30, 2002             $ (1,309,537)       (116,959)  $(1,426,496)

    Reclassification of investment loss                       116,959       116,959
    Currency translation adjustment         1,077,128               -     1,077,128
                                         -------------  --------------  ------------
    Balance at June 30, 2003             $   (232,409)              -   $  (232,409)

                                         -------------  --------------  ------------
    Currency translation adjustment           257,098               -       257,098
                                         -------------  --------------  ------------
    Balance at June 30, 2004             $     24,689               -   $    24,689
                                         =============  ==============  ============
</TABLE>

<TABLE>
<CAPTION>
16.          FAIR VALUE OF FINANCIAL INSTRUMENTS

                                               JUNE 30,
                                               --------
                              2004        2004         2003        2003
                            CARRYING    ESTIMATED    CARRYING    ESTIMATED
                             AMOUNT    FAIR VALUE     AMOUNT    FAIR VALUE
                                       -----------              -----------
<S>                        <C>         <C>          <C>         <C>
ASSETS

Cash and cash equivalents  $9,885,656  $ 9,885,656  $8,001,842  $ 8,001,842
Accounts receivable           315,922      315,922     444,618      444,618

LIABILITIES
Accounts payable              896,953      896,953   1,138,528    1,138,528
</TABLE>

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

Limitations:  Fair value estimates are made at a specific point in time, and are
based  on  relevant  market  information  about  the financial instrument. These
estimates  are  subjective  in  nature  and involve uncertainties and matters of
significant  judgment and therefore cannot be determined with precision. Changes
in  assumptions  could  significantly  affect  the  estimates.


17.     EMPLOYEE BENEFIT PLAN

As  required by Australian superannuation legislation, the Company contributes a
defined  contribution  of  9%  (2003: 9%; 2002: 8%) of all Australian employee's
salary  to  an  approved  superannuation  fund for their retirement benefit. The
Company  contributed,  on  behalf of employees, $153,138 to superannuation funds
for  the  year  ended  June  30,  2004  (2003:  $147,914;  2002:  $174,343).


18.     FOREIGN CURRENCY TRANSLATION

The  functional  currency for the Company's operations is Australian dollars. As
June  30,  2004  A$1  equated to $0.6903. As at November 24, 2004 A$1 equated to
$0.7879.


--------------------------------------------------------------------------------
                                      F- 24
<PAGE>