SECURITIES AND EXCHANGE COMMISSION
                              Washington D.C. 20549
                                    FORM 20-F

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

                                       or

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

                                       or

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

                        Commission file number: 000-49843

                           PRANA BIOTECHNOLOGY LIMITED
              (Exact name of Registrant as specified in its charter
               and translation of Registrant's Name into English)

                                    Australia
                                (Jurisdiction of
                         incorporation or organization)

      Level 1, 100 Dorcas Street, South Melbourne, Victoria 3205 Australia
                    (Address of principal executive offices)

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

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

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

        American Depositary Shares, each representing one Ordinary Share

          Securities for which there is a reporting obligation pursuant
                          to Section 15(d) of the Act:

                                      None

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

     Ordinary Shares, as of June 30, 2003.................66,187,303 shares

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

                                 Yes |X| No |_|

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

                             Item 17 |X| Item 18 |_|

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

PART I....................................................................    1

  ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS..........     1
  ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE........................     1
  ITEM 3. KEY INFORMATION................................................     1
          A. Selected Financial Data.....................................     1
          B. Capitalization and Indebtedness.............................     4
          C. Reasons for the Offer and Use of Proceeds...................     4
          D. Risk Factors................................................     4
  ITEM 4. INFORMATION ON THE COMPANY.....................................    14
          A. History and Development of the Company......................    14
          B. Business Overview...........................................    16
          C. Organizational Structure....................................    34
          D. Property, Plants and Equipment..............................    34
  ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS...................    35
          A. Operating Results...........................................    35
          B. Liquidity and Capital Resources.............................    42
          C. Research and Development, Patents and Licenses..............    44
          D. Trend Information...........................................    46
          E. Off-Balance Sheet Arrangements..............................    46
  ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES.....................    46
          A. Directors and Senior Management.............................    46
          B. Compensation................................................    49
          C. Board Practices.............................................    49
          D. Employees...................................................    51
          E. Share Ownership.............................................    52
  ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS..............    54
          A. Major Shareholders..........................................    54
          B. Related Party Transactions..................................    55
          C. Interests of Experts and Counsel............................    56
  ITEM 8. FINANCIAL INFORMATION..........................................    56
          A. Financial Statements and Other Financial Information........    56
          B. Significant Changes.........................................    57
  ITEM 9. THE OFFER AND LISTING..........................................    57
          A. Offer and Listing Details...................................    57
          B. Plan of Distribution........................................    58
          C. Markets.....................................................    58
          D. Selling Shareholders........................................    59
          E. Dilution....................................................    59
          F. Expenses of the Issue.......................................    59
  ITEM 10. ADDITIONAL INFORMATION........................................    59
          A. Share Capital...............................................    59
          B. Memorandum and Articles of Association......................    59
          C. Material Contracts..........................................    59


                                       -i-
<PAGE>

          D. Exchange Controls...........................................    61
          E. Taxation....................................................    62
          F. Dividend and Paying Agents..................................    66
          G. Statement by Experts........................................    66
          H. Documents on Display........................................    66
          I. Subsidiary Information......................................    67
  ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS....    67
  ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES........    67

PART II..................................................................    67

  ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES...............    67
  ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND
           USE OF PROCEEDS...............................................    68
  ITEM 15. CONTROLS AND PROCEDURES.......................................    68
  ITEM 16. RESERVED......................................................    68

PART III.................................................................    68

  ITEM 17. FINANCIAL STATEMENTS..........................................    68
  ITEM 18. FINANCIAL STATEMENTS..........................................    68
  ITEM 19. EXHIBITS......................................................    69


                                      -ii-
<PAGE>

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

                                     PART I

ITEM 1.    IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISORS

      Not applicable.

ITEM 2.    OFFER STATISTICS AND EXPECTED TIMETABLE

      Not applicable.

ITEM 3.    KEY INFORMATION

A.    SELECTED FINANCIAL DATA

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

      The selected financial data as of June 30, 2003 and 2002 and for each of
the three years in the period ended June 30, 2003 have been derived from our
audited financial statements and notes thereto included elsewhere in this annual
report. The selected financial data as of June 30, 2001, 2000 and 1999, for each
of the two years in the period ended June 30, 2000 have been derived from our
audited financial statements and notes thereto which are not included in this
annual report.

      We prepare our financial statements in accordance with accounting
principles generally accepted in Australia, or A-GAAP, which differ in certain
significant respects from accounting principles generally accepted in the United
States of America, or U.S. GAAP. Please refer to Note 26 to the financial
statements for a description of the principal differences between A-GAAP and
U.S. GAAP as they relate to us, and a reconciliation of net loss and total
equity for the periods and as of the dates therein indicated.


                                      -1-
<PAGE>

Statements of Financial Performance Data:

<TABLE>
<CAPTION>
                                                                                      Years Ended June 30,
                                                            ------------------------------------------------------------------------
                                                                2003           2002           2001           2000            1999
                                                             ----------     ----------     ----------     ----------      ---------
                                                                            (in A$, except per share and share data)
<S>                                                          <C>            <C>            <C>            <C>            <C>
A-GAAP:
Revenue from ordinary activities ........................     1,816,478        793,970        516,182         78,758             --
Depreciation and amortization expense ...................    (1,185,973)    (1,160,595)    (1,140,658)      (654,977)            --
Patents, research and development expense ...............    (1,861,295)    (2,498,486)    (2,376,404)      (421,933)            --
Legal expense ...........................................      (848,660)      (923,816)      (252,675)       (13,082)
Employee benefits expense ...............................      (760,980)      (378,853)      (122,199)            --
Consulting fee expense ..................................      (567,730)      (604,873)      (306,530)      (179,998)            --
Corporate compliance expense ............................      (395,604)      (339,383)      (196,629)       (75,999)            --
Other expenses from ordinary activities .................      (781,074)      (336,431)      (260,066)       (59,057)       (80,000)
Net loss ................................................    (4,584,838)    (5,448,467)    (4,138,979)    (1,326,288)       (80,000)
Loss per share - basic and diluted (1) ..................         (0.08)         (0.10)         (0.08)         (0.04)         (0.02)
Weighted average number of ordinary shares
    outstanding - basic and diluted .....................    61,131,313     57,623,389     53,090,491     37,342,158     34,499,040

U.S. GAAP(2):
Net loss ................................................    (3,244,397)    (4,728,019)    (3,048,784)    (3,798,792)            --
Loss per share - basic and diluted(2) ...................         (0.05)         (0.08)         (0.06)         (0.11)            --
Weighted average number of ordinary shares
    outstanding - basic and diluted .....................    61,131,313     57,623,389     53,090,491     37,342,158             --
</TABLE>


                                       2
<PAGE>

Statements of Financial Position Data:

<TABLE>
<CAPTION>
                                                                                            June 30,
                                                            ------------------------------------------------------------------------
                                                                2003           2002           2001           2000            1999
                                                             ----------     ----------     ----------     ----------      ---------
                                                                                             (in A$ )
<S>                                                          <C>            <C>            <C>            <C>            <C>
A-GAAP:
Cash assets .............................................     3,463,783      3,585,014      6,854,873      4,469,589             20
Working capital .........................................     3,093,745      2,840,984      6,454,969      4,684,284         79,980
Total assets ............................................    16,389,926     17,581,319     22,287,460     20,876,444      1,836,945
Contributed equity ......................................    16,741,023     13,001,486     12,276,892      7,474,343             20
Accumulated deficit during development stage ............   (15,579,262)   (10,994,424)    (5,545,957)    (1,406,978)       (80,690)
Total equity ............................................    15,823,703     16,668,986     21,392,877     20,729,307        (80,670)

U.S. GAAP(2):
Total assets ............................................     7,944,306      7,231,703     10,298,744      7,294,213             --
Accumulated deficit during development stage ............   (14,900,682)   (11,656,285)    (6,928,266)    (3,879,482)            --
Total equity ............................................     7,378,083      6,715,803      9,404,161      7,347,076             --
</TABLE>

----------
(1)   Per share amounts have been restated to reflect the share splits during
      the year ended June 30, 2000. See item 10B - "Memorandum and Articles of
      Association."

(2)   The selected financial data as of and for the year ended June 30, 1999 is
      not required to be reconciled to U.S. GAAP.


                                       3
<PAGE>

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

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

Month                  High                 Low
-----                  ----                 ---
June 2003.........     0.6729               0.6564
July 2003.........     0.6809               0.6454
August 2003.......     0.6586               0.6390
September 2003....     0.6810               0.6395
October 2003......     0.7077               0.6814
November 2003.....     0.7238               0.6986

The noon buying rate on December 12, 2003 was U.S.$0.7425 = A$1.00

      Year
 Ended June 30,     At Period End   Average Rate    High         Low
 --------------     -------------   ------------    ----         ---

1999..............        0.6650       0.6246      0.6745      0.6123
2000..............        0.5971       0.6237      0.6560      0.5708
2001..............        0.5100       0.5320      0.5996      0.4828
2002..............        0.5614       0.5682      0.5747      0.4858
2003..............        0.6713       0.5623      0.6729      0.5280

B.    CAPITALIZATION AND INDEBTEDNESS

      Not applicable.

C.    REASONS FOR THE OFFER AND USE OF PROCEEDS

      Not applicable.

D.    RISK FACTORS

      Investing in our American depositary shares involves a high degree of risk
and uncertainty. You should carefully consider the risks and uncertainties
described below before investing in our depositary shares. Additional risks and
uncertainties not presently known to us or that we believe to be immaterial may
also adversely affect our business. If any of the following risks actually
occurs, our business, prospects, financial condition and results of


                                       4
<PAGE>

operations could be harmed. In that case, the daily price of our depositary
shares could decline, and you could lose all or part of your investment.

Risks Related To Our Business

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

      We are a development stage company at an early stage in the development of
our pharmaceutical products that are designed to treat the underlying causes of
degeneration of the brain and the eye as the aging process progresses. We have
not sufficiently advanced the development of our new lead product candidate,
PBT-2, to market or generate revenues from its commercial application. We cannot
make any assurances that any of our product candidates, if successfully
developed, will generate sufficient or sustainable revenues to enable us to be
profitable.

There is a high risk that we may not be able to complete the development of
PBT-1, PBT-2 or develop other pharmaceutical products.

      Although we entered into a licensing and research collaboration agreement
with Schering A.G., a major international pharmaceutical company and
Neuroscience Victoria Ltd., a consortium of Australian universities, research
institutes and teaching hospitals, that will provide up to A$2.7 million for
various projects including the development of a new Alzheimer's diagnostic, we
cannot make any assurances that we will be able to develop our current or any
future pharmaceutical product candidates adequately to attract a suitable
collaborative partner. Nor can we assure you that our research will lead to the
discovery of additional product candidates, or that any of our current and
future product candidates will be successfully developed, prove to be safe and
efficacious in clinical trials, meet applicable regulatory standards and receive
regulatory approval, be capable of being produced in commercial quantities at
reasonable costs, or be successfully or profitably marketed, either by us or a
collaborative partner. We also cannot make any assurances that the products we
develop will be able to penetrate the potential market for a particular therapy
or indication or gain market acceptance among health care providers, patients
and third-party payors. We cannot predict if or when PBT-1, PBT-2, or any of our
other pharmaceutical products under development will be commercialized.

We will not be able to commercialize any of our product candidates if we fail to
adequately demonstrate their safety, efficacy and superiority over existing
therapies.

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


                                       5
<PAGE>

      We cannot make any assurances that we will be able to commence clinical
trials of PBT-2 or our proposed vaccine as planned, or to demonstrate the safety
and efficacy or superiority of PBT-2 over existing therapies, or other therapies
under development, or enter into any collaborative arrangement to commercialize
PBT-2 on terms acceptable to us, or at all. Clinical trial results that show
insufficient safety and efficacy could have a material adverse effect on our
business, financial condition and results of operations.

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

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

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

            o     Slower than expected patient recruitment;

            o     Our inability to manufacture sufficient quantities of PBT-2,
                  our new proprietary compound or our other product candidates;

            o     Unforeseen safety issues; and

            o     Lack of efficacy or unacceptable toxicity during the clinical
                  trials.

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

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

We have limited manufacturing experience, and delays in manufacturing sufficient
quantities of PBT-2 for pre-clinical and clinical trials may negatively impact
our business and operations.

      We cannot make any assurances that we will be able to manufacture
sufficient quantities of PBT-2 or any of our other product candidates in a
cost-effective or timely manner. Any delays in production would delay our
pre-clinical and human clinical trials which could have a material adverse
effect on our business, financial condition and results of operations.

      We may be required to enter into contracting arrangements with third
parties to manufacture PBT-2 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


                                       6
<PAGE>

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

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

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

            o     The continued progress of our research and development
                  programs;

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

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

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

            o     Our ability to successfully expand our contract manufacturing
                  services;

            o     Our ability to establish and maintain collaborative
                  arrangements;

            o     The status and timing of competitive developments; and

            o     Other factors.

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


                                       7
<PAGE>

strategic alliances or other arrangements with corporate partners on acceptable
terms, or at all. Any shortfall in funding could result in our having to curtail
our operations, including our research and development activities, which could
have a material adverse effect on our business, financial condition and results
of operations.

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

      We have incurred losses in every period since we began operations in 1997.
We expect to continue to incur additional operating losses over at least the
next several years and to increase our cumulative losses substantially as we
expand our research and development and pre-clinical activities and commence
additional clinical trials of PBT-1 and PBT-2. We reported a net loss of
A$4,585,838, A$5,448,467 and A$4,138,979 during the fiscal years ended June 30,
2003, 2002 and 2001, respectively. As of June 30, 2003, our accumulated deficit
was A$15,579,262. We cannot assure you that we will achieve or maintain
profitability.

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

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

            o     Obtain and maintain patents to protect our own products;

            o     Obtain licenses to the patented technologies of third parties;

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

            o     Protect our trade secrets and know-how.

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

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

      We may have to resort to litigation to enforce any patents issued or
licensed to us or to determine the scope and validity of third party proprietary
rights. Any such litigation, regardless


                                       8
<PAGE>

of outcome, could be expensive and time consuming, and adverse determinations in
any such proceedings could prevent us from developing, manufacturing or
commercializing our products and could have a material adverse effect on our
business, financial condition and results of operations.

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

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

      We are currently in litigation in the United States District Court for the
District of Columbia concerning the inventorship of our historical lead
compound, PBT-1. If we are not successful in this litigation, our future
prospects may be materially impacted. In such a situation we may be required to
license certain rights from P.N. Gerolymatos S.A., or be required to develop a
molecule with similar metal binding characteristics that will act as an
inhibitor in the oxidation process. We cannot provide any assurance that we will
be able to obtain such a license, if required, or that we will be successful in
developing such a molecule. In a situation where resolution of inventorship
results in a license between our company and P.N. Gerolymatos S.A. it is
possible that the license terms may include rights or royalties to PBT-1, PBT-2
and/or our other product candidates.

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

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

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

      Our future success depends to a large extent on the continued services of
our senior management and key scientific personnel. We have entered into
employment agreements with these individuals. The loss of their services, could
negatively affect our business. Our success is


                                       9
<PAGE>

highly dependent on the continued contributions of our scientific personnel and
on our ability to develop and maintain important relationships with leading
academic institutions and scientists. Our dependence on the services of key
scientific personnel has been mitigated to some extent because our company is
now at the stage of developing therapeutic drugs which are based on the targets
identified by these scientists. Competition among biotechnology and
pharmaceutical companies for qualified employees is intense, and we cannot be
certain that we will be able to continue to attract and retain qualified
scientific and management personnel critical to our success. We also have
relationships with leading academic and scientific collaborators who conduct
research at our request or assist us in formulating our research and development
strategies. These academic and scientific collaborators are not our employees
and may have commitments to, or consulting or advisory contracts with, other
entities that may limit their availability to us. In addition, these
collaborators may have arrangements with other companies to assist such
companies in developing technologies that may prove competitive to ours.

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

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

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

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

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

            o     The receipt and timing of regulatory approvals for the uses
                  that we are studying;

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


                                       10
<PAGE>

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

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

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

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

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

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

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


                                       11
<PAGE>

containment legislation and reductions in government insurance programs may
result in lower prices for our products and could materially adversely affect
our ability to operate profitably.

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

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

Changes in government legislation and policy may adversely affect us.

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

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

      Our lead compound, PBT-2, and our earlier product, PBT-1, are manufactured
by one manufacturer, the Institute of Drug Technology Limited. We intend to
continue this relationship with further compounds if it remains financially
viable. We have not had any prior manufacturer of PBT-1 cease its relationship
with our company. We cannot assure you that we will be able to promptly find a
replacement manufacturer without incurring material additional costs.

Risks Relating to Our Location in Australia

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

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


                                       12
<PAGE>

Risks Relating to Our Ordinary Shares

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

      The market price for our securities, like that of the securities of other
pharmaceutical and biotechnology companies, has fluctuated substantially and may
continue to be highly volatile in the future. The market price for our ordinary
shares has ranged from as low as A$0.435 to a high to A$2.78 during the last two
years and the market price of our American Depositary Shares has ranged from as
low as $2.96 to a high of $12.75 since our listing on the Nasdaq SmallCap Market
on September 5, 2002. The market price for our ordinary shares has been affected
by both broad market developments and announcements relating to actual or
potential developments concerning products under development. We believe that
the following factors, in addition to other risk factors described above and
elsewhere in this annual report, will continue to significantly affect the
market price of our ordinary shares:

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

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

            o     Announcements of technological innovations or new commercial
                  products by us and our competitors;

            o     Determinations regarding our patent applications and those of
                  others;

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

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

            o     Litigation;

            o     Economic and other external factors; and

            o     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.

Corporate governance scandals and new legislation could increase the cost of
our operations

        As a result of recent corporate governance scandals and the legislative
and litigation environment resulting from those scandals, the costs of being a
public company in general are expected to increase in the near future. New
legislation, such as the Sarbanes-Oxley Act of 2002, will have the effect of
increasing the burdens and potential liabilities of being a public


                                       13
<PAGE>

reporting company. This and other proposed legislation may increase the fees of
our professional advisors and our insurance premiums.

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

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

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

We do not intend to pay dividends.

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

ITEM 4. INFORMATION ON THE COMPANY

A.    HISTORY AND DEVELOPMENT OF THE COMPANY

      Our legal and commercial name is Prana Biotechnology Limited. We were
incorporated under the laws of the Commonwealth of Australia on November 11,
1997 for an indefinite term and began limited operations shortly thereafter. Our
registered office is located at Suite 2, 1233 High Street, Armadale, Victoria,
3143, Australia and our telephone number is 011-61-3-9824-8166. Our principal
executive office is located at Level 1, 100 Dorcas Street, South Melbourne,
Victoria 3205, Australia and our telephone number is 011-61-3-9690-7892.

      From our inception until our initial public offering registering our
shares on the Australian Stock Exchange, or ASX, on March 28, 2000, we financed
our operations with loans


                                       14
<PAGE>

from two of our directors, totaling A$2,038,748. On March 28, 2000, we sold
16,000,000 of our ordinary shares and 8,000,000 options to purchase our ordinary
shares in an initial public offering. We received net proceeds of A$7,473,363
from the sale of shares and exercise of options. On February 15, 2001 we
completed a private placement of 6,666,666 ordinary shares to institutional
investors at a price per share of A$0.75 and received net proceeds of
A$4,745,599 from the private placement. During the years ended June 30, 2003 and
2002, we received net proceeds of $3,569,792 and $580,345, respectively, for the
exercise of 7,427,584 and 1,160,690 options (including the conversion of
7,289,310 listed options in March 2003), which funds were added to our working
capital. In September 2003, we raised an additional A$4.7 million, net of
issuance costs, through a private placement of 7.1 million ordinary shares to
institutional and accredited investors at a subscription price of A$0.70 per
share. As at September 30, 2003, we had A$7,113,634 in cash and cash equivalents
and our working capital was A$6,015,667.

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

      Since completing our initial public offering and listing process on the
ASX on March 28, 2000, we have concentrated our resources toward the pursuit of
our diseases targets and in particular the progress of our clinical trial for
PBT-1, as a successful therapeutic for the treatment of Alzheimer's Disease. We
commenced our planned phase II human clinical trial for PBT-1 in August 2000 at
the Mental Health Research Institute and the Royal Melbourne Hospital. The
trials were completed in January 2002 and in April 2002, Professor Colin
Masters, Chairman of our Scientific Advisory Board, reported at the Seventh
International Geneva/Springfield Symposium on Advances in Alzheimer Therapy in
Geneva that the trials had achieved their targeted benchmarks and were
encouraging as a proof of concept of our (beta)Amyloid theory of Alzheimer's
Disease. A 48 week extension study was conducted with patients from this
clinical trial and the results are undergoing analysis.

      In early August 2003, we announced a new lead MPAC molecule for
Alzheimer's disease designated as PBT-2 that had been selected to enter
development. PBT-2 is the result of rational drug design. It has been built
"from the ground up" to fulfill very specific criteria. It was designed so that
it will have no patent ambiguities, be orally bioavailable and cross the blood
brain barrier. PBT-2 has been selected from over 300 Prana-developed compounds
and has demonstrated significantly greater effectiveness in both pre-clinical
in-vitro and in-vivo testing and has been designed to have an improved safety
and efficacy profile compared to PBT-1.

      In March 2003, we announced our first major licensing and research
collaboration agreement with Schering A.G., a major international pharmaceutical
company and Neuroscience Victoria Ltd., an organization of the Universities of
Melbourne and Monash established to promote, commercialization of discoveries
emanating from Victoria universities and medical research institutes. Among
other projects, we will concentrate on the development of a new Alzheimer's
diagnostic. We are seeking to develop the first highly reliable diagnostic for


                                       15
<PAGE>

Alzheimer's disease using brain imaging of specific compounds as markers to
measure the debilitating amyloid deposits. Schering is providing up to A$2.7
million over the life of the projects with additional milestone payments and
royalties from discoveries. This funding will allow discovery research for
additional Alzheimer's disease targets and technologies.

      We have also identified and provisionally patented a novel target for an
Alzheimer's vaccine. We will collaborate with Prima Biomed Ltd, another publicly
traded Australian biotech company, and use the resources of the Austin Research
Institute, the University of Melbourne and the Mental Health Research Institute
to pursue this therapeutic approach. The research will investigate the
feasibility of developing a vaccine to prevent the onset or progression of
Alzheimer's. The research will assess the ability of the immune system to
selectively produce specific antibodies which target the "toxic linked" forms of
beta amyloid (not `normal' beta amyloid) associated with the pathology of the
disease, as an effective Alzheimer's treatment. The Commonwealth of Australia
government has provided a A$227,000 Biotechnology Innovation Fund (BIF) grant
for this work.

      Since inception, we have not been required to invest material amounts for
capital expenditures since our development efforts have taken place at research
facilities operated by institutions with whom we have relationships. From July
1, 2000 through September 30, 2003 our capital expenditures have totaled
A$138,618. We have not made any material capital expenditures since June 30,
2003.

B.    BUSINESS OVERVIEW

Prana's Background

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

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

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

      In 1987, Masters, Beyreuther and Professor Rudolph Tanzi of Harvard
Medical School discovered how (beta)Amyloid was produced and in 1994 Professor
Ashley Bush of Harvard Medical School discovered that the interaction between
metals and (beta)Amyloid is associated with the


                                       16
<PAGE>

toxicity seen in Alzheimer's Disease, hopefully paving the way for the
development of therapeutic drugs to treat the disease.

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

Research Institutions

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

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

            o     The University of Melbourne, Department of Pathology; and

            o     The Biomolecular Research Institute in Melbourne.

      Work conducted at the first two of these institutions identified an
initial preferred compound codenamed PBT-1 which was used in our phase II human
clinical trials. Our research program also aims to find further and potentially
more effective preferred compounds for the treatment of Alzheimer's Disease as
well as for our other major disease targets. For this purpose, early in the
company's life, we established a relationship with Professor Peter Colman, who
at that time was Director of the Biomolecular Research Institute and is now
affiliated with the Walter and Eliza Hall Institute in Melbourne. Professor
Colman is recognized as an authority on the creation of new chemical entities
through rational drug design techniques and has been a member of our Scientific
Advisory Board since its inception. Our collaboration with Professor Colman has
lead to the development of PBT-2, a small molecular weighed chemical entity that
demonstrates a significant improvement over PBT-1. Within the past two years we
have also employed Dr Murdoch and strengthened the chemistry group within Prana
with the aim to strengthen further the rational drug design and synthesis of
novel MPAC molecules. To date this has resulted in the development of PBT-2 and
a portfolio of almost 300 other MPAC molecules.

Platform Technology

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

            o     Age-related cataracts;

            o     Creutzfeldt-Jakob Disease (CJD or Mad Cow Disease);

            o     Motor Neuron Disease; and

            o     Parkinson's Disease.


                                       17
<PAGE>

Clinical Trials

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

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

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

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

            o     The underlying biochemical mechanism associated with
                  clioquinol toxicity is not fully understood. Recent work
                  suggests that clioquinol may alter absorption and/or renal
                  excretion of Vitamin B12. All patients in the study received
                  supplementary Vitamin B12.

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

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

            o     The (beta)Amyloid protein, which was a target of the activity
                  of PBT-1, was significantly reduced in the blood of mild to
                  moderate patients in the treatment group compared to an
                  increase in the placebo group; and

            o     The progression of Alzheimer's Disease was slowed down in the
                  more severely affected patients in the treatment group
                  compared to the


                                       18
<PAGE>

                  placebo group. The initial findings of the study indicate the
                  rate of cognitive deterioration was slowed in these patients.

      PBT-2 has successfully completed in-house preclinical screening and
entered formal toxicology screening towards the end of 2003. If successful, it
is intended that PBT-2 will move into clinical trials in late 2004. No assurance
can be given that PBT-2 will succeed in formal toxicology testing or that such
future clinical studies will commence, or if initiated will be completed and
prove to be successful, or that we will be able to commercialize drugs based on
our (beta) Amyloid theory of Alzheimer's Disease.

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

Rational Drug Design

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

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

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

      Although we believe that we have demonstrated "proof of principle" in our
phase II trials utilizing PBT-1, we believe that rational drug design will
provide new and specifically designed drugs which will display greater efficacy
in disaggregating aggregation-prone proteins such as (beta) Amyloid, paving the
way for future therapeutics. PBT-2 is the first such new and specifically
designed compound to move into formal development.

      In early August 2003, we announced that PBT-2, a new lead MPAC molecule
for Alzheimer's disease, had been selected to enter development. PBT-2 is the
result of rational drug design. It has been built "from the ground up" to
fulfill very specific criteria. It was designed so that it will have no patent
ambiguities, be orally bioavailable and cross the blood brain barrier. PBT-2 has
been selected from over 300 Prana-developed compounds and has demonstrated
significantly greater effectiveness in both pre-clinical in-vitro and in-vivo
testing and has been designed to have an improved safety and efficacy profile
compared to PBT-1.


                                       19
<PAGE>

      In March 2003, we announced our first major licensing and research
collaboration agreement with Schering A.G., a major international pharmaceutical
company and Neuroscience Victoria. Schering is providing up to A$2.7 million
over the life of the projects with additional milestone payments and royalties
from discoveries. See Item 4A. "History and Development of the Company" for
additional information.

Creutzfeldt Jakob Disease

      In 2001, British studies revealed a much greater potential for the spread
of fatal brain diseases such as Creutzfeldt-Jakob Disease, or CJD, the human
variant of Mad Cow Disease. In August 2000, the London-based Medical Research
Council warned that the disease could be more widespread than previously thought
and that healthy appearing animals can be carriers of the disease. Mad Cow
Disease entered the human food chain in 1980's leading to a collapse of the
entire UK beef trade at the time. There is currently no cure for this fatal
disease. In early 2001, the scientific journal Biochemistry published research
results by Prana-sponsored scientist Dr. Roberto Cappai and colleagues
confirming the role of metals in the aggregation and neurotoxicity of the
abnormal form of the prion protein (PrP), believed to be responsible for the
transmissible spongiform encephalopathics. Studies are ongoing to identify
compounds that inhibit prion formation based on the PrP metal binding site.

Age-Related Cataracts

      Basic research in this area is being conducted with studies in Boston and
Melbourne. Preliminary animal data will become available, at which time we will
assess the data and determine if further company funds will be invested in this
area.

Motor Neuron Disease (or Amyotrophic Lateral Sclerosis)

      Amyotrophic Lateral Sclerosis, or ALS, is a fatal disease, manifested by
progressive paralysis over five to 10 years. There is currently no effective
therapy for this tragic illness. The disease involves degeneration of the nerve
cells in the spinal column, which has now been related to mutations of a protein
that interacts with metal ions.

      Studies through other internationally recognized research groups are
progressing, and preliminary animal experiments are in progress to identify the
role of SOD1 (superoxide dismutase) aggregation in Motor Neuron Disease. The
mechanisms underlying this disease have not been fully discovered, but the
oxidative changes associated with the aggregation of critical proteins in the
spinal cord and brain stem continue to be at the center of a world-wide research
effort. It is possible that the oxidative changes associated with ALS may be
susceptible to treatment with Prana's drug technology. A more specific drug
target is expected to emerge in the near future.

Parkinson's Disease

      Parkinson's Disease is another crippling disease of the aging population.
It causes a progressive slowing of movement, tremor and the loss of fine motor
control. Increasing dementia is being recognized as a significant component of
Parkinson's Disease. Existing therapies may provide some short term symptomatic
relief but do not address the underlying cause of the disease. We believe that
our platform technology may affect the aggregation of the proteins


                                       20
<PAGE>

concerned and may provide a pathway for reversing the disease. Parkinson's
Disease is believed to affect 150 people per 100,000 or 2.5% of persons over the
age of 85. Acuity has estimated that a successful therapeutic drug will command
global annual sales of A$1.5 billion.

      The Melbourne research team is working on the key protein which aggregates
to form the diagnostic marker of this disease. The aggregated form of this
protein is susceptible to the same therapeutic strategy that is being used for
Alzheimer's disease, and tests are about to be conducted on test-tube samples to
confirm this approach. Experimental animal models are becoming available for
this debilitating disorder, and are being utilized to assess the potential
usefulness of Prana's MPACs.

Patent Portfolio

1.    Patent Family "A method for assaying and treating Alzheimer's Disease"

Based on International Patent Application No. PCT/AU92/00610 (PK9438/91)

Applicant: The University of Melbourne - Assigned to Prana
Inventors: Master, Bush and Beyreuther

<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------------
 COUNTRY           APPLICATION NO.         PATENT NO.                   STATUS                     PATENT TERM EXPIRES
---------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                     <C>                <C>                                <C>
Australia            29263/92                669493             Granted October 1, 1996            November 12, 2012
---------------------------------------------------------------------------------------------------------------------------------
Australia            50598/96                701954             Granted May 27, 1999               November 12, 2012
---------------------------------------------------------------------------------------------------------------------------------
Canada               2,123,211                                  Preparing draft response.          November 12, 2012
                                                                Revive application.
---------------------------------------------------------------------------------------------------------------------------------
Europe               92923431.8              0613560            Granted; under opposition by       November 12, 2012
                                                                Gerolymatos Designates GB, DE,
                                                                FR and IT.
---------------------------------------------------------------------------------------------------------------------------------
France               92923431.8              0613560            Granted October 21, 1998           November 12, 2012
---------------------------------------------------------------------------------------------------------------------------------
Germany              92923431.8              0613560            Granted October 21, 1998           November 12, 2012
---------------------------------------------------------------------------------------------------------------------------------
Italy                92923431.8              0613560            Granted October 21, 1998           November 12, 2012
---------------------------------------------------------------------------------------------------------------------------------
Japan                508824/93               3277211            Granted February 15, 2002          November 12, 2012
---------------------------------------------------------------------------------------------------------------------------------
United States        08/240,720              5,705,401          Granted January 6, 1998            January 6, 2015
---------------------------------------------------------------------------------------------------------------------------------
United States        08/757,357                                 Continuation of US Application
                                                                08/240,720.

                                                                Abandoned in
                                                                favour of
                                                                09/624,965.
---------------------------------------------------------------------------------------------------------------------------------
United States        09/624,965                                 Continuation of 08/757,357.

                                                                Case abandoned, divisional filed
                                                                November 19, 2003.
---------------------------------------------------------------------------------------------------------------------------------
United States        Not yet available                          Divisional of 09/624,965           November 12, 2012

                                                                Awaiting examination.
---------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       21
<PAGE>

2.    Patent Family "Beta-amyloid peptide inhibitors"

Based on International Patent Application No. PCT/AU00/00886 (PQ1804/99)

Filed:     July 21, 2000
Applicant: Biomolecular Research Institute, or BRI, and University of Melbourne
           - Deed of Assignment from BRI to Prana completed, Deed of Assignment
           from University of Melbourne in progress.
Inventors: Barnham, McCarthy, Pallich, Matthews and Cherny

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
 COUNTRY           APPLICATION NO.         PATENT NO.                                  STATUS
-------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>                  <C>
Australia            59548/00                                   First Official Action received.
-------------------------------------------------------------------------------------------------------------------------------
Canada               2,379,858                                  Application currently stands abandoned until the Assignment
                                                                to Prana from the University of Melbourne is lodged.
-------------------------------------------------------------------------------------------------------------------------------
Europe               00945456.2                                 Application published August 21, 2002.

                                                                Awaiting issuance of European Supplementary Search Report.
-------------------------------------------------------------------------------------------------------------------------------
Japan                2001-512526                                Pending.  Request for examination due July 21, 2006.
-------------------------------------------------------------------------------------------------------------------------------
United States        10/031,478                                 Pending. Awaiting examination.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

3.    Patent Family "Neurotoxic Oligomers"

Based on International Patent Application No.  PCT/AU01/00786 (60/214,779)

Filed:     June 28, 2000
Applicant: Prana and General Hospital Corporation
Inventors: Bush and Cherny

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
 COUNTRY           APPLICATION NO.         PATENT NO.                                  STATUS
-------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>                  <C>
Australia            2001268828                                 Request for examination due June 28, 2006.
-------------------------------------------------------------------------------------------------------------------------------
Canada               2,413,354                                  Pending.  Request for examination due June 28, 2006.
-------------------------------------------------------------------------------------------------------------------------------
China                01813312.6                                 Examination requested August 13, 2003.

                                                                Request for applying for Hong Kong application
                                                                due April 22, 2004.
-------------------------------------------------------------------------------------------------------------------------------
Europe               01947033.5                                 Pending.
-------------------------------------------------------------------------------------------------------------------------------
Japan                2002-505026                                Request for Examination due June 28, 2008.
-------------------------------------------------------------------------------------------------------------------------------
New Zealand          523428                                     Pending.  Awaiting First Official Action.
-------------------------------------------------------------------------------------------------------------------------------
United States        10/312,437                                 Pending.  Awaiting First Official Action.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       22
<PAGE>

4.    Patent  Family  "Method  of  screening  for  inhibitors  of  Alzheimer's
      Disease"

Based on International Patent Application No.  PCT/AU01/01603 (PR2024/00)

Filed:     December 12, 2000
Applicant: Prana
Inventors: Barnham, Parker and Cappai

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
 COUNTRY           APPLICATION NO.         PATENT NO.                                  STATUS
-------------------------------------------------------------------------------------------------------------------------------
<S>                  <C>                   <C>                  <C>
United States        10/450,549                                 Awaiting First Official Action.
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

5.    Patent Family "Treatment of Neurodegenerative Conditions"

Filed:     April 3, 2003
Applicant: Prana Biotechnology Ltd
Inventors: Masters

<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------------------------------
 COUNTRY           APPLICATION NO.         PATENT NO.                                  STATUS
-------------------------------------------------------------------------------------------------------------------------------
<S>                <C>                     <C>                  <C>
United States      Not yet available                            Pending.  Due for completion April 3, 2004
-------------------------------------------------------------------------------------------------------------------------------
</TABLE>

6.    Patent Family "An In Vitro system for determining formation of A(beta)
      Amyloid"

Based on International patent application No PCT/US94/11928

Filed:     October 19,1994
Applicant: General Hospital Corporation - Licensed to Prana
Inventors: Tanzi and Bush

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY              APPLICATION NO.             PATENT NO.             STATUS              PATENT TERM EXPIRES
----------------------------------------------------------------------------------------------------------------------
<S>                     <C>                       <C>              <C>                       <C>
United States            08/294,819               6,365,414        Granted April 2, 2002     April 12, 2019
----------------------------------------------------------------------------------------------------------------------
United States            10/041,605                                Divisional case filed
                                                                   on claims not examined
                                                                   from 08/294,819
                                                                   Pending
----------------------------------------------------------------------------------------------------------------------
Canada                    2,205,085                                Pending, examination
                                                                   has been requested
----------------------------------------------------------------------------------------------------------------------
Japan                    H08-508706                3459069         Granted August 8, 2003    October 19, 2014
                                                                                             (unconfirmed)
----------------------------------------------------------------------------------------------------------------------
Japan                   P2003-145592                               Divisional case,
                                                                   Pending, examination
                                                                   requested
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       23
<PAGE>

7.    Patent Family "A diagnostic assay for Alzheimer's Disease"

Based on International patent application No PCT/US94/11895

Filed:     October 19, 1994
Applicant: General Hospital Corporation - Licensed to Prana
Inventors: Tanzi, Bush and Moir

<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------------
 COUNTRY              APPLICATION NO.            PATENT NO.             STATUS                  PATENT TERM EXPIRES
--------------------------------------------------------------------------------------------------------------------------
<S>                     <C>                      <C>             <C>                            <C>
United States            08/817,423              5,972,634       Granted October 26, 1999       August 4, 2017
--------------------------------------------------------------------------------------------------------------------------
United States            09/425,956                              Continuation application of
                                                                 08/817,423, filed October
                                                                 25, 1999.  RCE application
                                                                 filed in response to the
                                                                 final rejection. Response
                                                                 filed July 7, 2003, awaiting
                                                                 allowance or further Office
                                                                 Action
--------------------------------------------------------------------------------------------------------------------------
Canada                    2,203,142                              Pending. Request for
                                                                 Examination filed.
--------------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       24
<PAGE>

8.    Patent Family "Identification of agents for use in the treatment of
      Alzheimer's Disease"

Based on International patent application No PCT/US98/04683

Filed:     March 11, 1998
Applicant: General Hospital Corporation - Licensed to Prana
Inventors: Bush, Huang, Atwood and Tanzi

<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------
 COUNTRY              APPLICATION NO.            PATENT NO.             STATUS                  PATENT TERM EXPIRES
-----------------------------------------------------------------------------------------------------------------------
<S>                <C>                           <C>            <C>                             <C>
PCT application    PCT/US00/11715                               This is a C-I-P of
                                                                PCT/US98/04683 filed March
                                                                29, 2000 and incorporates
                                                                the subject matter of
                                                                patent family no. 11
                                                                (below)
-----------------------------------------------------------------------------------------------------------------------
Australia          65484/98                      748768         Accepted and under              March 11, 2018
                                                                Opposition by Gerolymatos
-----------------------------------------------------------------------------------------------------------------------
Australia          2002-301084                                  Divisional application
                                                                filed September 1, 2002
                                                                from parent case, 65484/98
                                                                on the same subject
                                                                matter. Request for
                                                                Examination filed
                                                                September 9, 2003
-----------------------------------------------------------------------------------------------------------------------
United States      09/380,704                                   Examination in progress.
                                                                Response and Notice of
                                                                Appeal filed October 16,
                                                                2003
-----------------------------------------------------------------------------------------------------------------------
Canada             2,284,170                                    Pending. Examination
                                                                requested March 11, 2003
-----------------------------------------------------------------------------------------------------------------------
Japan              H10-539718                                   Pending. Deadline for
                                                                requesting Examination
                                                                March 11, 2005
-----------------------------------------------------------------------------------------------------------------------
Europe             98911551.4                                   Pending. Examination
                                                                requested October 7, 1999
-----------------------------------------------------------------------------------------------------------------------
</TABLE>

9.    Patent Family "Use of Clioquinol for the therapy of Alzheimer's Disease"

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

Filed:     March 6, 1998
Applicant: General  Hospital  Corporation  and  University  of Melbourne -
           Assignment  to Prana from  University  of  Melbourne,  licensed
           from the General Hospital Corporation to Prana
Inventors: Bush, Tanzi, Cherny and Xilinas

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                        <C>                      <C>               <C>
United States              09/224,93                                  Refiled as 09/560,887
----------------------------------------------------------------------------------------------------------------------
United States              09/560,887                                 Continuation application of
                                                                      09/224,953 filed April 28, 2000.
----------------------------------------------------------------------------------------------------------------------
United States              09/972,913                    -            Continuation application of 09/560,887
                                                                      filed October 10, 2001. Pending
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       25
<PAGE>

10.   Patent Family "Agents for use in the treatment of Alzheimer's Disease"

Based on International patent application No PCT/US99/05291

Filed:     March 11, 1999
Applicant: General Hospital Corporation - Licensed to Prana
Inventors: Bush, Huang, Atwood and Tanzi

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY               APPLICATION NO.          PATENT NO.              STATUS               PATENT TERM EXPIRES
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                    <C>             <C>                        <C>
United States            09/038,154             6,323,218       Granted November 27,       March 11, 2018
                                                                2001
----------------------------------------------------------------------------------------------------------------------
United States            09/956,980                             Continuation
                                                                Application of
                                                                09/038,154 filed
                                                                September 21, 2001.
                                                                Response to office
                                                                action filed
                                                                November 10, 2003
----------------------------------------------------------------------------------------------------------------------
Europe                   99911307.9              1061923        Application allowed
----------------------------------------------------------------------------------------------------------------------
Japan                    2000-535322                            Pending.
----------------------------------------------------------------------------------------------------------------------
Australia                 29981/99                752236        Accepted, under
                                                                Opposition by
                                                                Gerolymatos.
----------------------------------------------------------------------------------------------------------------------
Australia                2002318888                             Divisional, pending
----------------------------------------------------------------------------------------------------------------------
Canada                    2,284,170                             Pending, Examination
                                                                requested
----------------------------------------------------------------------------------------------------------------------
</TABLE>

11.   Patent Family "Method of screening for drugs useful in treating
      Alzheimer's Disease"

Based on International patent application PCT/US00/11715

Filed:     April 29, 1999
Applicant: General Hospital Corporation - Licensed to Prana
Inventors: Bush

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                       APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                              <C>                       <C>              <C>
United States                    09/560,883                6,638,711        C-I-P of US application 09/380,704
                                                                            (being the US national phase entry of
                                                                            PCT/US98/04683 Patent Issued October 28,
                                                                            2003, term to be advised
----------------------------------------------------------------------------------------------------------------------
Australia                         46849/00                                  Examination Requested
----------------------------------------------------------------------------------------------------------------------
Canada                            2,371,768                                 Pending
----------------------------------------------------------------------------------------------------------------------
Europe                           00928644.4                                 Pending
----------------------------------------------------------------------------------------------------------------------
Japan                           P2000-615064                                Pending
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       26
<PAGE>

12.   Patent Family "Methods for the Identification of Agents that Inhibit or
      Promote Cataracts and Uses thereof"

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

Filed:     August 18, 2000
Applicant: General Hospital Corporation - Licensed to Prana
Inventors: Bush and Goldstein

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                        <C>                     <C>
Australia                2002276021                                         Pending
----------------------------------------------------------------------------------------------------------------------
Europe                   009652843.3                                        Pending
----------------------------------------------------------------------------------------------------------------------
Japan                    P202-520863                                        Request for Examination due
                                                                            September 22, 2007
----------------------------------------------------------------------------------------------------------------------
United States            10/344,860                                         Pending
----------------------------------------------------------------------------------------------------------------------
</TABLE>

13.   Patent Family "8-Hydroxy Quinoline Derivatives"

International patent application No. PCT/AU03/00914.

Filed:     July 16, 2002
Applicant: Prana Biotechnology Ltd
Inventors: Kok, Barnham, Gautier & Krippner

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                        <C>                     <C>
PCT Application                                                             Due to file Demand for International
                                                                            Preliminary Examination by February 16,
                                                                            2004.  Due to enter National Phase
                                                                            January 16, 2005.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

14.   Patent Family "Neurologically-Active Compounds"

International patent application No. PCT/AU03/01303.

Filed:     October 3, 2003
Applicant: Prana Biotechnology Ltd
Inventors: Kok, Barnham & Gautier

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                      <C>                        <C>                     <C>
PCT Application          PCT/AU03/01303                 -                   Due to file Demand for International
                                                                            Preliminary Examination by May 4, 2004.
                                                                            Due to enter National Phase 4 April 2005.
----------------------------------------------------------------------------------------------------------------------
</TABLE>


                                       27
<PAGE>

15.   Patent Family "Compound V"

Australian provisional patent application.

Filed:     October 7, 2003
Applicant: Prana Biotechnology Ltd
Inventors: TBA

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                       <C>                       <C>              <C>
Australia                 2003905462                -                Patent completion and/or International
                                                                     (PCT) filing due  October 7, 2004.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

16.   Patent Family "Compound VI"

Australian provisional patent application.

Filed:     October 7, 2003
Applicant: Prana Biotechnology Ltd
Inventors: TBA

<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
 COUNTRY                APPLICATION NO.             PATENT NO.                        STATUS
----------------------------------------------------------------------------------------------------------------------
<S>                       <C>                       <C>              <C>
Australia                 2003905936                -                Patent completion and/or International
                                                                     (PCT) filing due  October 7, 2004.
----------------------------------------------------------------------------------------------------------------------
</TABLE>

Patent Matters

      Patent matters in biotechnology are highly uncertain and involve complex
legal and factual questions. Accordingly, the availability and breadth of claims
allowed in biotechnology and pharmaceutical patents cannot be predicted.
Statutory differences in patentable subject matter may limit the protection we
can obtain on some or all of our inventions outside Australia or prevent us from
obtaining patent protection outside Australia, either of which could have a
material adverse effect on our business, financial condition and results of
operations. For example, methods of treating humans are not patentable in many
countries outside Australia and the United States. Moreover, since patent
applications in Australia and the United States are maintained in secrecy until
patents issue, and since publication of discoveries in the scientific or patent
literature often lags behind actual discoveries, we cannot be certain that we or
any of our licensors were the first creator of inventions covered by pending
patent applications or that we or our


                                       28
<PAGE>

licensors were the first to file patent applications for such inventions.
Additionally, the enforceability of a patent is dependent on a number of factors
that may vary between jurisdictions. These factors may include the novelty of
the invention, the requirement that the invention not be obvious in the light of
prior art (including prior use or publication of the invention), the utility of
the invention, and the extent to which the patent clearly describes the best
method of working the invention.

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

      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.


                                       29
<PAGE>

Competition

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

Regulatory Considerations

      Our ongoing research and development activities are, and the production
and marketing of our pharmaceutical product candidates derived 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 Control
Agency in the United Kingdom and the European Medicines Evaluation Authority.
Prior to marketing, any therapeutic product developed must undergo rigorous
pre-clinical testing and clinical trials, as well as an extensive regulatory
approval process mandated by the TGA and, to the extent that any of our
pharmaceutical products under development are marketed abroad, by foreign
regulatory agencies including the FDA in the United States and the Medicines
Control Agency in the United Kingdom. Clinical trials are conducted in three
sequential phases but the phases may overlap.

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

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

      We have recently completed the Phase II human clinical trials of PBT-1 and
will need to complete further and more detailed trials before we will be able to
make any application to any of the governmental authorities. We are currently
undertaking a detailed review of requirements to progress the development of
PBT-1 to enable application to regulatory agencies. Initially the focus is on
FDA requirements for registration in the U.S. Harmonization of regulatory
requirements through the ICH (International Conference on Harmonization) and the
CTD


                                       30
<PAGE>

(Common Technical Document) will enable the regulatory application for the U.S.
to be utilized for applications in Europe and other countries including
Australia, providing some limited country specific requirements are addressed. A
decision on the path forward with PBT-1 will be made based on this assessment,
taking account of the potential requirements of future partners and the progress
with PBT-2 and other future compounds. We cannot make any assurances that we
will enter further clinical trials with PBT-1.

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

      During the course of clinical trials and toxicology studies, product
candidates may exhibit unforeseen and unacceptable drug-related toxicities or
side effects. If any unacceptable toxicities or side effects were to occur, we
may, or regulatory authorities may require us to, interrupt, limit, delay or
abort the development of our potential products. In addition, unacceptable
toxicities could ultimately prevent the clearance of our product candidates by
the TGA or the FDA for any or all targeted indications. Even after being cleared
by the TGA or the FDA, any of our products may later be shown to be unsafe or
not to have its purported effect, thereby preventing widespread use or requiring
withdrawal from the market. We cannot make any assurances that PBT-1 or any of
our other product candidates will be safe or effective when administered to
patients.

Manufacturing and Raw Materials

      We use a third party manufacturer to produce our clinical supplies of
PBT-1 and PBT-2. We have not faced any difficulty in obtaining raw materials for
our research and development activities or our clinical studies. No assurance
can be given that we would be able to replace this supplier on a timely basis,
if we were required to find another source of PBT-1 or PBT-2.

Government Grants

      We announced on July 26, 2001 that we were granted a START grant from the
Australian Industry Research and Development Board to expand our core
intellectual property for drug treatment of neuro-degenerative diseases. Under
the terms of the grant, we received A$1.7 million during the three year period
commencing January 1, 2001 for up to 50% of the project costs related to our
development of a treatment for Alzheimer's Disease. The grant was payable on the
achievement of each of six milestones and we received the final payment under
the START grant in October 2003.

      In May 2003, we announced that the Industry Research & Development (IR&D)
Board of AusIndustry approved our application for funding under the BIF grant
for the amount of A$230,000 for research into the development of an
immunotherapy for Alzheimer's Disease.


                                       31
<PAGE>

      In the fourth quarter of 2003, we applied for a new START Grant to support
further development of PBT-2 and other Alzheimer's Disease research. In November
2003 our application was approved in relation to research of Alzheimer's disease
to the value of A$1.3 million.

Business Plan

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

            o     Age-related cataracts

            o     Creutzfeldt-Jakob Disease

            o     Motor Neuron Disease/Amyotrophic Sclerosis (ALS)

            o     Parkinson's Disease

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

Rational Drug Design

      Our medicinal chemistry program began under Professor Peter Colman at the
Biomolecular Research Institute in Melbourne and is now based at the University
of Melbourne. Rational drug design employs computer-generated models, which
target the molecular composition of various substances, in the case of
Alzheimer's Disease the a-amyloid protein, and designs new chemical entities
with the propensity to influence the targeted proteins and metal-mediated
oxyradical formation which leads to neurodegenerative changes.

      A series of in vitro assays have been established to screen compounds
developed by the medicinal chemistry group. During 2002/03 a program to
undertake preliminary in vivo pharmacology and kinetic studies of the new
compounds demonstrating activity in the in vitro screens has been established.
The transgenic mouse model that demonstrated efficacy of PBT-1 is continuing to
be used to evaluate in vivo efficacy and confirm lead compounds to take to
formal pre clinical studies.

      In early August 2003, we announced that PBT-2, a new lead MPAC molecule
for Alzheimer's disease, had been selected to enter development. PBT-2 is the
result of rational drug design. It has been built "from the ground up" to
fulfill very specific criteria. It was designed so that it will have no patent
ambiguities, be orally bioavailable and cross the blood brain barrier. PBT-2 has
been selected from over 300 Prana-developed compounds and has demonstrated
significantly greater effectiveness in both pre-clinical in-vitro and in-vivo
testing


                                       32
<PAGE>

and has been designed to have an improved safety and efficacy profile compared
to PBT-1. The new drug is expected to enter into Phase I human clinical trials
in 2004, following a formal toxicology program.

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

Commercial Collaboration

      In March 2003, we announced that Schering A.G. (FSE:SCH, NYSE:SHR) of
Germany will fund and license discoveries on new drug targets, especially in the
area of diagnostics, in an agreement with us and Neuroscience Victoria Ltd. The
commercial arrangements are subject to ongoing confidentiality, but will provide
up to A$2.7 million of funding for new discovery research over the life of the
projects, with additional milestone payments and royalties from discoveries.
Neuroscience Victoria is an organization of the Universities of Melbourne and
Monash, established to promote commercialization of discoveries emanating from
Victoria universities and medical research institutes.

      In August 2003, we and Prima Biomed (ASX code:PRR) formed a collaboration
with the Austin Research Institute and the University of Melbourne to develop
the world's first vaccine for Alzheimer's Disease. The collaboration will enable
Prima Biomed's highly encouraging new Panvax vaccine technology, called DCtag,
to be used in conjunction with our metal protein attenuating compounds (MPAC) to
assist the body's immune system to recognize the protein or peptide extracts
associated with Alzheimer's Disease. DCtag has already been shown to be
effective in targeting diseases such as malaria and cancer. In February 2003
Panvax announced the results of animal studies confirming the potential of DCtag
technology for the development of vaccines and immunotherapies. The research and
development will be conducted by the Austin Research Institute and the
University of Melbourne and is supported by a Commonwealth government grant of
A$250,000. The research will assess the feasibility of developing a vaccine to
prevent the onset or progression of Alzheimer's Disease. It will also assess the
effectiveness of the technology to enhance the production of antibodies as an
effective Alzheimer's Disease treatment. We and Prima will jointly share in the
benefit of any intellectual property produced from the collaboration including
milestone payments and royalties that may accrue as a consequence of producing a
successful vaccine therapy.

Research programs

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

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


                                       33
<PAGE>

      Age-Related Cataracts. Basic research in this area is continuing with
ongoing studies. Data to date indicate that some age-related cataracts contain
the same protein aggregation as that seen in Alzheimer's Disease. Prana retains
the opportunity to investigate the usefulness of its MPAC portfolio in treating
and/or preventing Age Related Cataracts. We can give no assurance that such
research will continue or if continuing will be successful.

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

      Parkinson's Disease. Our Melbourne research team is working on the key
protein (alfa-synuclein) that aggregates to form the diagnostic marker of this
disease. We believe that the aggregated form of this protein s susceptible to
the same therapeutic strategy that is being used for Alzheimer's Disease, and
laboratory tests are in progress to confirm this approach. Experimental animal
models are being developed, and the targets for drug development are expected to
be available within the next twelve months. It is planned that the molecules
already developed as part of the Alzheimer's Disease program will be used to
clarify the rational drug development strategy required to optimize molecules
for Parkinson's Disease. This testing will start in 2004.

      In March 2003, we announced our first major licensing and research
collaboration agreement with Schering A.G. and Neuroscience Victoria. Among
other projects, we will concentrate on the development of a new Alzheimer's
diagnostic. We are seeking to develop the first highly reliable diagnostic for
Alzheimer's disease using brain imaging of specific compounds as markers to
measure the debilitating amyloid deposits. See Item 4A. "History and Development
of the Company" for additional information.

      We expect that our research and development expenses, including
intellectual property legal expenses during the fiscal year ending June 30, 2004
will total approximately A$3.5 million.

C.    ORGANIZATIONAL STRUCTURE

      Not applicable

D.    PROPERTY, PLANTS AND EQUIPMENT

      We own computer equipment, office furniture and lab equipment, the major
item being a mass spectrometer that is being used at the University of
Melbourne. We are not a party to any material property leases. We are provided
with office space under our administrative services agreement with Aroma Science
Pty Ltd.


                                       34
<PAGE>

ITEM 5.    OPERATING AND FINANCIAL REVIEW AND PROSPECTS

A.    OPERATING RESULTS

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

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

Overview

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

Recently Issued But Not Yet Adopted  Accounting  Pronouncements  Applicable to
Us

Australian Pronouncements

        The revised Australian Accounting Standard AASB 1020, "Income Taxes," is
applicable to financial years ended on or after December 31, 2005 (fiscal year
2006 for our company). The key implication of this revised standard is that for
our intangible assets that have previously been revalued upwards, we will
recognize the equivalent deferred tax liability. When these assets are
subsequently depreciated, the additional depreciation will be tax effected and
will result in an increased profit after tax compared to the existing standard.
We have not yet completed an assessment of the impact of this revised standard
on our results of operations or financial position.

        On July 3, 2002, the Australian Financial Reporting Council announced
that Australia would adopt International Financial Reporting Standards, or IFRS,
for financial years beginning on or after January 1, 2005 (fiscal year 2006 for
our company). The adoption of IFRS is


                                       35
<PAGE>

expected to have a significant impact; however we have not yet completed an
assessment of the impact of IFRS on our results of operations or financial
position.

United States Pronouncements

      In January 2003, the Financial Accounting Standards Board, or FASB, issued
FASB Interpretation No. 46, "Consolidation of Variable Interest Entities--an
interpretation of ARB No. 51," or FIN 46. The interpretation addresses
consolidation by business enterprises of Variable Interest Entities, or VIEs,
that either: (1) do not have sufficient equity investment at risk to permit the
entity to finance its activities without additional subordinated financial
support, or (2) the equity investors lack an essential characteristic of a
controlling financial interest. Pursuant to the transitional requirements of FIN
46, we will adopt the consolidation guidance applicable to any existing VIEs on
July 1, 2003. Any VIEs created after January 31, 2003 are immediately subject to
the consolidation guidance in FIN 46. We are currently reviewing our major
commercial relationships to determine the extent of our variable economic
interest in these parties, and have not yet identified any material entities
that would be judged to be our VIEs.

      In April 2003, the FASB issued Statement of Financial Accounting Standards
(SFAS) No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities," or SFAS 149. SFAS 149 amends and clarifies the accounting
for derivative instruments, including certain derivative instruments embedded in
other contracts, and for hedging activities under SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 149 is generally
effective for contracts entered into or modified after June 30, 2003 and for
hedging relationships designated after June 30, 2003. The adoption of SFAS 149
is not expected to have a material impact on our results of operations or
financial position as we do not utilize derivative instruments nor engage in
hedging activities.

      In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity" or
SFAS 150. The pronouncement modifies the accounting for certain financial
instruments that, under previous guidance, issuers could account for as equity.
SFAS 150 requires that those instruments be classified as liabilities in
statements of financial position. SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003, and otherwise is
effective at July 1, 2003. The adoption of SFAS 150 is not expected to have a
material impact on our results of operations or financial position.

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

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


                                       36
<PAGE>

<TABLE>
<CAPTION>
                                           As of and for the years ended June 30,
                                     ----------------------------------------------------
                                           2003              2002               2001
                                     ------------------ --------------- -----------------
<S>                                       <C>              <C>             <C>
Net loss in accordance with:
    A-GAAP.........................       (4,584,838)      (5,448,467)     (4,138,979)
    U.S. GAAP......................       (3,244,397)      (4,728,019)     (3,048,784)

Total equity in accordance with:
    A-GAAP.........................        15,823,703       16,668,986      21,392,877
    U.S. GAAP......................         7,378,083        6,715,803      9,404,161
</TABLE>

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

Critical Accounting Policies

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

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

      Equipment. Our equipment is recorded at cost. Depreciation is provided on
a straight-line basis over the estimated useful lives of three to 14 years.

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


                                       37
<PAGE>

      Our core intellectual property is being amortized on a straight-line basis
over a period of 15 years, the period in which the future benefits are expected
to arise.

      Revenue recognition. We recognize revenue to the extent that it is
probable that the economic benefits will flow to us and the revenue can be
reliably measured.

            o     Interest income is recognized as earned and collectibility is
                  reasonably assured.

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

            o     Reimbursements of expenses are recognized as revenue when the
                  reimbursement is received and the related expenses have been
                  incurred.

            o     Corporate partner revenues are comprised of amounts earned
                  under agreements with Schering A.G. and Neuroscience Victoria
                  Ltd. for certain research and development activities. Revenues
                  are recognized as earned on a straight line basis over the
                  lives of the relevant agreements. The straight line basis is
                  considered appropriate as the agreements do not contain
                  clearly defined milestones. Such agreements are performed on a
                  "best efforts" basis with no guarantee of either technological
                  or commercial success.

Significant Costs and Expenses

      Depreciation and amortization expense. Depreciation of equipment is
provided on a straight-line basis over the estimated useful lives of three to 14
years. Amortization of our core intellectual property is provided on a
straight-line basis over the estimated useful lives of 15 years. See Notes 1(c)
and 1(d) to the financial statements.

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


                                       38
<PAGE>

      Legal expenses. Our legal expenses consist of fees paid to our outside
counsel for various legal matters dealt with in the ordinary course of business
as well as legal fees associated with patent applications and for the defense of
patents.

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

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

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

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

Results of Operations

Year ended June 30, 2003 compared to year ended June 30, 2002

Revenues from ordinary activities

      Revenues from ordinary activities increased to A$1,816,478 for the year
ended June 30, 2003 from A$793,970 for the year ended June 30, 2002, an increase
of A$1,022,508, or 128.8%. Revenues in the 2003 period consisted of A$945,250 of
government research grants pursuant to the A$1.74 million START grant, A$111,686
in interest income, A$253,054 of reimbursements attributable to an agreement
with the Bank of New York whereby 50% of the costs associated with the Nasdaq
listing were reimbursed and A$506,250 in research funding attributable to the
March 2003 licensing and research collaboration agreement with Schering A.G. and
Neuroscience Victoria Ltd, compared to A$567,250 of government research grants
pursuant to the A$1.74 million START grant and A$226,720 in interest income in
the 2002 period.

Depreciation and amortization expenses

      Depreciation and amortization expenses increased to A$1,185,973 for the
year ended June 30, 2003 from A$1,160,595 for the year ended June 30, 2002, an
increase of A$25,378 or 2.2%. The increase in expenses in the 2003 period is
attributable to the depreciation of the equipment purchased during year ended
June 30, 2003.

Patents, research and development expenses

      Patents, research and development expenses decreased to A$1,861,295 for
the year ended June 30, 2003 from A$2,498,486 for the year ended June 30, 2002,
a decrease of A$637,191, or 26%. This decrease is attributable to a reduction in
our expenditure on phase II human clinical trials of PBT-1 (which concluded in
early 2002) and a reduction in the amounts paid to certain of our research
partners (including the effect of the appreciating Australian dollar on certain
of


                                       39
<PAGE>

these payments which are contracted in US dollars) as well as the acquisition of
additional patents that were charged to expense.

Legal expenses

      Legal expenses decreased to A$848,660 for the year ended June 30, 2003
from A$923,816 for the year ended June 30, 2002, a decrease of A$75,156, or 9%.
This decrease was primarily due to a reduction in costs associated with patent
litigation and in prosecuting patent claims.

Employee benefits expense

      Employee benefits expenses increased to A$760,980 for the year ended June
30, 2003 from A$378,853 for the year ended June 30, 2002, an increase of
A$382,127, or 101%. The increase in expenses in the 2003 period was primarily
due to the increased activity during the year and an increase in key employees
in Australia on significant salaries (six employees as at June 30, 2003 versus
four employees as at June 30, 2002).

Consulting fee expenses

      Consulting fee expenses decreased to A$567,730 for the year ended June 30,
2003 from A$604,873 for the year ended June 30, 2002, a decrease of A$37,143, or
6%. The decrease in expenses in the 2003 period was primarily due to an increase
in employees, reducing the cost of outside consultants.

Corporate compliance expenses

    Corporate compliance expenses increased to A$395,604 for the year ended June
30, 2003 from A$339,383 for the year ended June 30, 2002, an increase of
A$56,221, or 16.6%. The increase in expenses in the 2003 period is primarily
attributable to the costs associated with our listing on the Nasdaq SmallCap
Market (completed in September 2002) and complying with the registration and
reporting requirements of the U.S. Securities and Exchange Commission, or SEC.

Other expenses from ordinary activities

    Other expenses from ordinary activities increased to A$ 781,074 for the year
ended June 30, 2003 from A$336,431 for the year ended June 30, 2002, an increase
of A$444,643, or 132%. The increase in expenses in the 2003 period is primarily
due to the increase in operations, which has resulted in increases in rental
expense, office overhead costs, marketing expenses (primarily in the United
States) and overseas travel expense. Much of this additional expenditure was due
to our increasing discussions with potential corporate partners and our listing
on the Nasdaq SmallCap Market.


                                       40
<PAGE>

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

Revenues from ordinary activities

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

Depreciation and amortization expenses

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

Patents, research and development expenses

      Patents, research and development expenses increased to A$2,498,486 for
the year ended June 30, 2002 from A$2,376,404 for the year ended June 30, 2001,
an increase of A$122,082, or 5.1%. The increase in expenses in the 2002 period
was primarily due to costs associated with our phase II human clinical trials of
PBT-1 as well as the acquisition of additional patents that were charged to
expense.

Consulting fee expenses

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

Legal fee expenses

      Legal fee expenses increased to A$923,816 for the year ended June 30, 2002
from A$252,675 for the year ended June 30, 2001, an increase of A$671,141, or
266%. The increase in expenses in the 2002 period was primarily due to costs
associated with patent litigation and in prosecuting additional patent claims.

Employee benefits expense

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


                                       41
<PAGE>

and thus only incurred employee expenses for part of the year), and an
additional employee for the year ended June 30, 2002.

Corporate compliance expenses

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

Other expenses from ordinary activities

    Other expenses from ordinary activities increased to A$336,431 for the year
ended June 30, 2002 from A$260,066 for the year ended June 30, 2001, an increase
of A$76,365 or 29.4%. The increase in expenses in the 2002 period was primarily
due to the increase in operations, which has resulted in increased rental
expense (resulting from use of the laboratory for a full year) and increased
office overhead costs.

Inflation and Seasonality

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

B.    LIQUIDITY AND CAPITAL RESOURCES

      Cash and cash equivalents totaled A$3,463,783 at June 30, 2003 compared to
A$3,585,014 at June 30, 2002 and A$6,854,873 at June 30, 2001. We financed our
operations from inception until our initial public offering in March 2000
primarily through borrowings from two of our directors, which were repaid from
the proceeds of such offering. Since our initial public offering we have
financed our operations primarily through sales of equity securities, proceeds
from the exercise of options, government grants and interest earned on
investments. In March 2003, we completed the conversion of our 7,289,310
outstanding listed options into ordinary shares. As a result of the conversion,
we received approximately A$3.5 million in net proceeds, which funds were added
to our working capital. As of June 30, 2003, we raised A$16.4 million, net of
issuance costs, from the sale of equity securities and the proceeds from the
exercise of options.

      In September 2003, we raised an additional A$4.7 million, net of issuance
costs, through a private placement of 7.1 million ordinary shares to
institutional and accredited investors at a subscription price of A$.70 per
share. As of September 30, 2003 we had A$7,113,634 in cash and cash equivalents
and our working capital was A$6,015,667.

      Net cash used in operating activities was A$3,590,613, A$3,799,515 and
A$2,360,315 during the years ended June 30, 2003, 2002 and 2001, respectively.
Our payments to suppliers and employees during the years ended June 30, 2003,
2002 and 2001 were A$5,293,087 A$4,885,444 and A$2,651,685 respectively. The
increase in payments from the year ended June 30, 2002 to the year ended June
30, 2003 consisted primarily of increased expenses related to


                                       42
<PAGE>

conducting clinical trials and other research, development and administrative
activities and the timing of cash payments related to these activities. During
the years ended June 30, 2003, 2002 and 2001, our payments to suppliers and
employees were offset by government grants of A$836,335, A$843,714 and nil,
respectively, and interest income of A$106,835, A$242,215 and A$253,177,
respectively. Additionally, during the year ended June 30, 2003, our payments to
suppliers and employers were further offset by A$506,250 received for research
funding attributable to a licensing and research collaboration agreement and
A$253,054 received for reimbursement of Nasdaq listing expenses.

      Net cash used in investing activities was A$87,929 during the year ended
June 30, 2003 and $50,689 during the year ended June 30, 2002 principally for
the purchase of laboratory and computer equipment. We did not have cash flows
from investing activities during the year ended June 30, 2001.

      Net cash provided by financing activities was A$3,569,792, A$580,345 and
A$4,745,599 during the years ended June 30, 2003, 2002 and 2001, respectively.
Cash flows from financing activities during the years ended June 30, 2003 and
2002 reflected the exercise of options into ordinary share capital. Cash flows
from financing activities during the year ended June 30, 2001 reflected net
proceeds from a private placement of our ordinary shares to institutional
investors.

      From inception to June 30, 2003, our capital expenditures totaled
A$372,161 consisting of computer equipment and laboratory equipment that is
being used in connection with our research at the University of Melbourne.
Capital expenditures for equipment are being depreciated on a straight-line
basis over the estimated useful lives of three to 14 years, with a net balance
at June 30, 2003 of A$141,611. We currently do not have significant capital
spending requirements, but we expect to continue to engage in capital spending
consistent with anticipated growth in our operations and personnel.

      As of June 30, 2003, our principal commitments consisted of obligations
under our research funding agreement with the University of Melbourne and under
a license agreement with the General Hospital Corporation, or GHC. Under our
agreement with the University of Melbourne, we are required to pay the
University A$297,000 per year during each of the three years beginning December
1, 2000. We are required to pay GHC a total of U.S.$166,590 (A$310,108) for a
period of 30 months beginning June 26, 2001, and U.S.$182,000 for a period of 30
months from January 2002. See Item 5C. - "Research and Development, Patents and
Licenses," Item 10C. - "Material Contracts" and Note 14 to our financial
statements.

      Under our agreement with Kendle Pty Ltd, or Kendle, a Director-related
company, we are required to pay A$1,280-A$1,520 per day for their services in
connection with the commercialization of our technology. Under an ongoing
agreement, we pay Aroma Science Pty Ltd, or Aroma Science, a Director-related
company, on arms length commercial rates for computer, administration and
meeting facilities. We also pay Malvern Administrative Services Pty Ltd, or
Malvern, A$10,000 per month under an ongoing agreement for administrative,
accounting, company secretarial services and corporate advice.

      We believe our existing cash and cash equivalents as well as anticipated
cash flow from government grants, a licensing and research collaboration
agreement and potential option


                                       43
<PAGE>

exercises will be sufficient to support our current operating plan for the
foreseeable future; however, we have based this estimate on assumptions that may
prove to be incorrect. Our future funding requirements will depend on many
factors, including, but not limited to:

            o     costs and timing of obtaining regulatory approvals;

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

            o     the progress and number of our research programs in
                  development;

Conditions in Australia

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

C.    RESEARCH AND DEVELOPMENT, PATENTS AND LICENSES

      Our primary activity since incorporation in 1997 has been the acquisition
and development of patents as well as research and development of our core
technology. Research and development expenses amounted to A$1,717,770,
A$1,827,536 and A$1,623,541 during the years ended June 30, 2003, 2002 and 2001,
respectively. In addition to these expenses, A$143,525, A$670,950 and A$752,863
was spent in relation to patent costs.

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

      In March 2003, we announced our first major licensing and research
collaboration agreement with Schering A.G., a major international pharmaceutical
company and Neuroscience Victoria. Schering is providing up to A$2.7 million
over the life of the projects with additional milestone payments and royalties
from discoveries. See Item 4A. "History and Development of the Company" for
additional information.

      We have also identified and provisionally patented a novel target for an
Alzheimer's vaccine. We will collaborate with Prima Biomed Ltd, another publicly
traded Australian biotech company, and use the resources of the Austin Research
institute, the University of Melbourne and the Mental Health Research Institute
to pursue this therapeutic approach. The research will investigate the
feasibility of developing a vaccine to prevent the onset or progression of
Alzheimer's. The research will assess the ability of the immune system to
selectively produce specific antibodies which target the "toxic linked" forms of
beta amyloid (not `normal' beta amyloid) associated with the pathology of the
disease, as an effective Alzheimer's treatment. The Commonwealth of Australia
government has provided a A$227,000 BIF grant for this work.

      We announced on July 26, 2001 that we were granted a START grant from the
Australian Industry Research and Development Board in the amount of A$1.74
million to expand our core


                                       44
<PAGE>

intellectual property for drug treatment of neuro-degenerative diseases. Under
the terms of the grant we received A$1.7 million during the three year period
commencing January 1, 2001, for up to 50% of the project costs related to our
development of a treatment for Alzheimer's Disease. The grant was payable on the
achievement of each of six milestones and we received the final payment under
the START grant in October 2003.

      On May 7, 1999, we entered into a patent assignment and license agreement
with the University of Melbourne. The agreement provided for the assignment of
various patents and patent rights to us. In consideration of the assignment of
the patents, we were required to make certain payments to the University of
Melbourne and to pay a royalty of 1.5% on the net price of products sold
utilizing such patents. In addition we must also pay the lesser of 1.5% of the
net invoice price of products sold or 10% of royalties received from any license
or sub-licensee we appoint to utilize the patents.

      Under the terms of a research funding agreement between us and the
University of Melbourne, we are required to pay the University a minimum of
A$297,000 (inclusive of goods and services tax), each year for a period of three
years from December 1, 2000 for research projects. The collaboration between the
University of Melbourne, Mental Health Research Institute of Victoria and us has
been extended to include the addition of several new early research projects
emerging from the research agreement with Schering A.G.. The renewal of the
original programs which provide us with a collaboration supporting our basic
drug screening is under review and is expected to be finalized prior to the end
of 2003. Although we have every intension of continuing our relationship with
the University of Melbourne and Mental Health Research Institute of Victoria to
support our Drug screening program we cannot give any assurance that this can be
or will be undertaken.

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

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

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

      Under the terms of our strategic alliance agreement with Kendle , they
provide us with consultancy services in relation to the coordination, planning
and management of intellectual property, research and development, planning,
management and commercialization strategy. Kendle provides its services to us at
a rate of A$1,280-A$1,520 per day. For the years ended June 30, 2003, 2002 and
2001, fees earned by Kendle amounted to A$475,289, A$537,327 and


                                       45
<PAGE>

A$279,896, respectively. These fees are included in our statements of financial
performance as consulting fees.

D. TREND INFORMATION

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

E. OFF-BALANCE SHEET ARRANGEMENTS

      None.

ITEM 6.    DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

A.    DIRECTORS AND SENIOR MANAGEMENT

      Our directors and executive officers are as follows:

        Name                    Age  Position
        ----                    ---  --------

        Geoffrey P. Kempler...   48  Executive Chairman

        Colin L. Masters......   56  Executive Director

        Brian D. Meltzer......   50  Non-Executive Director

        George W. Mihaly......   50  Non-Executive Director

        Ross Thomas Murdoch...   38  Chief Operating Officer

        Richard Revelins......   41  Company Secretary

        Dianne Angus..........   43  Vice President of Intellectual
                                     Property

      Geoffrey Paul Kempler has served as our executive chairman since November
1997. Mr. Kempler is one of the founders of our company and has been primarily
responsible for the successful negotiation of our company's existing contractual
relationships with Massachusetts General Hospital, the University of Melbourne
and the Biomolecular Research Institute. Mr. Kempler is a qualified psychologist
and the Managing Director and major shareholder of Aroma Science Pty Ltd., which
holds the Australian distribution and marketing rights to the Aveda range of
products. Mr. Kempler, who has extensive experience in investment and business
development, has managed our operations to date and has been responsible for the
implementation of our strategic plan and the commercialization of our
technology. As Chairman, Mr. Kempler has overall management responsibility and
will continue to be primarily responsible for ongoing negotiations with respect
to the technology. He is also a member of the


                                       46
<PAGE>

Audit Committee. Mr. Kempler has a B.Sc degree in science from Monash University
and Grad. Dip. App. Soc. Psych. degree from Swinburne University.

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

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

      Dr. George William Mihaly has served as a non-executive director of our
company since December 1999. Dr. Mihaly has had an extensive and successful
career spanning the research and commercial facets of the pharmaceutical
industry. During the period from mid 1994 to early 2000, Dr. Mihaly was the
founding Executive Chairman and Managing Director of Synermedica Pty Ltd - one
of Australia's leading independent consultant research organizations (CRO) to
the pharmaceutical industry. Synermedica merged with the Global CRO, Kendle
International Inc., in April 2000 and Dr. Mihaly continues as Managing Director
of the merged entity in Australia (now called Kendle Pty Ltd). Over the course
of the last 22 years in academia and industry, Dr. Mihaly has amassed extensive
experience in both the science and logistics of setting up, monitoring, managing
and evaluating results from Phase I, II, III and IV clinical trials. Dr. Mihaly
has B.Pharm., M.Sc. and Ph.D. degrees and is a graduate of the Australian
Institute of Company Directors.

      Dr. Ross Thomas Murdoch has served as chief operating officer of our
company since July 2002. Dr. Murdoch has almost 16 years of experience in the
local and international pharmaceutical industry and has accumulated extensive
experience in all the scientific, operational and commercial aspects of drug
research and development. Prior to joining our company and since February 2001,
he served as chief executive officer and chief scientific officer of Kinacia Pty
Ltd, an Australian based pharmaceutical company. Previously and since June 1998
he was employed by Astra Merck and after its merger with Zeneca he served as
global head of clinical project management for AstraZeneca. From 1990 to May
1998 Dr. Murdoch was


                                       47
<PAGE>

employed by SmithKline Beecham where he managed its Australian research program
until his transfer to SmithKline Beecham in the U.S. in 1995 where he became a
director in global project management leading drug development in the
cardiovascular, pulmonary and metabolism therapeutic areas. Dr. Murdoch has a
B.Sc degree with honors from Monash University, a PhD in Pharmacology from the
University of Melbourne, a postgraduate certificate in health economics from the
Monash University Business School, and is a graduate of the Australian Institute
of Company Directors.

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

      Ms. Dianne Angus has served as the Vice President of Intellectual Property
and Licensing of our company since August 2002. From October 1997 to June 2000
Ms. Angus was the Manager for Intellectual Property for Florigene Limited. From
June 2000 to August 2002 Ms. Angus was a Director of Dianne Angus and Associates
Pty Ltd. Ms Angus has worked in the commercial biotechnology sector for 10 years
directing technology evaluation and acquisition and product licensing. During
this time Ms. Angus has managed large and diverse IP portfolios conducting
global patent and trademark prosecution, contract rights and enforcement. Ms.
Angus has also negotiated many commercial research and product development
licenses ranging from major entities such as Novartis, Monsanto, Suntory, Du
Pont to numerous Australian, Japanese and American research institutes. She has
undertaken due diligence assessments on several Australian biotechnology
companies for investment brokers. Ms. Angus has a Bachelor of Science
(Education) and a Bachelor of Science (Honour's) degree from the University of
Melbourne, a Masters degree in Biotechnology from Monash University, a Graduate
Diploma in Intellectual Property Law from the University of Melbourne and a
Diploma in Intellectual Property Practice from the Institute of Patent and Trade
Mark Attorneys of Australia.

Term of Directors

      Our Board has the power to appoint any person to be a director, either to
fill a vacancy or as an additional director. Any director so appointed may hold
office only until the next annual general meeting when he or she shall be
eligible for election. The term for each director, excluding a Managing Director
is three years at which time that director retires from office and offers
himself/herself for re-election at the next annual general meeting. The terms of
Messrs. Meltzer and Mihaly expire in two years. Following the Annual General
Meeting held on December 17, 2003, Mr. Masters was re-elected as a director with
a term expiring in three years. Mr. Kempler, as Managing Director, is not
required to retire from office and offer himself for re-election. Under
Australian law, directors who have reached the age of 72 must stand for
re-election annually. The term of office of our directors are staggered, such
that in any given year at least one-third or the nearest lower whole number, of
the directors, excluding a Managing Director, must retire and stand for
re-election at each year's annual general meeting.


                                       48
<PAGE>

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

B. COMPENSATION

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

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

      Remuneration for the services of the Executive Directors are formalized in
a service agreement. Details of the nature and amount of each element of the
emoluments of each Director of our company for the financial year are shown in
the following table. The following table presents all compensation we paid to
all of our directors and to all of our directors and executive officers as a
group for the year ended June 30, 2003:

<TABLE>
<CAPTION>
                                                                  Salaries, fees,        Pension, retirement
                                                                  commissions and          and other similar
                                                                      bonuses                  benefits
                                                                  ---------------           -------------
<S>                                                                 <C>                        <C>
Geoffrey P. Kempler .........................................       A$261,468                  A$23,532
Colin L. Masters ............................................         100,000                      -
Brian D. Meltzer ............................................         100,800                      -
George W. Mihaly ............................................         108,753                     3,567
All directors and officers as a group, consisting
  of five persons............................................       A$571,021                  A$27,099
</TABLE>

      As of October 30, 2003, our directors and executive officers as a group,
consisting of five persons, held options to purchase an aggregate of 10,767,500
ordinary shares.

C.    BOARD PRACTICES

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

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


                                       49
<PAGE>

      During the financial year 2003, our company entered into a policy to
indemnify our Directors and Officers against certain liabilities incurred as a
Director or Officer, including costs and expenses associated in successfully
defending legal proceedings. The contract of insurance prohibits disclosure of
the nature of the liability and the amount of the premium. Our company has not
otherwise during or since the financial year indemnified or agreed to indemnify
an officer or an auditor of the company or of any related body corporate against
a liability incurred as such an officer or auditor.

Audit Committee

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

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

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

Scientific Advisory Board

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

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


                                       50
<PAGE>

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

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

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

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

D.    EMPLOYEES

      At June 30, 2003, we had eight employees including two directors. Of such
employees, four persons were employed in research and development, one person in
management and administration and one person in operations. We have standard
employment agreements with our employees, all of whom are located in Australia.

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


                                       51
<PAGE>

Employment Agreements

      We have standard employment agreements with our employees including the
Chief Executive Officer and Chief Operating Officer. We have not entered into
any employment agreements with Mr Kempler in his capacity as Executive Chairman
or any directors except with respect to our consulting agreement with Professors
Masters, and Bush. See "-Related Party Transactions."

E.    SHARE OWNERSHIP

Beneficial Ownership of Executive Officers and Directors

      The following table sets forth certain information as of October 31, 2003
regarding the beneficial ownership by each of our directors and executive
officers:

<TABLE>
<CAPTION>
                                             Number of Ordinary
                                             Shares Beneficially   Percentage of
Name                                              Owned (1)        Ownership (2)
----                                              ---------        -------------
<S>                                           <C>                         <C>
Geoffrey P. Kempler .....................     26,222,500(3)(4)            35.7%
Colin L. Masters ........................      1,018,000(5)                1.4%
Brian D. Meltzer ........................        460,000(6)(7)               *
George W. Mihaly ........................        360,000(8)(9)               *
Richard Revelins ........................        437,008(10)(11)             *
All directors and executive officers as
a group (5 persons) .....................     28,497,508                  38.8%
</TABLE>

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

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

(2)   The percentages shown are based on 73,485,924 ordinary shares issued and
      outstanding as of October 31, 2003.

(3)   Of such shares, 30,000 ordinary shares are held directly by Mr. Kempler,
      13,965,000 ordinary shares are held of record by Baywick Pty Ltd, an
      Australian corporation owned by Mr. Kempler, 90,000 ordinary shares are
      held of record by Crystal Triangle Pty Ltd, an Australian corporation
      owned by Mr. Kempler and 2,970,000 ordinary shares are held of record by
      NRB Developments Pty Ltd, an Australian corporation in which Mr. Kempler
      holds a 50% interest. Mr. Kempler may be deemed to be the beneficial owner
      of the ordinary shares held directly by Baywick Pty Ltd, Crystal Triangle
      Pty Ltd and NRB Developments Pty Ltd.

(4)   Includes 9,167,500 ordinary shares issuable upon the exercise of options
      expiring in December 2004 (of which 1,000,000 options are held by Mr.
      Kempler, 6,682,500 options


                                       52
<PAGE>

      are held by Baywick Pty Ltd and 1,485,000 options held by NRB Developments
      Pty Ltd). All of such options have an exercise price of A$0.50 per share.

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

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

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

(8)   Of such shares 4,000 ordinary shares are held by each of Kieren Mihaly and
      Warwick Mihaly, Dr. Mihaly's sons. An additional 52,000 ordinary shares
      are held of record by Waide Pty Ltd. an Australian corporation owned by
      Mr. Mihaly.

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

(10)  Of such shares, 187,008 are held of record by Darontack Pty Ltd. an
      Australian corporation owned by Mr. Revelins.

(11)  Includes 250,000 ordinary shares issuable upon the exercise of options
      expiring in December 2004 that have an exercise price of A$0.50 per share.

Stock Option Plan

      In November 2000, we adopted our Employee Share Incentive Scheme, or the
Plan. The Plan was designed to reward executives, employees and consultants for
their contributions to our company and to provide a method of retaining key
personnel for the growth and development of our intellectual property rights.
Options granted under this plan are exercisable until October 31, 2004. The
options cannot be transferred and will not be quoted on the ASX. The following
table presents option grant information for this plan as of December 18, 2003:

         Ordinary shares reserved    Options    Weighted average
            for option grants      outstanding  exercise price
            -----------------      -----------  --------------

                3,000,000           1,347,167      A$ 0.50

Plan Administration

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

Exercise of Options During Fiscal 2003

      As of October 31, 2003, 13,274 options issued under our Plan had been
exercised.


                                       53
<PAGE>

ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.    MAJOR SHAREHOLDERS

      The following table sets forth certain information, as of October 31,
2003, regarding the beneficial ownership by all shareholders known to us to own
beneficially more than 5% of our ordinary shares. The voting rights of our major
shareholders do not differ from the voting rights of other holders of our
ordinary shares.

                                                    Percentage of
                              Number of ordinary     outstanding
                             shares beneficially      ordinary
Name                              owned (1)           shares (2)
----                              ---------           ----------
Geoffrey P. Kempler.........  26,222,500 (3)(4)        35.68%
Jagen Nominees Pty Ltd......  20,885,661 (5)(6)        28.42%
Citicorp Nominees Pty Ltd...   4,703,375 (7)            6.4%
Merrill Lynch (Australia)
  Nominees Pty Ltd..........   4,443,184 (8)            6.0%
ANZ Nominees Ltd............   3,734,736 (9)            5.0%

--------------

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

(2)   The percentages shown are based on 73,485,924 ordinary shares issued and
      outstanding as of November 6, 2003.

(3)   Of such shares, 30,000 ordinary shares are held directly by Mr. Kempler,
      13,965,000 ordinary shares are held of record by Baywick Pty Ltd, an
      Australian corporation owned by Mr. Kempler, 90,000 ordinary shares are
      held of record by Crystal Triangle Pty Ltd, an Australian corporation
      owned by Mr. Kempler and 2,970,000 ordinary shares are held of record by
      NRB Developments Pty Ltd, an Australian corporation in which Mr. Kempler
      holds a 50% interest. Mr. Kempler may be deemed to be the beneficial owner
      of the ordinary shares held directly by Baywick Pty Ltd, Crystal Triangle
      Pty Ltd and NRB Developments Pty Ltd.

(4)   Includes 9,167,500 ordinary shares issuable upon the exercise of options
      expiring in December 2004 (of which 1,000,000 options are held by Mr.
      Kendle, 6,682,500 options are held by Baywick Pty Ltd and 1,485,000
      options are held by NRB Developments Pty Ltd). All of such options have an
      exercise price of A$0.50 per share.


                                       54
<PAGE>

(5)   Includes 14,203,161 ordinary shares held by Jagen Nominees Pty Ltd. Mr.
      Boris Liberman may be deemed to hold the voting and investment powers for
      the ordinary shares held by Jagen Nominees Pty Ltd.

(6)   Includes 6,682,500 ordinary shares issuable upon the exercise of options
      expiring in December 2004 which are held by Jagen Nominees Pty Ltd. Mr.
      Boris Liberman may be deemed to hold the voting and investment powers for
      the ordinary shares held by Jagen Nominees Pty Ltd. All of such options
      have an exercise price of A$0.50 per share.

(7)   Includes 4,703,375 ordinary shares held by Citicorp Nominees Pty Ltd.

(8)   Includes 4,443,184 ordinary shares held by Merrill Lynch (Australia)
      Nominees Pty Ltd.

(9)   Includes 3,734,736 ordinary shares held by ANZ Nominees Ltd.

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

      As of October 31, 2003 there were 2,181 holders of record of our ordinary
shares, of which eight record holders, holding approximately 0.286% of our
ordinary shares, have registered addresses in the United States.

B.    RELATED PARTY TRANSACTIONS

      Dr. Mihaly serves as a director of Kendle, formerly known as Synermedica
Pty Ltd. Kendle provides analysis and review of the commercialization of our
technology, intellectual property management and clinical trial management and
monitoring. We paid Kendle A$475,289 in the year ended June 30, 2003 for their
services. An ongoing agreement at normal commercial rates that is terminable at
will exists between us and Kendle with costs incurred on a daily basis.

      Aroma Science, a company owned by Mr. Kempler, provides us with computer,
administration and meeting facilities. We paid Aroma Science A$114,247 in the
year ended June 30, 2003.

      See Note 22 to the financial statements.

      From June 30, 2003 to December 4, 2003, we have paid A$196,852 to Kendle
and A$65,364 to Aroma Science for services rendered.

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

      There were no share or option transactions with directors or
director-related entities since June 30, 2003.


                                       55
<PAGE>

C.    INTERESTS OF EXPERTS AND COUNSEL

      Not applicable.

ITEM 8.    FINANCIAL INFORMATION

A.    FINANCIAL STATEMENTS AND OTHER FINANCIAL INFORMATION

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

Legal Proceedings

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

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

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

      On January 3, 2002, P.N. Gerolymatos S.A filed suit against our company in
Greece. The complaint alleges defamation and harm to Gerolymatos' reputation and
business relations. The complaint seeks actual damages (89,197,972 drachmas),
consequential damages ($136,500,000 U.S. dollars), and moral damages (1 billion
drachmas). The hearing in this case originally scheduled for March 13, 2003 was
postponed until September 30, 2004.

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


                                       56
<PAGE>

Dividend Distribution

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

B.  SIGNIFICANT CHANGES

      Since June 30, 2003, there have not been any significant changes in the
operations or financial condition of the company, other than as referred to
elsewhere in this annual report.

ITEM 9.    THE OFFER AND LISTING

A.    OFFER AND LISTING DETAILS

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

                             Per Ordinary Share (A$)
    Fiscal Year Ended         High          Low
    -----------------      -----------   -----------

    June 30, 2001:
    First Quarter.......        .69           .37
    Second Quarter......        .82           .36
    Third Quarter.......       1.01           .80
    Fourth Quarter......       1.29           .57

    June 30, 2002:
    First Quarter.......       1.34           .50
    Second Quarter......       1.12           .82
    Third Quarter.......       2.60           .87
    Fourth Quarter .....       2.42          1.41

    June 30, 2003:
    First Quarter.......       2.39          1.55
    Second Quarter......       2.07          1.20
    Third Quarter.......       1.31          0.77
    Fourth Quarter......       0.80          0.435

    June 30, 2004
    First Quarter.......       1.15          0.55
    Second
    Quarter(through
    November 30, 2003)..       0.71          0.445

    Month Ended:
    June 2003...........       0.70          0.53
    July 2003...........       0.66          0.55
    August 2003.........       1.15          0.60
    September 2003......       0.90          0.68
    October 2003........       0.71          0.55
    November 2003.......       0.62          0.445


                                       57
<PAGE>

Nasdaq SmallCap Market, Monthly Stock Information:

      Since September 5, 2002 our Level II ADR's have traded on the Nasdaq
SmallCap Market under the symbol "PRAN". The following table sets forth, for the
fiscal periods indicated, the range of high ask and low bid prices of our Level
II ADR's on the Nasdaq SmallCap Market:

                                  Per ADR (US$)
                                  -------------
    Fiscal Year Ended           High          Low
    -----------------           ----          ---
    June 30, 2003:
    First Quarter (from
       September 5).........   12.8         11.00
    Second Quarter..........   11.5          6.86
    Third Quarter...........   8.15          4.4
    Fourth Quarter..........   5.19          2.96

    June 30, 2004:
    First Quarter...........   7.49          3.87
    Second Quarter (through
       December 19, 2003)...   5.14          4.00

    Month Ended:
    June 2003...............   5.19          3.60
    July 2003...............   4.65          3.87
    August 2003.............   7.49          3.90
    September 2003..........   6.41          4.68
    October 2003............   5.14          4.03
    November 2003...........   4.58          4.00

B.    PLAN OF DISTRIBUTION

      Not applicable.

C.    MARKETS

      The principal listing of our ordinary shares and listed options to
purchase ordinary shares is on the ASX. As of April 5, 2002, our ADRs were
eligible to trade on the Nasdaq SmallCap


                                       58
<PAGE>

OTC Bulletin Board in the U.S. and since September 5, 2002 our ADRs have traded
on the Nasdaq SmallCap Market under the symbol "PRAN." We entered into a Deposit
Agreement with the Bank of New York under which the Bank of New York, acting as
depositary, issues ADRs, each of which evidences an American Depositary Share,
or ADS, which in turn represents ten of our ordinary shares.

D.    SELLING SHAREHOLDERS

      Not applicable.

E.    DILUTION

      Not applicable.

F.    EXPENSES OF THE ISSUE

      Not applicable.

ITEM 10.   ADDITIONAL INFORMATION

A.    SHARE CAPITAL

      Not applicable.

B.    MEMORANDUM AND ARTICLES OF ASSOCIATION

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

C.    MATERIAL CONTRACTS

      On May 7, 1999, we entered into a patent assignment and license agreement
with the University of Melbourne. The agreement provided for the assignment of
various patents and patent rights to us. We may not assign or transfer such
patents for a period of five years unless the University of Melbourne provides
prior written content. The University of Melbourne may terminate the agreement
if we default in our obligations and do not remedy that default within thirty
days of receiving notice. In consideration of the assignment of the patents, we
were required to make certain payments to the University of Melbourne and to pay
a royalty of 1.5% on the net price of products sold utilizing such patents. In
addition we must also pay the lesser of 1.5% of the net invoice price of
products sold or 10% of royalties received from any license or sub-licensee we
appoint to utilize the patents. Following the agreement with Schering A.G. (See
Item 4A. "History and Development of the Company") the agreement with the
University of Melbourne has been extended to cover these projects for a further
two years.

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


                                       59
<PAGE>

projects. We have paid the University of Melbourne a total of A$2,584,783through
December 31, 2003 under our agreement of May 7, 1999.

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

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

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

      Under the terms of our strategic alliance agreement with Kendle, they
provide us with consultancy services in relation to the co-ordination, planning
and management of intellectual property, research and development, planning,
management and commercialization strategy. Kendle provides its services to us at
a rate of A$1,280-A$1,520 per day. For the years ended June 30, 2003, 2002, and
2001, we paid Kendle A$475,289, A$537,327 and A$279,896, respectively.

      In March 2003, we announced our first major licensing and research
collaboration agreement with Schering A.G., a major international pharmaceutical
company and Neuroscience Victoria. Schering is providing up to A$2.7 million
over the life of the projects with additional milestone payments and royalties
from discoveries. See Item 4A. - "History and Development of the Company" for
additional information.

      We have entered into a consulting agreement with Professor Ashley Bush for
the provision of research and development services relating to inventions and
treatments for diseases caused by metal-mediated oxidative stress. The agreement
provides for our payment of A$6,000


                                       60
<PAGE>

monthly consultancy fee during a three year term commencing on February 1, 2000.
As of November 2003, the renegotiation of Professor Bush's consulting Agreement
is ongoing. Although we intend to renew Professor Bush's consulting agreement we
can give no assurance or guarantee that this will occur.

D.    EXCHANGE CONTROLS

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

The Foreign Acquisitions and Takeovers Act 1975

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

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

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

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


                                       61
<PAGE>

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

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

E.    TAXATION

Australian Tax Consequences

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

Nature of ADRs for Australian Taxation Purposes

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

Taxation of Dividends

      Australia operates a dividend imputation system under which dividends may
be declared to be 'franked' to the extent of tax paid on company profits. Fully
franked dividends are not subject to dividend withholding tax. Dividends payable
by our company to non-Australian resident stockholders will be subject to
dividend withholding tax, to the extent the dividends are unfranked. Dividend
withholding tax will be imposed at 30%, unless a stockholder is a resident of a
country with which Australia has a double taxation agreement. Under the
provisions of the current Double Taxation Convention between Australia and the
U.S., the Australian tax withheld on unfranked dividends paid by us to which a
resident of the U.S. is beneficially entitled is limited to 15%, unless the
shares are effectively connected to a permanent establishment or fixed base in
Australia through which the stockholder carries on business or provides
independent personal services, respectively.


                                       62
<PAGE>

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

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

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

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

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

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

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

Dual Residency

      If a stockholder were a resident of both Australia and the U.S. under
those countries' domestic taxation laws, that stockholder may be subject to tax
as an Australian resident. If, however, the stockholder is determined to be a
U.S. resident for the purposes of the Double Taxation Convention between the
U.S. and Australia, the Australian tax would be subject to limitation by the
Double Taxation Convention. Stockholders should obtain specialist taxation
advice in these circumstances.

Stamp Duty

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


                                       63
<PAGE>

Australian Death Duty

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

Goods and Services Tax

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

United States Federal Income Tax Consequences

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

            o     broker-dealers,

            o     financial institutions,

            o     certain insurance companies,

            o     investors liable for alternative minimum tax,

            o     tax-exempt organizations,

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

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

            o     investors that actually or constructively own 10 percent or
                  more of our voting shares, and

            o     investors holding ordinary shares as part of a straddle or a
                  hedging or conversion transaction.

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

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


                                       64
<PAGE>

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

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

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

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

      a trust if:

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

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

Taxation of Dividends

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

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

      Any Australian withholding tax imposed on such dividends will be a foreign
income tax eligible for credit against a U.S. Holder's U.S. federal income tax
liability, subject to certain limitations set out in the Code (or,
alternatively, for deduction against income in determining such tax liability).
The limitations set out in the Code include computational rules under which
foreign tax credits allowable with respect to specific classes of income cannot
exceed the U.S. federal income taxes otherwise payable with respect to each such
class of income. Dividends generally will be treated as foreign-source passive
income or financial services income for United States foreign tax credit
purposes. Foreign income taxes exceeding the credit limitation for the year of
payment or accrual may be carried back for two taxable years and forward for
five


                                       65
<PAGE>

taxable years in order to reduce U.S. federal income taxes, subject to the
credit limitation applicable in each of such years. Other restrictions on the
foreign tax credit include a prohibition on the use of the credit to reduce
liability for the U.S. individual and corporation alternative minimum taxes by
more than 90%. A U.S. Holder will be denied a foreign tax credit with respect to
Australian income tax withheld from dividends received on the ordinary shares to
the extent such U.S. Holder has not held the ordinary shares for at least 16
days of the 30-day period beginning on the date which is 15 days before the
ex-dividend date or to the extent such U.S. Holder is under an obligation to
make related payments with respect to substantially similar or related property.
Any days during which a U.S. Holder has substantially diminished its risk of
loss on the ordinary shares are not counted toward meeting the 16-day holding
period required by the statute. The rules relating to the determination of the
foreign tax credit are complex, and you should consult with your personal tax
advisors to determine whether and to what extent you would be entitled to this
credit.

U.S. Gift and Estate Tax

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

F.    DIVIDEND AND PAYING AGENTS

      Not applicable.

G.    STATEMENT BY EXPERTS

      Not applicable.

H.    DOCUMENTS ON DISPLAY

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

      As a foreign private issuer, we are exempt from certain provisions of the
Exchange Act. Accordingly, our proxy solicitations are not subject to the
disclosure and procedural requirements of Regulation 14A under the Exchange Act,
transactions in our equity securities by our officers and directors are exempt
from reporting and the "short-swing" profit recovery provisions contained in
Section 16 of the Exchange Act. We make our Securities and Exchange Commission
filings electronically and they are available on the Securities and Exchange
Commission's website. We are not required under the Exchange Act to file
periodic reports and financial statements as frequently or as promptly as United
States companies whose securities are registered under the Exchange Act.
However, we will distribute annually to our shareholders an annual report
containing financial statements that have been examined and reported on, with an
opinion expressed by, an independent public accounting firm and we will file
reports with the


                                       66
<PAGE>

Securities and Exchange Commission on Form 6-K containing unaudited financial
information for the first six months of each fiscal year.

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

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

I.    SUBSIDIARY INFORMATION

      Not applicable.

ITEM 11.   QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISKS

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

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

ITEM 12.   DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

      Not applicable.

                                    PART II

ITEM 13.   DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

      Not applicable.


                                       67
<PAGE>

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

      Not applicable

ITEM 15.   CONTROLS AND PROCEDURES

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

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

ITEM 16.   RESERVED

ITEM 17.   FINANCIAL STATEMENTS

                                                         Page
                                                         ----
   Index to Financial Statements.......................   F-1
   Independent Auditors' Report........................   F-2
   Statements of Financial Performance.................   F-3
   Statements of Financial Position....................   F-4
   Statements of Cash Flows............................   F-5
   Statements of Changes in Stockholders' Equity.......   F-6
   Notes to the Financial Statements...................   F-7

ITEM 18.   FINANCIAL STATEMENTS

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


                                       68
<PAGE>

ITEM 19.   EXHIBITS

    Exhibit  Description
    -------  -----------

      1.1    Constitution of Registrant.(1)

      2.1    Deposit Agreement, dated as of March 23, 2001, entered into among
             Registrant and the Bank of New York, as Depositary, and owners and
             holders of American Depositary Receipts issued thereunder,
             including the Form of American Depositary Receipts.(2)

      4.1    Research   Funding   and   Intellectual    Property    Assignment
             Agreement,  dated  December 1, 2000,  between  Registrant and the
             University of Melbourne.(1)

      4.2    Agreement for the Assignment of Patents and Intellectual Property
             Licensing in relation to treatment to Alzheimer Disease, dated May
             7, 1999, between Registrant and the University of Melbourne
             University of Melbourne University of Melbourne.(1)

      4.3    Agreement for the Assignment of Patents and Intellectual Property
             Licensing in relation to treatment to Alzheimer Disease, dated
             February 8, 2000, between Registrant and the Biomolecular Research
             Institute.(1)

      4.4    Agreement for the Development of Novel Therapies for Alzheimer
             Disease, dated August 3, 2001, between Registrant and
             AusIndustry.(1)

      4.5    Research  Expenditures  Agreement,  dated August 2, 2001, between
             Registrant and Massachusetts General Hospital.(1)

      4.6    Variation  Agreement,  dated August 8, 2001,  between  Registrant
             and General Hospital Corporation.(1)

      4.7    License  Agreement,  dated  January 1, 2001,  between  Registrant
             and General Hospital Corporation.(1)

      4.8    Scientific  Advisory  Board  Agreement,  dated  December 2, 1999,
             between Registrant and Prof. Peter Colman.(1)

      4.9    Deed of  variations  to  Services  Agreement,  dated  January 26,
             2000, between Registrant and Prof. Ashley Bush.(1)

      4.10   Agreement  for  Services,   dated   February  7,  2000,   between
             Registrant and Prof. Colin Masters.(1)

      4.11   Agreement to provide office, computer, administration and meeting
             facilities, dated January 31, 2000, between Registrant and Aroma
             Science Pty Ltd.(1)


                                       69
<PAGE>

      4.12   Strategic Alliance Agreement in relation to co-ordination, planning
             and management of intellectual property, research and development,
             planning, management and commercialization strategy, dated December
             1, 2000, between Registrant and Kendle Pty Ltd.(1)

      4.13   Advisory  Agreement  dated October 20, 2,000  between  Registrant
             and GTH Capital Inc.(1)

      4.14   Agreement  to  Provide  Accounting,   Administration,   Corporate
             Advice And Company  Secretarial  Services,  dated as of, February
             23,  2000,   between   Registrant   and  Malvern   Administrative
             Services.(1)

      4.15   Grant Agreement, dated as of, January 1, 2001, between Registrant
             and the Commonwealth of Australia, by the Industry Research and
             Development Board.(1)

      4.16   Form of Indemnity for Clinical Trials, dated as of September 2000,
             between Registrant and Melbourne Health (Royal Melbourne Hospital
             Campus), Royal Melbourne Hospital Research Foundation Incorporated,
             University of Melbourne, Mental Health Research Institute of
             Victoria.(1)

      4.17   Commitment, dated as of November 7, 2001, between Registrant and
             University of Melbourne.(1)

      10.1   Prana  Biotechnology  Limited,  Employees and Consultants  Option
             Plan 2000.(1)

      31.1   Certification by Chief Executive Officer Pursuant to Section 302 of
             the Sarbanes-Oxley Act of 2002.

      31.2   Certification by Chief Financial Officer Pursuant to Section 302 of
             the Sarbanes-Oxley Act of 2002.

      32.1   Certification by Chief Executive Officer Pursuant to 18 U.S.C.
             Section 1350, As Adopted Pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.

      32.2   Certification by Chief Financial Officer Pursuant to 18 U.S.C.
             Section 1350, As Adopted Pursuant to Section 906 of the
             Sarbanes-Oxley Act of 2002.

----------

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

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


                                       70
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED

                          INDEX TO FINANCIAL STATEMENTS

                                                                            Page
                                                                            ----

Independent Auditor's Report .............................................   F-2

Statements of Financial Position .........................................   F-3

Statements of Financial Performance ......................................   F-4

Statements of Cash Flows .................................................   F-5

Statements of Changes in Stockholders' Equity ............................   F-6

Notes to Financial Statements ............................................   F-7


                                      F-1
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

                          INDEPENDENT AUDITORS' REPORT

To The Board Of Directors And Shareholders Of Prana Biotechnology Limited

We have audited the accompanying statements of financial position of Prana
Biotechnology Limited (a development stage enterprise) as of 30 June 2003 and
2002, and the related statements of financial performance, cash flows and
changes in stockholders' equity for each of the three years in the period ended
30 June 2003 and for the period from 11 November 1997 (date of inception) to 30
June 2003. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Prana Biotechnology Limited as
of 30 June 2003 and 2002, and the results of its operations and its cash flows
for each of the three years in the period ended 30 June 2003 and for the period
from 11 November 1997 (date of inception) to 30 June 2003, in conformity with
accounting principles generally accepted in Australia.

Accounting principles generally accepted in Australia differ in certain
significant respects from accounting principles generally accepted in the United
States of America. The application of the latter would have affected the
determination of net loss for each of the three years in the period ended 30
June 2003 and the determination of total equity as of 30 June 2003 and 2002, to
the extent summarised in Note 26 to the financial statements.

DELOITTE TOUCHE TOHMATSU

Deloitte Touche Tohmatsu

Chartered Accountants

Melbourne, Victoria, Australia
30 September 2003, except for Note 26
as to which the date is 19 December 2003


                                       F-2
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

                        STATEMENTS OF FINANCIAL POSITION
                             (in Australian dollars)

<TABLE>
<CAPTION>
                                                                                             30 June
                                                                                  -----------------------------
                                                                  Notes               2003              2002
                                                                                  -----------       -----------
<S>                                                                 <C>           <C>               <C>
Current assets
Cash assets                                                                         3,463,783         3,585,014
Receivables                                                         5                 143,823           107,936
Other                                                               6                  52,362            60,367
                                                                                  -----------       -----------

Total Current Assets                                                                3,659,968         3,753,317
                                                                                  -----------       -----------

Non Current Assets
Equipment                                                           7                 141,611           139,653
Intangible assets                                                   8              12,588,347        13,688,349
                                                                                  -----------       -----------

Total Non Current Assets                                                           12,729,958        13,828,002
                                                                                  -----------       -----------

Total Assets                                                                       16,389,926        17,581,319
                                                                                  -----------       -----------

Current Liabilities
Payables                                                            9                 541,217           912,333
Provisions                                                          10                 23,831                --
                                                                                  -----------       -----------

Total Current Liabilities                                                             565,048           912,333
                                                                                  -----------       -----------

Non-Current Liabilities
Provisions                                                          10                  1,175                --
                                                                                  -----------       -----------

Total Non-Current Liabilities                                                           1,175                --
                                                                                  -----------       -----------

Total Liabilities                                                                     566,223           912,333
                                                                                  -----------       -----------

Net Assets                                                                         15,823,703        16,668,986
                                                                                  ===========       ===========

Equity
Contributed equity                                                  11             16,741,023        13,001,468
Reserve                                                             12             14,661,942        14,661,942
Accumulated deficit during the development stage                    12            (15,579,262)      (10,994,424)
                                                                                  -----------       -----------

Total Equity                                                                       15,823,703        16,668,986
                                                                                  ===========       ===========
</TABLE>

See notes to the financial statements.


                                       F-3
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

                       STATEMENTS OF FINANCIAL PERFORMANCE
                             (in Australian dollars)

<TABLE>
<CAPTION>
                                                                           Years ended 30 June
                                                              --------------------------------------------        Period from
                                                                                                                 Inception (11
                                                                                                                   November
                                                                                                                 1997) to 30
                                                   Notes         2003             2002             2001            June 2003
                                                              ----------       ----------       ----------       -----------
<S>                                                  <C>      <C>              <C>              <C>               <C>
Revenue from ordinary activities                     2         1,816,478          793,970          516,182         3,205,388

Depreciation and amortisation expense                3        (1,185,973)      (1,160,595)      (1,140,658)       (4,142,203)
Patents, research and development expense            3        (1,861,295)      (2,498,486)      (2,376,404)       (7,158,118)
Legal expense                                                   (848,660)        (923,816)        (252,675)       (2,038233)
Employee benefits expense                                       (760,980)        (378,853)        (122,199)       (1,185,798)
Consulting fee expense                                          (567,730)        (604,873)        (306,530)       (1,659,131)
Corporate compliance expense                                    (395,604)        (339,383)        (196,629)       (1,007,615)
Other expenses from ordinary activities                         (781,074)        (336,431)        (260,066)       (1,593,552)
                                                              ----------       ----------       ----------       -----------

Loss from ordinary activities
before income tax expense                                     (4,584,838)      (5,448,467)      (4,138,979)      (15,579,262)

Income tax expense relating to
ordinary activities                                  4                --               --               --                --
                                                              ----------       ----------       ----------       -----------

Net loss                                             12       (4,584,838)      (5,448,467)      (4,138,979)      (15,579,262)
                                                              ==========       ==========       ==========       ===========

Loss per share (basic and diluted)                   18            (0.08)           (0.10)           (0.08)              N/a
                                                              ==========       ==========       ==========       ===========
</TABLE>

                     See notes to the financial statements.


                                       F-4
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

                            STATEMENTS OF CASH FLOWS
                             (in Australian dollars)

<TABLE>
<CAPTION>
                                                                    Years Ended 30 June
                                                         --------------------------------------------       Period from
                                                                                                           Inception (11
                                                                                                             November
                                                                                                            1997) to 30
                                             Notes          2003             2002             2001           June 2003
                                                         ----------       ----------       ----------      -------------
<S>                                                      <C>              <C>              <C>              <C>
Cash Flows from
 Operating Activities
Payments to suppliers and
   employees                                             (5,293,087)      (4,885,444)      (2,651,685)      (13,803,245)
Interest received                                           106,835          242,215          253,177           680,985
Government grant received                                   836,335          843,714               --         1,680,049
Income tax refund received                                       --               --           38,193                --
Nasdaq reimbursements received                              253,054               --               --           253,054
Neuroscience Victoria monies received                       506,250               --               --           506,250
                                                         ----------       ----------       ----------       -----------

  Net cash flows used in
     operating activities                   13 (a)       (3,590,613)      (3,799,515)      (2,360,315)      (10,682,907)

                                                         ----------       ----------       ----------       -----------

Cash Flows from Investing Activities
Payments for purchase of  equipment                         (87,929)         (50,689)              --          (172,161)

                                                         ----------       ----------       ----------       -----------
  Net cash flows used in
     investing activities                                   (87,929)         (50,689)              --          (172,161)
                                                         ----------       ----------       ----------       -----------
Cash Flows from Financing Activities
Proceeds from issue of shares                                    --               --        4,999,999        13,000,959
Payment of share issue costs                                     --               --         (254,400)         (783,537)
Proceeds from exercise of options                         3,713,792          580,345               --         4,296,638
Payment of underwriting costs                              (144,000)              --               --          (144,000)
Repayment of borrowings                                          --               --               --        (2,038,728)
                                                         ----------       ----------       ----------       -----------
  Net cash flows from
   financing activities                                   3,569,792          580,345        4,745,599        14,331,332
                                                         ----------       ----------       ----------       -----------

Net (decrease)/increase in
   cash held                                               (108,750)      (3,269,859)       2,385,284         3,476,264

Opening cash brought forward                              3,585,014        6,854,873        4,469,589
 Exchange rate adjustments on the
 balance of cash held in foreign
 currencies                                                 (12,481)              --               --           (12,481)
                                                         ----------       ----------       ----------       -----------

Closing cash carried forward                 13 (b)       3,463,783        3,585,014        6,854,873         3,463,783
                                                         ==========       ==========       ==========       ===========
</TABLE>

See notes to the financial statements


                                       F-5
<PAGE>

                          PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

                 STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
                             (in Australian dollars)

<TABLE>
<CAPTION>
                                                                             Accumulated
                                                                               Deficit
                                                                                During            Asset
                                             Number of      Contributed       Development      Revaluation
                                              Shares           Equity            Stage            Reserve           Total
                                            ----------      -----------      ------------      -----------      -----------
<S>                                         <C>               <C>              <C>              <C>              <C>
Balance, 11 November 1997                           --               --                --               --               --
(Inception)

Net loss                                            --               --              (690)              --             (690)
Issuance of shares to founders                      20               20                --               --               20
                                            ----------      -----------       -----------       ----------      -----------
Balance, 30 June 1998                               20               20              (690)              --             (670)

Net loss                                            --               --           (80,000)              --          (80,000)
                                            ----------      -----------       -----------       ----------      -----------
Balance, 30 June 1999                               20               20           (80,690)              --          (80,670)

Net loss                                            --               --        (1,326,288)              --       (1,326,288)
Revaluation of intangible assets
  to directors' valuation                           --               --                --       14,661,942       14,661,942
  297 for 1 share split                          5,920               --                --               --               --
Issuance of shares in connection
  with private placement                           960              960                --               --              960
  5,000 for 1 share split                   34,493,100               --                --               --               --
Issuance of shares in connection
  with initial public offering,
  net of issue costs                          16,000,000        7,470,863                --               --        7,470,863
Issuance of shares in connection
   with exercise of options                      5,000            2,500                --               --            2,500
                                            ----------      -----------       -----------       ----------      -----------
Balance, 30 June 2000                       50,505,000        7,474,343        (1,406,978)      14,661,942       20,729,307

Net loss                                            --               --        (4,138,979)              --       (4,138,979)
Issuance of shares in connection
  with private placements, net
  of issue costs                             6,666,666        4,745,599                --               --        4,745,599
Compensation expense
  attributable to issuance of
  shares to consultants                         88,600           48,950                --               --           48,950
Compensation expense
  attributable to issuance of
  options to consultants                            --            8,000                --               --            8,000
                                            ----------      -----------       -----------       ----------      -----------
Balance, 30 June 2001                       57,260,266       12,276,892        (5,545,957)      14,661,942       21,392,877

Net loss                                            --               --        (5,448,467)              --       (5,448,467)
Issuance of shares in connection
   with exercise of options                  1,160,690          580,346                --               --          580,346
Compensation expense
  attributable to issuance of
  shares to consultants                        191,794          144,230                --               --          144,230
                                            ----------      -----------       -----------       ----------      -----------
Balance, 30 June 2002
                                            58,612,750       13,001,468       (10,994,424)      14,661,942       16,668,986
                                            ----------      -----------       -----------       ----------      -----------

Net loss                                            --               --        (4,584,838)              --       (4,584,838)
Issuance of shares in connection
   with exercise of options, net
   of underwriting costs                     7,427,584        3,569,792                --               --        3,569,792
Compensation expense
  attributable to issuance of
  shares to consultants                        146,969          169,763                --               --          169,763
                                            ----------      -----------       -----------       ----------      -----------
Balance, 30 June 2003
                                            66,187,303       16,741,023       (15,579,262)      14,661,942       15,823,703
                                            ==========      ===========       ===========       ==========      ===========
</TABLE>

See notes to the financial statements


                                       F-6
<PAGE>
                          PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

              NOTES TO FINANCIAL STATEMENTS - in Australian dollars

1     BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Background

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

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

Financial Reporting Framework

The financial report is a general purpose financial report which has been
prepared in accordance with the requirements of the Corporations Act 2001,
Accounting Standards and Urgent Issues Group Consensus Views and complies with
other requirements of the law.

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

Development Stage - Risks and uncertainties

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

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

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

Significant Accounting Policies

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

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


                                       F-7
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

      1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

(a) Cash and cash equivalents

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

(b) Recoverable amount of non-current assets

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

(c) Equipment

Equipment consist of computer and laboratory equipment and are recorded at cost.
Depreciation is provided on a straight-line basis over the estimated useful
lives of three to 14 years.

(d) Intangible assets and research and development expense

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

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

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

(e) Payables

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

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

(f) Share capital

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


                                       F-8
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

      1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

(g) Revenue recognition

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

Interest

Interest income is recognized as earned and collectibility reasonably assured.

Government grants

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

Reimbursements

Reimbursements of expenses are recognised as revenue when the reimbursement is
received and the related expenses have been incurred.

Corporate partner revenues

Corporate partner revenues are comprised of amounts earned under agreements with
Schering A.G. and Neuroscience Victoria Ltd. for certain research and
development activities. Revenues are recognised as earned on a straight line
basis over the lives of the relevant agreements. The straight line basis is
considered appropriate as the agreements do not contain clearly defined
milestones. Such agreements are performed on a "best efforts" basis with no
guarantee of either technological or commercial success.

(h) Income tax

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

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

(i) Employee entitlements

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

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

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


                                       F-9
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

      1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

o     Other types of employee entitlements;

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

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

(j) Loss per share

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

(k) Financial instruments issued by the Company

Debt and equity instruments

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

Transaction costs on the issue of equity instruments

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

Interest and dividends

Interest and dividends are classified as expenses or as distributions of profit
consistent with the Statements of Financial Position classification of the
related debt or equity instruments or component parts of compound instruments.

(l) Goods and services tax

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

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

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

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

Cash flows attributable to GST are included in the Statements of Cash Flows on a
gross basis.

(m) Receivables

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


                                      F-10
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

      1. BACKGROUND AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (cont'd)

(n) Foreign currency

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

(o) Going concern

Prana's financial statements are prepared on a going concern basis which
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. During the year ended 30 June
2003, the Company incurred a net loss of $4,584,838 and net cash outflows from
operating activities of $3,590,613 and had an accumulated deficit of $15,579,262
as at 30 June 2003. The continuation of the Company as a going concern is
dependent upon its ability to generate sufficient cash from operating and
financing activities. Notwithstanding the net loss and negative cash from
operations, the directors consider that the going concern basis of accounting is
appropriate for the following reasons:

-     As at 30 June 2003, the Company had cash assets of $3,463,783 and working
      capital of $3,094,920;

-     The most recently prepared cash flow forecasts prepared by management and
      reviewed by the directors indicate that the Company will have sufficient
      cash to meet their operating requirements for the foreseeable future;

-     On 4 September 2003, the Company announced to the market that it had
      raised $5 million before allowing for associated costs through the issue
      of 7.1 million new shares via private placement to institutions and
      eligible sophisticated investors who are clients of Peregrine Corporate
      Limited;

-     As at 30 September 2003, the Company has 20,000,000 share options on issue
      with an exercise price of $0.50 which expire 1 December 2004. As the
      exercise price is lower than the Company's current and recent share price
      (being $0.72 as at 30 September 2003) the directors are confident that
      these options will be exercised, resulting in expected cash inflows of
      approximately $10 million (included within the Company's cash flow
      forecasts);

-     The Company expects to place further shares with strategic investors
      within the next six to 12 months. The directors are confident that a share
      placement will be achieved if required, based on strong interest from
      investors and the Company's track record in successfully placing shares
      with US and Australian investors.

(p) Start-up and organization costs

Costs of start-up activities and organizational costs are expensed as incurred.

(q) Reclassifications

Certain prior year amounts have been reclassified to conform to the current year
presentation.


                                      F-11
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                               Years Ended 30 June
                                                     ---------------------------------------
                                                        2003           2002           2001
                                                     ---------      ---------      ---------
<S>                                                  <C>              <C>            <C>
2     REVENUE FROM ORDINARY ACTIVITIES

Interest - Other persons/corporations                  111,686        226,720        290,182
Government grant (i)                                   945,250        567,250        226,000
Nasdaq reimbursements (ii)                             253,054             --             --
Corporate partner revenues (iii)                       506,250             --             --
Other revenues                                             238             --             --
                                                     ---------      ---------      ---------

 Total revenues from ordinary activities             1,816,478        793,970        516,182
                                                     =========      =========      =========
</TABLE>

(i) On 26 July 2001, the Company announced the grant of a $1.74 million START
grant from the Australian Industry Research and Development Board to expand the
Company's core intellectual property for drug treatment of neurodegenerative
diseases. During the year ended 30 June 2001, $226,000 of the grant was
recognized as revenue as the Company received written notification of the grant
prior to 30 June 2001 and met the revenue recognition criteria disclosed in Note
1(g) for this portion of the grant. During the years ended 30 June 2003 and
2002, the Company met the revenue recognition criteria to record an additional
$945,250 and $567,250, respectively, of this grant as revenue. This grant was
completed ahead of schedule on 30 June 2003.

(ii) In September 2002, the Company listed on the Nasdaq SmallCap Market. Under
an agreement with the Bank of New of York, 50% of the costs associated with the
listing were reimbursed. This reimbursement of $253,054 is recognised as revenue
in the year ended 30 June 2003.

(iii) In March 2003, Prana entered into various agreements with Schering A.G.
and Neuroscience Victoria Ltd. for certain research and development activities.
The revenue under these agreements is recognised as earned on a straight line
basis over the lives of the relevant agreements

<TABLE>
<CAPTION>
                                                              Years Ended 30 June
                                                     ---------------------------------------
                                                        2003           2002            2001
                                                     ---------      ---------      ---------
<S>                                                  <C>            <C>            <C>
3.    EXPENSES FROM ORDINARY ACTIVITIES

Depreciation of non-current assets
   Equipment                                            85,971         60,591         40,655
Amortisation of non-current assets
   Core intellectual property                        1,100,002      1,100,004      1,100,003
                                                     ---------      ---------      ---------

Total depreciation and amortisation expense          1,185,973      1,160,595      1,140,658
                                                     =========      =========      =========

Patents, research and development expense
   Research and development                          1,717,770      1,827,536      1,623,541
   Patents                                             143,525        670,950        752,863
                                                     ---------      ---------      ---------

Total patents, research and development expense      1,861,295      2,498,486      2,376,404
                                                     =========      =========      =========
</TABLE>


                                      F-12
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                                    Years Ended 30 June
                                                        --------------------------------------------
                                                           2003             2002             2001
                                                        ----------       ----------       ----------
<S>                                                      <C>              <C>              <C>
4     INCOME TAX

(a)   Prima facie income tax benefit
      calculated at 30% (2002: 30%,
      2001: 34%) on the loss from
      ordinary activities before income tax              1,375,451        1,634,540        1,407,253
                                                        ----------       ----------       ----------


Non-deductible amortisation                               (330,001)        (330,001)        (374,001)
Other non-deductible expenses                             (300,312)        (169,528)          (4,214)
Timing differences and tax losses not brought to
account as future income tax benefits (Note 4(b))         (745,138)      (1,135,011)      (1,029,038)
                                                        ----------       ----------       ----------

Income tax expense relating to ordinary activities              --               --               --
                                                        ----------       ----------       ----------

(b)   Potential future tax benefits at
      30% (2002: 30%, 2001: 34%) not
      brought to account attributable
      to:

Tax losses - revenue                                     3,005,525        2,269,938        1,138,623
Timing differences                                           9,551            7,500            5,282
                                                        ----------       ----------       ----------
                                                         3,015,076        2,277,438        1,143,905
                                                        ==========       ==========       ==========
</TABLE>

The Company has future income tax benefits of tax losses not recognised as
assets because recovery is not virtually certain. Such benefits will only be
obtained if:

(i)   future assessable income is derived of a nature and of an amount
      sufficient to enable the benefit to be realised;

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

(iii) no changes in tax legislation adversely affect the Company in realising
      the benefit.

The Company has no franking credits available at year end.

<TABLE>
<CAPTION>
                                                                                      30 June
                                                                             -------------------------
                                                                                2003            2002
                                                                             ---------        --------
<S>                                                                            <C>             <C>
5     RECEIVABLES (CURRENT)

 Government grant receivable (inclusive of GST)                                108,675              --
 Sundry debtors and other                                                       23,312          21,510
 Goods and services tax receivable                                              11,836          86,426
                                                                             ---------        --------
                                                                               143,823         107,936
                                                                             =========        ========

6     OTHER ASSETS (CURRENT)

Prepayments                                                                     52,362          60,367
                                                                             =========        ========
</TABLE>


                                      F-13
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                                          30 June
                                                               -----------------------------
                                                                   2003              2002
                                                               -----------       -----------
                                                   Notes
<S>                                                   <C>          <C>               <C>
7     EQUIPMENT

Gross carrying amount
Balance at beginning of year                                       284,232           233,543
Additions                                                           87,929            50,689
Disposals                                                               --                --
                                                               -----------       -----------

Balance at end of year                                             372,161           284,232
                                                               -----------       -----------

Accumulated depreciation
Balance at beginning of year                                      (144,579)          (83,988)
Disposals                                                               --                --
Depreciation expense                                  3            (85,971)          (60,591)
                                                               -----------       -----------

Balance at end of year                                            (230,550)         (144,579)
                                                               -----------       -----------

Net book value at end of year                                      141,611           139,653
                                                               ===========       ===========
</TABLE>

Aggregate depreciation allocated during the year is recognised as an expense and
disclosed in Note 3.

8     INTANGIBLE ASSETS

<TABLE>
<S>                                                             <C>               <C>
Core intellectual property - at cost                            16,500,000        16,500,000
Accumulated amortisation                                        (3,911,653)       (2,811,651)
                                                               -----------       -----------

                                                                12,588,347        13,688,349
                                                               ===========       ===========
</TABLE>

Aggregate amortisation allocated during the year is recognised as an expense and
disclosed in Note 3.


9     PAYABLES (CURRENT)

<TABLE>
<S>                                                  <C>           <C>               <C>
Trade creditors                                                    151,755           518,375
Other creditors                                                    340,002           324,040
Amounts payable to Director-related entity           22             49,460            69,918
                                                               -----------       -----------

                                                                   541,217           912,333
                                                               ===========       ===========
</TABLE>

10    PROVISIONS

<TABLE>
<S>                                                  <C>           <C>               <C>
Current
Annual leave                                         15             23,831                --
                                                               ===========       ===========
Non-Current
Long service leave                                   15              1,175                --
                                                               ===========       ===========
</TABLE>


                                      F-14
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                                                                           30 June
                                                                                          ------------------------------------------
                                                                                              2003            2002            2001
                                                                                          ----------      ----------      ----------
<S>                                                                                       <C>             <C>             <C>
11    CONTRIBUTED EQUITY

(a) Contributed equity
Ordinary shares fully paid                                                                16,733,023      12,993,468      12,268,892
Options fully paid                                                                             8,000           8,000           8,000

                                                                                          ----------      ----------      ----------

                                                                                          16,741,023      13,001,468      12,276,892
                                                                                          ==========      ==========      ==========
</TABLE>

(b)   Movements in shares on issue

<TABLE>
<CAPTION>
                                                                                     30 June
                                          ------------------------------------------------------------------------------------------
                                                       2003                           2002                            2001
                                          ------------------------------------------------------------------------------------------
                                           Number of           $          Number of           $            Number of           $
                                             Shares                         Shares                           Shares
                                          ------------------------------------------------------------------------------------------
<S>                                       <C>             <C>             <C>             <C>             <C>              <C>
Beginning of the year                     58,612,750      12,993,468      57,260,266      12,268,892      50,505,000       7,474,343

Movement during the year                   7,574,553       3,739,555       1,352,484         724,576       6,755,266       4,794,549
                                          ----------      ----------      ----------      ----------      ----------      ----------

End of the year                           66,187,303      16,733,023      58,612,750      12,993,468      57,260,266      12,268,892
                                          ==========      ==========      ==========      ==========      ==========      ==========
</TABLE>

Details of share issuances are as follows:

<TABLE>
<CAPTION>
       Date                           Details                 Notes              Number        Issue Price            $
---------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                    <C>            <C>                 <C>            <C>
15 February 2001         Private placement, net of issue
                           costs of $254,400                                   6,666,666           0.75           4,745,599

4 April 2001             Non-cash share issue in
                          consideration for services            (i)               50,000           0.40              20,000
                          provided by consultants
27 June 2001             Non-cash share issue in
                          consideration for services            (i)               38,600           0.75              28,950
                          provided by consultants                           ------------                        -----------
Year ended 30
  June 2001              Total                                                 6,755,266                          4,794,549
                                                                            ------------                        -----------

4 February 2002         Exercise of options                                      134,000           0.50              67,000
12 February 2002        Exercise of options                                        2,000           0.50               1,000
22 February 2002        Exercise of options                                       76,000           0.50              38,000
27 February 2002        Exercise of options                                       40,000           0.50              20,000
6 March 2002            Exercise of options                                       90,000           0.50              45,000
8 March 2002            Non-cash share issue in
                         consideration for services
                         provided by consultants                (i)              191,794           0.75             144,230
12 March 2002           Exercise of options                                      272,690           0.50             136,345
14 March 2002           Exercise of options                                       10,000           0.50               5,000
20 March 2002           Exercise of options                                       12,000           0.50               6,000
21 March 2002           Exercise of options                                      100,000           0.50              50,000
25 March 2002           Exercise of options                                        3,000           0.50               1,500
</TABLE>


                                      F-15
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)


11    CONTRIBUTED EQUITY (continued)

(b) Movements in shares on issue (continued)

Details of share issuances are as follows (continued):

<TABLE>
<CAPTION>
       Date                           Details                 Notes              Number        Issue Price            $
---------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                    <C>            <C>                 <C>            <C>
9 April 2002            Exercise of options                                       32,500           0.50              16,250
10 April 2002           Exercise of options                                        2,500           0.50               1,250
11 April 2002           Exercise of options                                      102,500           0.50              51,250
10 May 2002             Exercise of options                                      100,000           0.50              50,000
23 May 2002             Exercise of options                                      180,000           0.50              90,000
16 June 2002            Exercise of options                                        3,500           0.50               1,750
                                                                            ------------                        -----------
Year ended 30
  June 2002             Total                                                  1,352,484                            724,576
                                                                            ------------                        -----------

8 July 2002              Exercise of options                                       4,000           0.50               2,000
10 July 2002             Exercise of options                                      13,274           0.50               6,637
12 July 2002             Non-cash share issue in
                          consideration for services
                          provided by consultants              (i)                13,550           2.02              27,371
18 September 2002        Exercise of options                                      32,000           0.50              16,000
30 September 2002        Exercise of options                                      25,000           0.50              12,500
15 October 2002          Exercise of options                                      20,081           0.50              10,040
20 November 2002         Exercise of options                                     113,000           0.50              56,500
22 November 2002         Exercise of options                                      33,072           0.50              16,536
25 November 2002         Exercise of options                                       7,000           0.50               3,500
4 December 2002          Non-cash share issue in
                          consideration for services
                          provided by consultants              (i)                15,318           1.74              26,653
12 December 2002         Exercise of options                                      50,000           0.50              25,000
8 January 2003           Exercise of options                                      50,000           0.50              25,000
22 January 2003          Exercise of options                                       2,620           0.50               1,310
30 January 2003          Exercise of options                                       9,700           0.50               4,850
30 January 2003          Non-cash share issue in
                          consideration for services
                          provided by consultants              (i)               118,101           0.98             115,739
14 February 2003         Exercise of options                                     499,403           0.50             249,702
20 February 2003         Exercise of options                                     483,746           0.50             241,873
28 February 2003         Exercise of options                                   2,530,483           0.50           1,265,242
5 March 2003             Exercise of options                                   3,107,891           0.50           1,553,945
15 March 2003            Exercise of options                                      25,000           0.50              12,500
March 2003               Underwriting costs                    (ii)                   --             --            (144,000)
3 April 2003             Exercise of options                                     421,314           0.50             210,657
                                                                            ------------                        -----------
Year ended 30
  June 2003              Total                                                 7,574,553                          3,739,555
                                                                            ------------                        -----------
</TABLE>

(i)   The Company recognised non-cash compensation expense for shares issued in
      consideration for services provided by consultants based on the director's
      valuation of the services rendered.

(ii)  Underwriters subscribed the balance of the listed options with an
      expiration date of 1 March 2003 that had not been exercised by existing
      option holders and charged $144,000 for their services.


                                      F-16
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

11    CONTRIBUTED EQUITY (continued)

(c) Movements in share options

<TABLE>
<CAPTION>
                                                                         Years Ended 30 June
                                  --------------------------------------------------------------------------------------------------
                                               2003                              2002                              2001
                                  --------------------------------------------------------------------------------------------------
                                   Number of           Comp.          Number of           Comp.          Number of          Comp.
                                    Options           Expense          Options           Expense          Options          Expense
                                  --------------------------------------------------------------------------------------------------
<S>                                <C>                    <C>         <C>                    <C>         <C>                   <C>
Beginning of the year              27,894,310             8,000       28,655,000             8,000       28,245,000               --
Issued during the year                618,274                --          400,000                --          410,000            8,000
Exercised during the
year (Note 11(b))                  (7,427,584)               --       (1,160,690)               --               --               --
                                  --------------------------------------------------------------------------------------------------

End of the year                    21,085,000             8,000       27,894,310             8,000       28,655,000            8,000
                                  ==================================================================================================
</TABLE>

Details of option issuances are summarised as follows:

o     On 4 April 2001, the Company issued 400,000 options to an outside
      consultant in consideration for services rendered. Such options are
      exercisable on or before 20 March 2004 at an exercise price of $0.50 per
      option. The Company recorded $7,800 compensation expense based on the
      director's valuation of the options.

o     On 27 June 2001, the Company issued 10,000 options to an outside
      consultant under the Employee Share Incentive Scheme (see Note 15(b)) as a
      reward for services rendered to the Company. Such options are exercisable
      on or before 30 June 2005 at an exercise price of $0.50 per option. These
      options are forfeited in the event the consultant terminates employment
      with the Company. The Company recorded $200 compensation expense based on
      the director's valuation of the options.

o     On 23 January 2002, the Company issued 200,000 options to an outside
      consultant in consideration for services rendered. Such options are
      exercisable on or before 20 March 2004 at an exercise price of $0.50 per
      option. The Company did not record any compensation expense in connection
      with the issuance of the options.

o     On 7 March 2002, the Company issued 200,000 options to outside consultants
      under the Employee Share Incentive Scheme (see Note 15(b)) as a reward for
      services rendered to the Company. Of the 200,000 options, one-third are
      exercisable beginning May 2001, another third May 2002 and the final third
      May 2003. Such options are exercisable until 30 June 2005 at an exercise
      price of $0.50 per option. These options are forfeited in the event the
      consultants terminate employment with the Company. The Company did not
      record any compensation expense in connection with the issuance of the
      options.

o     On 10 July 2002, the Company issued 13,274 options to an employee and
      100,000 options to an outside consultant under the Employee Share
      Incentive Scheme (see Note 15(b)) as a reward for services rendered to the
      Company. Of the 100,000 options issued to the consultant, one-third are
      exercisable beginning May 2001, another third May 2002 and the final third
      May 2003. The options are exercisable until 30 June 2005 at an exercise
      price of $0.50 per option. These options are forfeited in the event the
      employee or consultant terminate employment with the Company. The Company
      did not record any compensation expense in connection with the issuance of
      the options.

o     On 31 October 2002, the Company issued 100,000 options to an outside
      consultant under the Employee Share Incentive Scheme (see Note 15(b)) as a
      reward for services rendered to the Company. Such options are exercisable
      on or before 30 June 2005 at an exercise price of $0.50 per option. These
      options are forfeited in the event the consultant terminates employment
      with the Company. The Company did not record any compensation expense in
      connection with the issuance of the options.


                                      F-17
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

11    CONTRIBUTED EQUITY (continued)

(c) Movements in share options

o     On 31 October 2002, the Company issued 200,000 options to an outside
      consultant in consideration for services rendered. Such options are
      exercisable on or before 1 October 2005 at an exercise price of $0.50 per
      option. The Company did not record any compensation expense in connection
      with the issuance of the options.

o     On 1 March 2003, the Company issued 55,000 options to underwriters in
      connection with the underwriters' subscription of the remaining balance of
      the listed options with an expiration date of 1 March 2003 that had not
      been exercised by existing option holders. Such options were exercisable
      on the same day at an exercise price of $0.50 per option. The Company did
      not record any compensation expense in connection with the issuance of the
      options.

o     On 6 June 2003, the Company issued 5,000 options to an outside consultant
      in consideration for services rendered. Such options are exercisable
      beginning 1 March 2005 through 30 June 2005 at an exercise price of $1.50
      per option. The Company did not record any compensation expense in
      connection with the issuance of the options.

o     On 6 June 2003, the Company issued 145,000 options to employees under the
      Employee Share Incentive Scheme (see Note 15(b)) as a reward for services
      rendered to the Company. Of the 145,000 options, 50,000 options are
      immediately exercisable, 20,000 options are exercisable beginning 1 August
      2003, 25,000 options are exercisable beginning 25 December 2003, and
      50,000 options are exercisable beginning 31 May 2004. All options have an
      exercise price of $0.50 per option and are exercisable until 30 June 2005.
      These options are forfeited in the event the employees terminate
      employment with the Company. The Company did not record any compensation
      expense in connection with the issuance of the options.

(d) Terms and conditions of contributed equity

Ordinary shares have the right to receive dividends as declared and, in the
event of winding up the Company, to participate in the proceeds from the sale of
all surplus assets in proportion to the number of and amounts paid up on shares
held. Ordinary shares entitle their holders to one vote, either in person or by
proxy, at a meeting of the Company. Option holders do not have the right to
receive dividends and are not entitled to vote at a meeting of the Company.

(e) Shares and options issued after reporting date

Details of share issuances are as follows:

<TABLE>
<CAPTION>
     Date                           Details                                    Number          Issue Price            $
---------------------------------------------------------------------------------------------------------------------------
<S>                      <C>                                                   <C>                 <C>            <C>
11 August 2003           Exercise of options                                      50,000           0.50              25,000
13 August 2003           Exercise of options                                      25,000           0.50              12,500
27 August 2003           Exercise of options                                      10,000           0.50               5,000
27 August 2003           Issue to consultant                                      70,768           0.70              49,538
28 August 2003           Exercise of options                                       6,000           0.50               3,000
16 September 2003        Issue of shares in connection with                    7,102,853           0.70           4,971,995
                            private placement
                         Capital raising costs                                        --             --            (290,909)
29 August 2003           Exercise of options                                      34,000           0.50              17,000
                                                                           --------------                     --------------
                         Total                                                 7,298,621                          4,793,124
                                                                           ==============                     ==============
</TABLE>

Details of option issuances are summarised as follows:

o     On 8 August 2003, the Company issued 10,000 options to outside consultants
      under the Employee Share Incentive Scheme as a reward for services
      rendered to the Company. Of the 10,000 options issued, 5,000 are
      exercisable beginning 31 May 2004 and 5,000 are exercisable beginning 30
      June 2004. Such options are exercisable until 30 June 2005 at an exercise
      price of $0.50 per option. These options are forfeited in the event the
      consultants terminate employment with the Company. The Company did not
      record any compensation expense in connection with the issuance of the
      options.


                                      F-18
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

11    CONTRIBUTED EQUITY (continued)

o     On 10 September 2003, the Company issued 5,000 options to outside
      consultants in consideration for services rendered. The 5,000 options are
      exercisable beginning 1 March 2005 through 30 June 2005 at an exercise
      price of $1.50 per option. The Company did not record any compensation
      expense in connection with the issuance of the options.

o     On 15 September 2003, the Company issued 262,167 options to employees and
      outside consultants under the Employee Share Incentive Scheme as a reward
      for services rendered to the Company. Of the 262,167 options, 166,667 are
      exercisable beginning 31 May 2004, 2,500 are exercisable beginning 30 June
      2004, 7,500 are exercisable beginning 31 July 2004, 58,000 are exercisable
      beginning 1 August 2004 and 27,500 are exercisable beginning 31 August
      2004. Such options are exercisable until 30 June 2005 at an exercise price
      of $0.50 per option. These options are forfeited in the event the
      employees or consultants terminate employment with the Company. The
      Company did not record any compensation expense in connection with the
      issuance of the options.

o     On 23 October 2003, the Company issued 500,000 options to Peregrine
      Corporate Limited in partial settlement of capital raising fees associated
      with the private placement in September 2003. Such options are exercisable
      on or before 23 April 2004 at an exercise price of $0.70 per option. The
      Company did not record any compensation expense in connection with the
      issuance of the options.

o     On 27 November 2003, the Company issued 500,000 options to employees and
      outside consultants under the Employee Share Incentive Scheme as a reward
      for services rendered to the Company. Such options are exercisable on or
      before 30 June 2005 at an exercise price of $0.50 per option. These
      options are forfeited in the event the employees or consultants terminate
      employment with the Company. The Company did not record any compensation
      expense in connection with the issuance of the options.

o     On 5 December 2003, the Company issued 20,000 options to employees and
      outside consultants under the Employee Share Incentive Scheme as a reward
      for services rendered to the Company. The 20,000 options are exercisable
      beginning 30 June 2004 through 30 June 2005 at an exercise price of $0.50
      per option. These options are forfeited in the event the employees or
      consultants terminate employment with the Company. The Company did not
      record any compensation expense in connection with the issuance of the
      options.

<TABLE>
<CAPTION>
                                                                                              30 June
                                                                          -------------------------------------------------
                                                           Notes              2003               2002               2001
                                                                          -----------        -----------         ----------
<S>                                                       <C>             <C>                <C>                 <C>

12    RESERVE AND ACCUMULATED DEFICIT

Asset revaluation reserve                                 12(a)            14,661,942         14,661,942         14,661,942
ccumulated deficit during the development stage           12(b)           (15,579,262)       (10,994,424)        (5,545,957)

(a) Asset revaluation reserve

i Nature and purpose of reserve

The asset revaluation reserve is used to record increments and decrements in the
value of non-current assets

ii Movements in reserve

Balance at beginning of year                                               14,661,942         14,661,942         14,661,942
Revaluation of core intellectual property to
 directors' valuation                                                              --                 --                 --
                                                                          -----------        -----------        -----------

Balance at end of year                                                     14,661,942         14,661,942         14,661,942
                                                                          ===========        ===========        ===========
</TABLE>

On 1 July 2000, as allowed by AASB 1041, the directors have deemed the carrying
value of the Company's core intellectual property at valuation to be cost. As a
result, the asset revaluation reserve is no longer available to absorb any
future write-downs of core intellectual property. Subsequent to 1 July 2000,
future write-downs of these assets to the recoverable amount must be made
through the Statements of Financial Performance.


                                       F-19
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                                                                   30 June
                                                                          ---------------------------------------------------------
                                                       Notes                  2003                  2002                    2001
                                                                          -----------            -----------            -----------
<S>                                                    <C>                 <C>                    <C>                    <C>

12    RESERVE AND ACCUMULATED DEFICIT continued

(b) Accumulated deficit during the development stage

Balance at beginning of year                                              (10,994,424)            (5,545,957)            (1,406,978)
Net loss for the year                                                      (4,584,838)            (5,448,467)            (4,138,979)
                                                                          -----------            -----------            -----------

Balance at end of year                                                    (15,579,262)           (10,994,424)            (5,545,957)
                                                                          ===========            ===========            ===========

<CAPTION>
                                                                                            Years Ended 30 June
                                                                          ---------------------------------------------------------
                                                       Notes                  2003                  2002                    2001
                                                                          -----------            -----------            -----------
<S>                                                    <C>                 <C>                    <C>                    <C>
13    STATEMENTS OF CASH FLOWS

(a) Reconciliation of the net loss to the
    net cash flows from operations
Net loss                                                                   (4,584,838)            (5,448,467)            (4,138,979)

Non-cash items
Depreciation of property, plant and equipment                                  85,971                 60,591                 40,655
Amortisation of intangible assets                                           1,100,002              1,100,004              1,100,003
Non-cash issue of shares and share options in
consideration of operating expenses                                           169,763                144,230                 56,950
Other                                                                          12,481                     --                     --

Changes in assets and liabilities
(Decrease)/increase in payables                                              (371,116)                29,644                731,579
(Increase)/decrease in receivables                                            (35,887)               218,117               (317,429)
Decrease in prepayments                                                         8,005                105,974                157,298
Increase/(decrease) in provision for employee
entitlements                                                                   25,006                 (9,608)                 9,608
                                                                          -----------            -----------            -----------
Net cash flows used in operating activities                                (3,590,613)            (3,799,515)            (2,360,315)
                                                                          ===========            ===========            ===========

(b) Reconciliation of cash

Cash balance comprises:
- cash on hand                                                              3,463,783              3,585,014              6,854,873
                                                                          -----------            -----------            -----------

Closing cash balance                                                        3,463,783              3,585,014              6,854,873
                                                                          ===========            ===========            ===========
</TABLE>

(c) Non-cash financing and investing activities

During the years ended 30 June 2003, 2002 and 2001, the Company issued shares
and options in consideration for services rendered. See Notes 11(b) and 11(c).

During the year ended 30 June 2001, the Company purchased equipment for $33,543.
Such purchase was financed with trade creditors and therefore has not been
reflected in the Statements of Cash Flows until the year ended 30 June 2002 when
the liability was settled.


                                      F-20
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

14    EXPENDITURE COMMITMENTS

Under the terms of a Research Funding and Intellectual Property assignment
between Prana Biotechnology Limited and the University of Melbourne, Prana is
required to pay the University a minimum sum of $297,000 (inclusive of GST),
each year for a period of three years from 1 December 2000 for research
projects.

In accordance with the terms of the research funding agreement between
Neurosciences Victoria and Prana, at 30 June 2003 Prana is obliged to spend
$455,625 on research and development activities at the University of Melbourne
in the three months to 30 September 2003. The conditions of this spending have
been met.

Malvern Administrative Services Pty Ltd provides administrative support at a
rate of $10,000 per month. Aroma Science Pty Ltd provides office, computer
administration and meeting facilities at arms length commercial rates (refer
note 22). These commitments may be terminated within three months' notice from
either Prana or the other party.

<TABLE>
<CAPTION>
                                                                                        30 June
                                                                             -----------------------------
                                                                                2003                2002
                                                                             ----------          ---------
<S>                                                               <C>            <C>                   <C>
15.   EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS

                                                                Notes
(a)  Employee Entitlements

The aggregate employee entitlement liability is composed of:
Provisions (current)                                                             23,831                 --
Provisions (non-current)                                                          1,175                 --
                                                                             ----------          ---------
                                                                  10             25,006                 --
                                                                             ==========          =========
</TABLE>

Number of employees: six (2002: four employees)

(b) Employee Share Incentive Scheme

At the Annual General Meeting held on 22 November 2000, shareholders approved
the establishment of an Employee Share Incentive Scheme designed to reward
executives, employees and consultants for their contributions to the Company. It
is also proposed as a method of retaining key personnel for the growth and
development of the Company's intellectual property rights. The options cannot be
transferred and are not quoted on the Australian Stock Exchange. At 30 June
2003, there were no Directors, one executive, four employees and four
consultants participating in the Scheme. To date, all options have been issued
with a $0.50 exercise price.


                                      F-21
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

15.   EMPLOYEE ENTITLEMENTS AND SUPERANNUATION COMMITMENTS (continued)

(b) Employee Share Incentive Scheme (continued)

Information with respect to the number of options granted under the Employee
Share Incentive Scheme is as follows:

<TABLE>
<CAPTION>
                                                                      Years Ended 30 June
                                    ------------------------------------------------------------------------------------------
                                                 2003                           2002                            2001
                                    ------------------------------------------------------------------------------------------
                                    Number of           Exercise    Number of          Exercise      Number of        Exercise
                                     Options              Price      Options            Price         Options           Price
                                    ------------------------------------------------------------------------------------------
<S>                                  <C>                  <C>         <C>                 <C>          <C>                <C>
Beginning of the year                210,000              0.50         10,000             0.50             --               --

Issued during the year               358,274              0.50        200,000             0.50         10,000             0.50

Exercised during the year            (13,274)             0.50             --               --             --               --
                                    ------------------------------------------------------------------------------------------

End of the financial year            555,000                          210,000                          10,000
                                    ==========================================================================================
</TABLE>

16    CONTINGENT LIABILITIES

Prana is involved in a patent dispute, limited to only one of its molecules
PBT-1, with a company called P.N. Gerolymatos S.A. The results of these
proceedings are yet to be determined. Prana is confident of its just entitlement
to any necessary rights to all patents required to commercialise its
discoveries. Recently Prana announced that a new molecule, PBT-2 has entered
into formal development. PBT-2 is viewed by Prana as providing a significantly
superior commercial opportunity and, therefore, the significance of the dispute
with P.N. Gerolymatos is greatly reduced.

Apart from this matter, the Company is not involved in any legal or arbitration
proceedings and, so far as Directors are aware, no such proceedings are pending
or threatened against the Company.

17    SUBSEQUENT EVENTS

Other than as already disclosed in the financial statements, no other matters or
circumstances have arisen since the end of the financial year which
significantly affected or may significantly affect the operation of the Company,
the results of those operations, or the state of affairs of the Company in
subsequent financial years.

<TABLE>
<CAPTION>
                                                                                        Years Ended 30 June
                                                                           -----------------------------------------------
                                                                               2003              2002               2001
                                                                           ----------         ----------        ----------
<S>                                                                        <C>                <C>               <C>
18    LOSS PER SHARE

Basic loss per share                                                            (0.08)             (0.10)            (0.08)

Weighted average number of ordinary shares on issue
used in the calculation of basic loss per share                            61,131,313         57,623,389        53,090,491
</TABLE>

The options in place do not have the effect to dilute the loss per share.


                                      F-22
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                                                  Years Ended 30 June
                                                                         ----------------------------------------
                                                                           2003            2002            2003
                                                                         -------         -------          -------
<S>                                                                      <C>             <C>              <C>
19    REMUNERATION OF DIRECTORS

Directors' remuneration

Income paid or payable, or otherwise made available, in
respect of the financial year, to all Directors of the
Company directly or indirectly, from the entity of
which they are Directors or any related party                            598,120         348,204          200,000
</TABLE>

Consistent with best practice the Directors' sought outside expertise from
Mercer Human Resources. The remuneration above was determined in accordance with
their independent advice.

The number of Directors of the Company whose income
(including superannuation contributions) falls within
the following income bands is:

<TABLE>
<CAPTION>
                                                                              No.            No.              No.
<S>                                                                           <C>             <C>              <C>
$  20,000 to $ 29,999                                                         --               2                2
$  50,000 to $ 59,999                                                         --               1                1
$  70,000 to $ 79,999                                                         --              --               --
$ 100,000 to $109,999                                                          2              --                1
$ 110,000 to $119,999                                                          1              --               --
$ 240,000 to $249,999                                                         --               1               --
$ 250,000 to $259,999                                                          1              --               --

<CAPTION>
                                                                                   Years Ended 30 June
                                                                         ----------------------------------------
                                                                           2003            2002             2001
                                                                         -------         -------          -------
<S>                                                                      <C>             <C>              <C>
20    REMUNERATION OF EXECUTIVES

Remuneration received or due and receivable by
executive officers of the Company whose remuneration is
$100,000 or more, from the Company or any related
party, in connection with the management of the affairs
of the Company whether as an executive officer or otherwise              525,338         248,204          100,000
                                                                         =======         =======          =======
</TABLE>
<TABLE>
<CAPTION>
                                                                              No.            No.              No.
<S>                                                                           <C>            <C>              <C>
The number of executives of the Company whose
remuneration falls within the following band is:

$100,000 - $109,999                                                           --              --                1
$240,000 - $249,999                                                           --               1               --
$250,000 - $259,999                                                            1              --               --
$260,000 - $269,999                                                            1              --               --
</TABLE>

<TABLE>
<S>                                                                      <C>             <C>               <C>
21    AUDITORS' REMUNERATION

Amounts received or due and receivable for:
 - an audit or review of the financial report of the entity               71,562          67,078           17,463
 - other services in relation to the entity                               85,416          69,275            4,250
                                                                         -------         -------          -------

                                                                         156,978         136,353           21,713
                                                                         =======         =======          =======
</TABLE>


                                      F-23
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

<TABLE>
<CAPTION>
                                                                                          Years Ended 30 June
                                                                             ---------------------------------------------
                                                                               2003               2002               2001
                                                                             -------             ------             ------
<S>                                                                          <C>                <C>                <C>
22    RELATED PARTY DISCLOSURES

Directors

The Directors of the Company during the financial year were:

G. P. Kempler

C. L. Masters

G. W. Mihaly

B. D. Meltzer

Director-related entity transactions

Services

Kendle Pty Ltd, a Director-related company to G. Mihaly,
provided continuous analysis and reviews of the Company's
commercialisation and intellectual property management as
well as clinical trial management and monitoring. Fees paid
to Kendle Pty Ltd during the year were:                                      475,289            537,327            246,496

Amount owing to Kendle Pty Ltd (included in payables)                         48,968             69,918             33,400

Aroma Science Pty Ltd, a Director-related company to G
Kempler, provided office, computer administration and meeting
facilities.  Fees paid to Aroma Science Pty Ltd during the
year were:                                                                   114,247             30,000             30,000

Amount owing to Aroma Science Pty Ltd (included in payables)                     492                 --                 --
</TABLE>

Equity instruments of Directors

Interests in the equity instruments of the Company held by Directors of the
reporting entity and their Director-related entities:

<TABLE>
<CAPTION>
                                         Number of Ordinary Shares Fully Paid              Number of Options over Ordinary Shares
                                      --------------------------------------------------------------------------------------------
                                         2003           2002              2001            2003            2002              2001
                                      --------------------------------------------------------------------------------------------
<S>                                   <C>            <C>              <C>              <C>             <C>              <C>
Interests at balance sheet date       17,293,000     16,953,000       15,409,000       10,767,500      11,107,500       10,336,000
Movement in directors'
equity holdings                          340,000      1,544,000               --         (340,000)        771,500               --
</TABLE>


                                      F-24
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

23    SEGMENT INFORMATION

The Company's activities are predominantly within Australia and cover research
into Alzheimer's Disease and other major age-related degenerative disorders.

24    FINANCIAL INSTRUMENTS

(a) Significant accounting policies

Details of the significant accounting policies and methods adopted, including
the criteria for recognition, the basis of measurement and the basis on which
revenues and expenses are recognised, in respect of each class of financial
asset, financial liability and equity instrument are disclosed in Note 1 to the
financial statements.

(b) Interest rate risk

The Company has cash on deposit which is professionally managed by external
parties to optimise the impact of interest rate fluctuations pursuant to
conservative investment guidelines. The Company has $800,000 in 90 day term
deposits at fixed interest rates between 4.44% and 4.61%, $400,000 in a 30 day
term deposit at a fixed interest rate of 4.64%, $2,044,918 in an Australian
dollar cheque account at a variable interest rate of 2.80% and $218,665 (AUS$
value) in a US dollar cheque account at 30 June 2003. The weighted average
interest rate is 3.31% and apart from usual variances in general rates of
interest the Company is not exposed to any significant interest rate risk.

At 30 June 2002, the Company had $2,800,000 in 90 day term deposits at fixed
interest rates between 4.47% and 4.95%, $400,000 in a 30 day term deposit at a
fixed interest rate of 4.80%, and $385,014 in a cheque account at a variable
interest rate of 3.53% at 30 June 2002. The weighted average interest rate is
4.45% and apart from usual variances in general rates of interest the Company is
not exposed to any significant interest rate risk.

Deposits or withdrawals from term deposits may be made at any time without prior
notice or penalty.

Receivables and payables are non-interest bearing.

The Company's exposure to interest rates and the effective weighted average
interest rate for classes of financial assets and liabilities is set out below:

<TABLE>
<CAPTION>
                                 Floating               Fixed Interest          Non-Interest                       Average
2003                          Interest Rate              Maturing in               bearing        Total        Interest Rate
----                          -------------              -----------               -------        -----        -------------

                                                    1 year
                                                   or less        1-5 years
                                                   -------        ---------
<S>                              <C>               <C>                             <C>          <C>                    <C>
FINANCIAL ASSETS                         $                 $              $              $              $
Cash                             2,044,918         1,200,000             --        218,865      3,463,783              3.31%
Receivables                             --                --             --        143,823        143,823                --
                                 ------------------------------------------------------------------------
                                 2,044,918         1,200,000             --        362,688      3,607,606
                                 ========================================================================
FINANCIAL LIABILITIES
Payables                                --                --             --        541,217        541,217                --
Provisions                              --                --             --         25,006         25,006                --
                                 ------------------------------------------------------------------------
                                        --                --             --        566,223        566,223
                                 ========================================================================
</TABLE>


                                      F-25
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

24    FINANCIAL INSTRUMENTS (continued)

<TABLE>
<CAPTION>
                                  Floating             Fixed Interest           Non-Interest                       Average
2002                           Interest Rate            Maturing in               bearing         Total         Interest Rate
----                           -------------            -----------               -------         -----         -------------

                                              1 year or less   1-5 years
                                              --------------   ---------
<S>                               <C>            <C>                   <C>       <C>          <C>                    <C>
FINANCIAL ASSETS                        $                $              $              $              $
Cash                              385,014        3,200,000             --             --      3,585,014              4.45%
Receivables                            --               --             --        107,936        107,936                --
                                  ---------------------------------------------------------------------
                                  385,014        3,200,000             --        107,936      3,692,950
                                  =====================================================================
FINANCIAL LIABILITIES
Payables                               --               --             --        912,333        912,333                --
                                  ---------------------------------------------------------------------
                                       --               --             --        912,333        912,333
                                  =====================================================================
</TABLE>

(c) Net fair values

The carrying amount of financial assets and financial liabilities recorded in
the financial statements represents their respective net fair values, determined
in accordance with the accounting policies disclosed in Note 1 to the financial
statements.

(d) Credit risk

Financial assets, which potentially expose the Company to concentrations of
credit risk, consist primarily of cash and receivables. The Company's cash and
cash equivalents are placed with high credit quality financial institutions and
receivables are presented net of any allowances for estimated doubtful
receivables. Accordingly, the Directors believe the Company has no significant
concentration of credit risk.

25    ADDITIONAL COMPANY INFORMTION

Prana Biotechnology Limited is a listed public company, incorporated and
operating in Australia.

Registered Office          Principal Place of Business
Suite 2                    Level 1
1233 High Street           100 Dorcas Street
Armadale Vic 3148          South Melbourne Vic 3205

Tel: (03) 9824 8166        Tel: (03) 9690 8537


                                      F-26
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

26    RECONCILIATION TO US GAAP

The financial statements have been prepared in accordance with accounting
principles generally accepted in Australia ("A-GAAP"), which differ in certain
significant respects from accounting principles generally accepted in the United
States of America ("US GAAP"). The following is a summary of the significant
adjustments to net loss and total equity required when reconciling such amounts
recorded in the financial statements to the corresponding amounts in accordance
with US GAAP, considering the significant differences between A-GAAP and US
GAAP.

Reconciliation of net loss

<TABLE>
<CAPTION>
                                                                                     Years Ended 30 June
                                                                      ----------------------------------------------
                                                                          2003             2002               2001
                                                                      ----------        ----------        ----------
<S>                                                                   <C>               <C>               <C>
Net loss in accordance with A-GAAP                                    (4,584,838)       (5,448,467)       (4,138,979)
US GAAP adjustments:
Share-based compensation                                  (a)
  400,000 options issued to consultants                                       --          (352,000)         (236,000)
  Options issued to consultants for services rendered                    (81,610)         (656,600)          (49,740)
  Options issued to employees for services rendered                      (28,108)               --                --
  Options issued to underwriters in connection with
    subscription of listed options                                       (26,400)
  Shares issued to consultants for services rendered                     (31,004)         (306,485)          (17,580)
Intangible assets                                         (b)
  Reversal of amortisation expense attributable to
    costs capitalised under A-GAAP but expensed
    under US GAAP                                                         60,670            60,670            60,670
  Reversal of amortisation expense attributable to
    upward asset revaluation                                             977,463           977,463           977,463
  Costs capitalised under US GAAP but expensed
    under A-GAAP                                                         717,119         1,181,792           500,382
  Amortisation expense attributable to above                            (247,689)         (184,392)         (145,000)
Deferred tax effect of US GAAP adjustments                (c)                 --                --                --
                                                                      ----------        ----------        ----------
Net loss in accordance with US GAAP                                   (3,244,397)       (4,728,019)       (3,048,784)
                                                                      ==========        ==========        ==========

Loss per share in accordance with US GAAP:
   Basic and diluted                                                       (0.05)            (0.08)            (0.06)
   Weighted average shares - basic and diluted                        61,131,313        57,623,389        53,090,491
</TABLE>


                                      F-27
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

Reconciliation of shareholders' equity

<TABLE>
<CAPTION>
                                                                                           30 June
                                                                                -----------------------------
                                                                                   2003               2002
                                                                                -----------       -----------
<S>                                                                              <C>               <C>
Total equity in accordance with A-GAAP                                           15,823,703        16,668,986
US GAAP adjustments:
Intangible assets                                                    (b)
  Costs capitalised under A-GAAP but expensed under US GAAP                        (910,058)         (910,058)
  Reversal of amortisation expense attributable to above                            215,745           155,075
  Reversal of upward asset revaluation                                          (14,661,942)      (14,661,942)
  Reversal of amortisation expense attributable to above                          3,475,897         2,498,434
  Costs capitalised under US GAAP but expensed under A-GAAP                       4,073,895         3,356,776
  Amortisation expense attributable to above                                       (639,157)         (391,468)
Deferred tax effect of US GAAP adjustments                           (c)                 --                --
                                                                                -----------       -----------
Total equity in accordance with US GAAP                                           7,378,083         6,715,803
                                                                                ===========       ===========
</TABLE>

Rollforward analysis of shareholders' equity under US GAAP

<TABLE>
<CAPTION>
                                                                                           30 June
                                                                                -----------------------------
                                                                                   2003               2002
                                                                                -----------       -----------
<S>                                                                              <C>               <C>
Balance in accordance with US GAAP, beginning of year                             6,715,803         9,404,161
Issuance of shares in connection with exercise of options, net of
   underwriting costs                                                             3,569,792           580,346
Amortization of unearned compensation attributable to issuance
   of 400,000 options to consultants                                 (a)                 --           352,000
Compensation expense attributable to issuance of options to
   consultants for services rendered                                 (a)             81,610           656,600
Amortization of unearned compensation attributable to issuance of
   options to employees for services rendered                        (a)             28,108                --
 Compensation expense attributable to issuance of options to
    underwriters in connection with subscription of listed options   (a)             26,400                --
Compensation expense attributable to issuance of shares to
   consultants for services rendered                                 (a)            200,767           450,715
Net loss in accordance with US GAAP                                              (3,244,397)       (4,728,019)
                                                                                -----------       -----------

Balance in accordance with US GAAP, end of year                                   7,378,083         6,715,803
                                                                                ===========       ===========
</TABLE>


                                      F-28
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

a.    Share-based compensation

      400,000 options issued to consultants

      On 6 January 2000, the Company issued 400,000 share options as an
      incentive for outside consultants. Under A-GAAP, no compensation cost has
      been recognised in respect of the share options issued by the Company.
      Under US GAAP, the options issued to the consultants are accounted for
      under Statements of Financial Accounting Standards No. 123: Accounting for
      Stock-Based Compensation ("SFAS 123") and Emerging Issues Task Force Issue
      No. 96-18: Accounting for Equity Instruments That Are Issued to Other than
      Employees for Acquiring, or in Conjunction with Selling, Goods or Services
      ("EITF 96-18"). Under SFAS 123 and EITF 96-18, compensation cost is
      calculated based on the fair value of options on the date at which the
      counterparty's performance is complete. The fair value of the options was
      estimated on the date of grant using the Black-Scholes model with the
      following weighted average assumptions:

      o     risk-free interest rate of 5.6%;

      o     no dividends;

      o     expected volatility of 21%; and

      o     expected life of four years.

      The amount of compensation cost is charged to earnings over the period
      from the date of grant (6 January 2000) to the date the consultants'
      performance was complete (28 March 2002) and adjusted at each balance
      sheet date (up to 28 March 2002) for changes in the fair value of the
      options.

      Options issued to consultants for services rendered

      As disclosed in Note 11(c), the Company issued 405,000, 410,000 and
      400,000 share options to outside consultants during the years ended 30
      June 2003, 2002 and 2001, respectively. The options were issued under the
      Employee Share Incentive Scheme as a reward for services rendered or in
      consideration for services rendered to the Company. Under A-GAAP, the
      Company recognised compensation expense based on the director's valuation
      of the share options during the year ended 30 June 2001 and did not
      recognise any compensation expense during the years ended 30 June 2003 and
      2002. Under US GAAP, the options issued to the outside consultants are
      accounted for under SFAS 123 and EITF 96-18. Accordingly, the Company has
      calculated compensation cost based on the estimated fair value of the
      options measured on the date the services were completed by the respective
      consultants, using the Black-Scholes model with the following weighted
      average assumptions:

      o     risk-free interest rate of 4.47% for 2003, 5.48% for 2002 and 5.73%
            for 2001;

      o     no dividends;

      o     expected volatility of 48% for 2003, 25% for 2002 and 21% for 2001;
            and

      o     expected life of two years for 2003 and three years for 2002 and
            2001.

      Options issued to employees for services rendered

      As disclosed in Note 11(c), the Company issued 158,274 share options to
      employees under the Employee Share Incentive Scheme as a reward for
      services rendered to the Company during the year ended 30 June 2003. Under
      A-GAAP, no compensation cost has been recognised in respect of the share
      options issued by the Company. Under US GAAP, the Company has elected to
      account for the issuance of share options to the employees in accordance
      with Accounting Principles Board Opinion No. 25: Accounting for Stock
      Issued to Employees and related interpretations ("APB 25"). Under APB 25,
      compensation cost is recognised to the extent that the quoted market price
      of the stock exceeds the exercise price of the options at the grant date,
      and is charged to operations ratably over the vesting period.

      Options issued to underwriters in connection with subscription of listed
      options

      As disclosed in Note 11(c), the Company issued 55,000 share options to
      underwriters on 1 March 2003 in connection with the underwriters'
      subscription of the remaining balance of the listed options with an
      expiration date of 1 March 2003 that had not been exercised by existing
      option holders. Under A-GAAP, no compensation cost has been recognised in
      respect of the share options issued by the Company. Under US GAAP, the
      options issued to the underwriters are accounted for under SFAS 123.
      Accordingly, the Company has calculated compensation cost based


                                      F-29
<PAGE>

                           PRANA BIOTECHNOLOGY LIMITED
                        (A Development Stage Enterprise)

      on the estimated fair value of the options measured on 1 March 2003.
      Because the options are exercisable only on the date of grant, the Company
      estimated the fair value of the options based on the intrinsic value of
      the options.

      Shares issued to consultants for services rendered

      As disclosed in Note 11(b), the Company issued 146,969, 191,794 and 88,600
      shares to outside consultants in consideration for services rendered to
      the Company during the years ended 30 June 2003, 2002 and 2001,
      respectively. Under A-GAAP, the Company recognised compensation expense
      based on the director's valuation of the shares issued. Under US GAAP, the
      shares issued to the outside consultants are accounted for under SFAS 123
      and EITF 96-18. Accordingly, compensation cost is based on the quoted
      market price of the shares measured on the date the services were
      completed by the respective consultants.

b.    Intangible assets

      Under A-GAAP, the Company capitalised costs associated with the
      acquisition and development of core intellectual property (primarily
      patents) until December 1999. Such costs are amortised on a straight-line
      basis over the estimated useful lives of 15 years. In December 1999, the
      directors revalued the intangible assets upwards by $14,661,942 and
      recorded the revaluation in the asset revaluation reserve in equity. The
      increased asset value resulted in additional amortisation for periods
      subsequent to the revaluation. All costs associated with the acquisition
      and development of core intellectual property incurred subsequent to the
      December 1999 revaluation are expensed as incurred under A-GAAP.

      For US GAAP purposes, the Company capitalises costs associated with the
      acquisition of patents and other core intellectual property, legal costs
      associated with successful patent defences and successful patent
      applications. Such costs are amortised on a straight-line basis over the
      estimated useful lives of 15 years. All other costs associated with
      patents and other core intellectual property are expensed as incurred.
      Upward revaluations of intangible assets are not allowed under US GAAP
      (except in connection with a purchase business combination).

c.    Deferred tax effect of US GAAP adjustments

      The deferred tax effect of US GAAP adjustments is nil because it is more
      likely than not that the net deferred tax asset will not be realized, and
      accordingly, the Company has recorded a 100% valuation allowance against
      the net deferred tax asset.

d.    Other

      Under A-GAAP, interest income is reported as a component of revenue from
      ordinary activities. Under US GAAP, interest income is reported as a
      component of non-operating income.

      Under A-GAAP, amortisation of intangible assets used in research and
      development projects is reported in depreciation and amortisation expense.
      Under US GAAP, amortisation of intangible assets used in research and
      development projects is reported in research and development expense.

      Under A-GAAP, other expenses from ordinary activities consist of the
      following:

                                                   Years Ended 30 June
                                            ------------------------------------
                                              2003          2002           2001
                                            --------       -------       -------

      Travel                                 295,257        78,483        98,400
      Insurance                               62,403        41,158        45,000
      Marketing                              198,832        71,690        40,532
      Office overhead costs                  198,704       139,404        30,059
      Other                                   25,878         5,696        46,075
                                            ------------------------------------

          Total                              781,074       336,431       260,066
                                            ====================================

Under US GAAP, such costs are classified as general and administrative costs.


                                       F-30
<PAGE>

      THE REGISTRANT HEREBY CERTIFIES THAT IT MEETS ALL OF THE REQUIREMENTS FOR
FILING ON FORM 20-F AND THAT IT HAS DULY CAUSED AND AUTHORIZED THE UNDERSIGNED
TO SIGN THIS ANNUAL REPORT ON ITS BEHALF.

                               PRANA BIOTECHNOLOGY LIMITED
                               (REGISTRANT)

                               BY:/s/ Geoffrey Kempler
                                  -----------------------------------------
                                  Geoffrey Kempler, Executive Chairman

Dated:  22 December, 2003